Credit risk analysis of micro enterprises - a case study of delhi financial corporation

Abstract

Lack o f availability o f funds is one o f the critical factors, which restricts the formation an d growth o f Small & Medium Enterprises (SMEs). In spite o f m any good and laudable programmes of the Central and state governments and also RBI's diktat to lend money as part of the priority sector to SMEs, still a t the ground level SMEs face a huge challenge in term s o f approaching financial institutions  including banks for availing credit facilities. We argue that apart from the conventional ability to assess pay basis of analysing default risk, there m ay be a group o f other set of factors, which need careful attention specifically for micro enterprises that do not maintain balance sheets an d are unable to disclose  properly the financial details. We fin d it relevant to examine the behaviour of relevant measures of default risk to explore the most  significant variables relating to financing (loans). We provide a framework that is useful in designing parameters in predicting the  default outcomes. The study is likely to be useful in developing credit score for a micro enterprise to facilitate the loan from financial  institutions.