Decision making approach and criteria of SME financing by commercial banks of Bangladesh

Abstract

This paper attempts to analyze the approach and criteria used for decision making by commercial banks at the time of issuing loans to SMEs. Primary survey was conducted by using convenience sampling method from 60 respondents who were either bank managers or senior loan officers specializing in SME through a pre-tested structured questionnaire. The study concludes commercial banks follow conservative approach while granting credit to SMEs and they also show reluctance in providing loans to these businesses. Their focus and interest is on collateral and securities ‘Information Asymmetry’ has been identified as the main reason for banks to follow a conservative approach. The study also focuses on bankers’ decision making regarding providing loans to SMEs. The results show banks emphasize on loan characteristics, profitability and collateral offered.