A Report on Sme Financing in India

3287 Words Feb 8th, 2011 14 Pages
Executive Summary:
Many SMEs in emerging markets often rely on informal sources of capital, such as borrowing from relatives, to meet finance needs. However, when a small or medium enterprise does access formal channels, it typically looks to a bank as its primary source of financial services. Banks have begun to turn their attention toward this untapped market and their service of SMEs is a major factor in increasing SME access to finance. Although, numerous issues surface when it comes to SME lending, banks, by employing a range of measures, such as risk adjusted pricing, credit scoring models, and SME-tailored non-lending products are developing ways to mitigate risks, lower costs, and increase the overall benefit accrued from SME
…show more content…
While the full impact of the crisis is not yet apparent, banks maintaining their focus on SMEs often cite a strong belief in the importance of the SME sector to the national economy as a whole.
Question 2: Discuss the empirical studies on products for lending to SME.
SMEs are particularly in need of bank services because they lack the cash flow to make large investments, they cannot access capital markets as large firms can, and they often lack qualified staff to perform financial functions.
Although there have been numerous schemes and programs in different economic environments, there are a number of distinctive recurring approaches to SME finance. * Collateral based lending offered by traditional banks and finance companies is usually made up of a combination of asset-based finance, contribution based finance, and factoring based finance, using reliable debtors or contracts. * Information based lending usually incorporates financial statement lending, credit scoring, and relationship lending. * Viability based financing is especially associated with venture capital.

Collateral based lending:
This can be further exposited through the following lending technologies: financial statement lending, small business credit scoring, asset-based lending, factoring, and trade credit.

1. Financial statement lending involves

More about A Report on Sme Financing in India

Open Document