ZED Certification for MSMEs1

1
This write-up is prepared by Shri M Sundaramoorthy, AGM, MoF, CAB Pune for facilitating
classroom discussion. The material is for academic and information purposes only. Please be
guided by the relevant laws, circulars, instructions etc. in this regard. Usual disclaimer shall apply
Introduction

The Government of India (GoI) launched “Make in India” on September 25, 2014, Through Make
in India project, GoI intended to spur the growth of the economy by boosting the domestic
manufacturing sector and also augment investment into the country. The project also encouraged
businesses from abroad to invest and manufacture in India, by improving the country’s ‘Ease of
Doing Business’ index. To give a fillip to Make in India Project, GoI took various measures,
including ZED certification, to create an ecosystem for competitive, quality, and clean
manufacturing and promote the development of world-class products and expand markets for
MSMEs, etc.
ZED certification scheme2 is an extensive drive of the Government of India to enhance the global
competitiveness of MSMEs by providing them financial support in assessment, rating and and
handholding of its manufacturing processes on quality and environment aspects..

2. ZED certification:
Zero Defect Zero Effect (ZED) is an indigenous, integrated and holistic maturity assessment
model that aims at enhancing the global competitiveness of MSMEs by gauging the
manufacturer’s maturity in several disciplines viz. Quality, Production, Safety, Design,
Environment, Energy, Intellectual Property Rights etc., and gradually building their capabilities to
become world-class.
Ministry of MSME has appointed Quality Council of India (QCI)3, as the National Monitoring and
Implementing Unit (NMIU) for implementation of ZED, through its pool of approved rating
agencies, and certified consultants. ZED certification is not mandatory but voluntary for MSMEs.
It provides the MSMEs a roadmap to global competitiveness to make their products acceptable
in domestic as well as global markets.
3. Objectives of the ZED Certification
The following are objectives of ZED certification
i. Create proper awareness among MSMEs about ZED manufacturing and motivate them
for assessment of their enterprise for ZED rating.
ii. Drive manufacturing with the adoption of Zero Defect production processes without
impacting the environment (Zero Effect).
iii. Support the “Make in India” campaign.

2
More detail about the scheme is available in the link http://dcmsme.gov.in/Guidelines-ZED-Final.pdf
3
QCI is an autonomous body of Department of Industrial Policy and Promotion, Govt. of India which has been
created jointly with Indian industry represented by Confederation of Indian Industry (CII), Federation of Indian
Chambers of Commerce and Industry (FICCI) and Associated Chambers of Commerce and Industry
(ASSOCHAM)
 iv. Encourage MSMEs to constantly upgrade their quality standards in products and
processes.

4. ZED Certification Process

An MSME’s journey to ZED certification involves the following 7 steps:
i. Registration: The MSME has to first register online on www.zed.org.in . This simple step
indicates an MSME’s intent to participate in the ZED scheme. The MSME must have a
working email ID and an Indian mobile number to start the registration process. A ZED ID
will be allotted to the MSME after completion of the registration.
ii. Self-assessment: This is an online activity where the MSME has to login with ZED ID
generated, and provide answer to simple questions on the ZED parameters. In this step,
MSME may be asked to upload relevant documents as evidence of the answers chosen.
iii. Desktop Assessment: After the online self-assessment, QCI will assess and evaluate
answers and documents submitted by the MSME and come out with a preliminary rating
based on the answers and evidence provided. This is known as Desktop Assessment. The
rating after the Desktop Assessment will determine whether the MSME can proceed
further.
iv. Site Assessment: If the MSME is selected to proceed further after the desktop
assessment, a ZED certified assessor from an accredited rating agency will be appointed
by the QCI, to conduct a physical assessment of the manufacturing unit of the MSME. This
site-assessment will be done on the parameters selected by the MSME during the online
self-assessment stage. The site assessment process typically takes 4 man-days.
v. Issue of ZED Rating: Once the site-assessment is completed and the final report is
submitted by the assessor, a ZED rating and a certificate are issued to successful MSMEs.
MSMEs who achieve a score of 2.2 or below will not be issued any certification. The
certification will be issued for MSMEs with a score above 2.2 and will be valid for 4 years,
and the unit will have to apply again for renewal before the certification expires.
vi. Handholding facility: The MSMEs with a minimum Bronze rating will have the option to
avail of the services of a ZED certified consultant. This consultant will assist the unit in the
implementation of interventions that are aimed at improving the rating of that unit. The QCI
will allocate the consultant to the MSME and the handholding process will typically take 6
months.
vii. Re-assessment: The MSME which has gone through the process of consulting by a ZED
certified consultant will have the option to apply for a re-assessment if it feels that the unit’s
systems and processes have considerably improved. It may be noted that the subsidy
 applicable in the re-assessment process will only be provided if the rating improves by one
level, i.e. from bronze to silver or silver to gold, etc. An MSME can even opt for re-
assessment without going through the process of consulting, provided there is a gap of
minimum of six months between the earlier site-assessment.
5. ZED rating scale
The ZED rating is a weighted average of the scores obtained on each of the relevant parameters
among 50 identified parameters. The MSMEs seeking ZED rating should comply with identified
20 essential parameters and at least ten other parameters as per the MSMEs domain
competency, i.e. sector of operation and type of industry. ZED rating is a maturity assessment
model that will evaluate the MSME’s manufacturing unit on process-based enablers and
performance-based outcome parameters at the operational level to continuously improve its
processes and move up in the level of maturity from bronze to platinum as given under Figure 1.
Figure 1- ZED Rating scale

Source: https://zed.org.in/

After the assessments and evaluation, the final rating provided to the MSME will be valid for 4
years subject to compliance with a surveillance audit to be carried out by QCI. The rating
parameters applicable to MSMEs under different sectors is available in the link
https://www.zed.org.in/parameters and the updated list of ZED certified MSMEs across the
country is available in the link https://zed.org.in/zed-certified-msmes

6. Benefits of ZED certification

The ecosystem around ZED model is calibrated to make aware, assess, rate, counsel, handhold,
re-assess and certify MSMEs and ensure that they rise the ZED ladder, thus enhancing their
competitiveness in the global marketplace.

6.1 Benefits of ZED Certification to MSMEs

ZED certification offers a wide range of benefits to MSMEs such as
i. Credible recognition of MSMEs by international investors seeking investment in India
ii. Part of the supply chain of national and international OEMs
iii. Streamlined operations and lower costs
iv. Superior quality, reduced rejection, and higher revenues
v. Increased environmental consciousness and social benefits
vi. To enable an MSME, “ZED Mark”, to be seen as a company with a difference
Besides the above benefits, the ZED certified MSMEs are also eligible for various benefits and
subsidies offered by various State Governments and banks.
i. The details of benefits extended by different state Governments are available in the link
https://zed.org.in/benefits-by-state-governments
ii. The details of benefits extended by different banks are available in the link
https://zed.org.in/benefits-by-banks

6.2 Subsidy for ZED certification

The Government of India, to create proper awareness about ZED among MSMEs in the
manufacturing sector and motivate them to take ZED certification, has provided subsidy in the
fees payable to rating agencies for assessment and rating/re-rating/gap analysis/hand-holding,
etc., to the extent of 80%, 60%, and 50% respectively for micro, small and medium enterprises.
There will be an additional subsidy of 5% for MSMEs owned by SC/ST/ women and MSMEs
located in NER and Jummu and Kashmir.
7. Advantages of Financing MSMEs with ZED certification
Banks and other Financial Institutions while appraising MSMEs for their credit requirement,
usually rely on the data and collateral security provided by MSMEs. However the due diligence
aspects, which involves understanding the strengths and weaknesses of the manufacturing
enterprise, could not be possible beyond certain extent due to lack of technical knowledge and
time constraints on the part of credit officer. However, MSMEs with ZED certification will
complement the due diligence aspects to some extent in the following way.
i. Desktop Assessment: QCI will assess and evaluate answers and documents
submitted by the MSME at the time of online self-assessment, and come out with a
preliminary rating based on answers and evidences provided.The evaluation is on the
 basis of process based enablers and performance based outcome parameters at the
operational level viz. process quality, emission, effluent and waste disposal activities,
resource management, innovation, creativity and safeguarding, quality performance,
process performance, environmental performance, overall company performance etc.
ii. Site Assessment:This assessment conducted by trained and qualified assessors from
accredited rating agencies, appointed by QCI, is a comprehensive physical assessment
and evaluation of the existing systems and processes of the applicant MSME will scrurinise
the veracity of above mentioned parameters. The process takes about four man-days and
this will be a complement to bank’s due diligence to a great extent.
iii. QCI empaneled accredited agencies will also undertake surveillance after 18 months to
ensure that the ZED rated company is progressing as per the plan established in the ZED
rating process. This process would complement the monitoring aspect of the bank to some
extent.
To create an awareness about ZED among MSMEs, RBI in May 2017, advised IBA to instruct all
banks to incorporate the information relating to ZED certification in the loan application form for
MSMEs. SBI and Yes bank have entered into a MoU with QCI in 2018 to collaborate on the
nation-wide propagation of the ZED.

Conclusion:
One of the major reasons for the low availability of bank finance to the MSME sector is the high-
risk perception of the banks in lending to MSMEs and the non-availability of good quality
collaterals. As ZED ratings are issued after a structured and stringent assessment of all the
important parameters relevant to particular MSMEs and are subjected to review by QCI through
a surveillance audit, appraisal of ZED rated companies could be comparatively less risky than
non ZED rated companies, for banks. To corroborate this view, the Report of the Expert
Committee on Micro, Small and Medium Enterprises in June 2019 recommended banks to pass
on some benefit, by way of interest/processing fee concessions, due to lower risks of ZED certified
units.

References:
1. Certification process, rating scale, available at https://zed.org.in
2. Government-schemes, zed certification available at https://www.startupindia.gov.in
3. ZED Services, available at https://www.msmeonline.in
4. ZED Guidelines, available at http://dcmsme.gov.in