A study on factors influencing lending decisions for MSMEs by scheduled commercial banks in the CGTSME scheme

Abstract

This study investigates the dynamics of the credit guarantee and technology support for micro, small, and medium enterprises (CGTSME) scheme in India, focusing on how bankers perceive the scheme and how these perceptions influence their lending decisions for MSMEs. Data were collected from public and private sector banks in four major Indian cities over three months using a questionnaire-based survey strategy. Analysis was conducted using partial least squares structural equation modeling (PLS-SEM). The findings indicate that the 5Cs (character, capacity, capital, collateral, and conditions) significantly impact bankers’ perceptions of the CGTSME scheme. However, factors such as the creditability of borrowers, availability of financial statements, firm capital size, and guarantee fee payment do not have a significant influence. Interestingly, the margin requirement was found to be a significant factor in shaping bankers’ perceptions. Additionally, the study reveals that bankers’ perception of the CGTSME scheme significantly affects their lending decisions for MSMEs. These results have important implications for policymakers and banks looking to enhance the effectiveness of the CGTSME scheme and improve access to finance for MSMEs. By understanding the factors that influence bankers’ perceptions, policymakers and banks can design more targeted interventions to support MSMEs. Future research could further explore these factors and their impact on bankers’ perception and lending decisions, contributing to a deeper understanding of how to support the growth and development of MSMEs.