EVALUATION OF PROJECTS: A STUDY OF MSMEs AND FINANCIAL INSTITUTIONS FINANCING MSMEs IN PUNJAB
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Date
2014
Authors
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Journal ISSN
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Publisher
PUNJAB AGRICULTURAL UNIVERSITY
Abstract
The study offers an insight into the criteria used by the Financial Institutions in Punjab to evaluate
the loan applications of MSMEs and into the criteria and the internal evaluation methods used by
the MSMEs for their self assessment of loan application so that it does not get rejected. It also
compares the results obtained from the Financial Institutions and the MSMEs. The findings were
based on interviews with 10 Financial Institutions providing finance to MSMEs in Punjab and 50
MSMEs in Punjab which were granted loan by these Financial Institutions. The analysis shows
that the criteria that banks use the most in evaluating the SME loan applications are the
Investment in Fixed Assets, Value of Collateral, Financial Ratios, and the criteria which MSMEs
consider to be important from the bank’s point of view include profitability, financial ratios, and
growth prospects. Also, we observe that there is statistically significant difference in only two of
the criteria used by the FIs and the MSMEs, i.e., experience of the entrepreneur, and the
organizational structure of the firm. Both, Financial Institutions and MSMEs, give more
importance to Hard Information over Soft Information