Antecedents and consequences of risk perceptions in lending to micro, small and medium enterprises

Abstract

The Banking Sector has played an important role in the modern economy by providing credit to the weaker segments. One such segment is Micro, Small and Medium Enterprises (MSMEs). It has been found in the literature that MSME sector is facing a major hurdle in access to finance. Credit flow to the sector is not found to be adequate although the sector contributes 45 per cent to total industrial production and 40 per cent to the exports of the country. The Perceived risk towards MSMEs poses greater challenge for banks in providing finance. This paper is an attempt to identify the antecedents of Perceived Risk among the Bank Managers towards lending to Micro, Small and Medium Sector. The paper depicts the analytical framework based on Institutional Theory which uses three kinds of factors -Regulatory, Normative and Cognitive. The study attempts to arrive at a researchable model for Bank Managers' Risk perception using the factors identified from literature and exploratory study.