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 A STUDY ON MSME ENTREPRENEUR’S PERCEPTION, EXPECTATION AND
SATISFACTION TOWARDS BANKER’S LENDING CRITERIA (WITH SPECIAL
REFERENCE TO COIMBATORE DISTRICT)

Dr.V. PADMANABHAN
Asst.Prof. ofCommerce
S.N.R. Sons College
Coimbatore

Dr.P.K. BINDHU
Asst.Prof. ofCommerce
S.N.R. Sons College
Coimbatore

Abstract

The Indian economy is one of the largest economies of the world on the basis of Purchasing
Power Parity (PPP).It is one of the most attractive destinations for business and investment
opportunities due to huge manpower base, diversified natural resources and strong macro-
economic fundamentals.Small-Scale sector constitutes a major part of Indian economy. It
plays a great role in the Indian economy in terms of creating additional employment with low
capital investment and maintaining self-sustainability in various sectors of the economy. The
Government, Commercial and Development Banks are contributing a lot towards the
promotion of Micro, small and medium enterprises especially in the various functions they
carry out in their day to day operations. MSME financing has been identified as a major
obstacle to MSME growth. Unfortunately, the issue seems to be as unresolved as it always
has been. This paper aims at investigating the perception and satisfaction of the MSME
Entrepreneurs towards the bankers in Loan approval, Credit standing, Constraints, and
problems in receiving loans.

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ENTREPRENEURS AT A GLANCE

 Why do people want to start and run independent business?

o because they love independence

o Hate to tolerate bossing in the jobs.

o Some may not have the capability and qualification to do a job, As job is not
available to them, they go for independent businesses in order to survive.

o Some may have some special skills and love challenges to run an independent
business.

 Several motivational factors like need for affiliation need for power and need for
achievement are also responsible for going for an independent business.“The term
entrepreneur may be properly applied to those who incubate new ideas, start
enterprises based on those ideas, and provide added value to society based on their
independent initiatives.”

INTRODUCTION

 The Indian economy is one of thelargest economies of the world on the basis of
Purchasing Power Parity (PPP). It is one of the most attractive destinations for
business and investment opportunities due to huge manpower base, diversified natural
resources and strong macro-economic fundamentals. Industries and Services have
acted as twin engines propelling overall growth in an economy. They are attracting
large inflow of capital and foreign investments into the country from all over the
world. They play a vital role in accelerating socio-economic development of a nation,
thereby providing several categories of goods and services (both tangible and
intangible) and catering to the diverse needs of the masses.
 These sectors are the largest generator of employment opportunities in the country and
a facilitator of trade and commerce with other countries.Industrial development plays
a crucial role in India's development strategy. The Government of India has been
undertaking several policy measures and incentives, from time to time, in order to
promote rapid industrialization in the country.Industrial policies have been designed
to accelerate the development process in the Indian industry. Their broad objectives
are to:-
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  Maintain a sustained growth in productivity
 Enhance gainful employment
 Achieve optimal utilisation of human resources
 Attain international competitiveness and to transform India into a major
partner and player in the global arena

 Small-Scale sector constitutes a major part of Indian economy.It plays a great role in
the Indian economy in terms of creating additional employment with low capital
investment and maintaining self-sustainability in various sectors of the economy.The
typical characteristics of Small-scale industry other than the level of investment and
employment are the personal face of the organisation and style of management.These
kinds of organisations run in to maximum fifty to hundred in employment size and
management is basically proprietary in nature.Irrespective of performance level and
objectivity creation, small-scale industries in India are the budding ground for
Entrepreneurs.To enhance the competitive strength, address the challenges of
competition and availed benefits of global market, the Small Scale Industries were
revamped as Micro, Small and Medium Enterprises (MSME) based on their
investment level in the year 2006.
 In India, the Micro, Small and Medium Enterprises Development Act, 2006 is the first
single comprehensive legislation covering all the three segments.The enterprises are
divided into two categories.. 1) Manufacturing Enterprises 2) Service Enterprises.
o Micro Enterprises-Investment in plant & Machinery-Does not exceed 25 Lakhs
o Small Enterprises-Investment in plant & Machinery- 25 Lakhs to 5 Crores
o Medium Enterprises-Investment in Plant & Machinery-Rs. 5 Crores to 10
Crores
o Service Enterprises
o Micro Enterprises-Invest. In Equipment-Does not exceed 10 Lakhs
o Small Enterprises-Invest. In Equipment- 10 Lakhs to 2 Crores
o Medium Enterprises-Investment in Equipment-Rs. 2 Crores to 5 Crores
 Micro, Small and Medium Enterprises, have been accepted worldwide for promoting
equitable growth in the economy. The Ministry of Micro, Small and Medium
Enterprises is responsible for overall development of India’s Small and Medium
Sectors.MSMEs constituting larger number of total enterprises in the economy,
account for major share of industrial production and exports.The growth rate of

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 production of MSME in the year 1992 was 4.71 which had gone up to 11.48 percent
in the year 2010.11.
 There are 30 million enterprises in various industries, employing 69 million people.
Together, these account of 45 per cent of the manufactured output and 40 per cent of
our exports. There are over 8000 products ranging from traditional to high tech items,
which are being manufactured by the MSMEs in India. In Tamilnadu there are 7.60
lakhs registered MSMEs, providing employment to 52.99 lakhs persons with a total
investment of more than Rs. 39,438 Crores as on 31.03.2012. As per the 4thAll India
Census for MSMEs, Tamil Nadu accounts for the largest number of MSMEs in the
Country (15.07%). Further, it has the second largest number of Medium Enterprises
(12.51%) and the third largest number of Small Enterprises in the country (9.97%).
The statistical data from the scheduled commercial banks shows the commercial
banks outstanding for MSMEs in Coimbatore District as at the end of June 2011 was
Rs. 6377.76 Crores.

NEED FOR THE STUDY

Micro, Small and medium enterprises (MSME) sector has been recognised as an engine of
growth all over the world. The sector is characterised by low investment requirement,
operational flexibility, location wise mobility, and import substitution.Finance is been
identified as a major obstacle to MSME growth.The Government, Commercial and
Development Banks are contributing a lot towards the promotion of Micro, small and
medium enterprises especially in the various functions they carry out in their day to day
operations. Govt has been encouraging and supporting the sector through policies for
infrastructural support, technology up gradation, preferential access to credit, reservation
of products for exclusive manufacture in the sector, preferential purchase policy, etc. It
has been offering packages of schemes and incentives through its specialized institutions
in the form of assistance in obtaining finance; help in marketing; technical guidance;
training and technology up gradation, etc.

 The potential Entrepreneurs are therefore to benefit from the functions and
assistance rendered by these financial institutions.
 MSME financing has been identified as a major obstacle to MSME growth.
Unfortunately, the issue seems to be as unresolved as it always has been.

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  The banks also have major issues in designing financial products for the MSMEs.
This research is carried out to probe results for the following questions?
1. To know the bank’s reasons for reluctance to providing loans to the MSMEs.
2. To find out the Expectation and satisfaction of the proprietors of MSME sector on
the various aspects of bankers lending process.
3. To suggest recommendations to overcome the problems related to MSME’s loan
management.
STATEMENT OF THE PROBLEM

The Micro, Small and Medium Enterprises were in an urge to avail loan from the bank to
establish their ventures in a speedy and a phased way. The basic thinking is that the loans can
be secured easily while applying in the banks but in real the case may not be.The bankers
expect the Entrepreneurs to have a sound credit facility, proper documents, feasibility
analysis on the product which they cater to the business and so on. On the absence of above
requirement the banks may reject the application for loan.The rejection in turn causes much
difficulty and grief to the Entrepreneurs.This paper aims at investigating the perception and
satisfaction of the MSME Entrepreneurs towards the bankers in Loan approval, Credit
standing, Constraints, and problems in receiving loans.

SCOPE OF THE STUDY

Micro, Small and Medium-sized Enterprises are the backbone of all economies and are a key
source of economic growth. The difficulties that MSMEs encounter when trying to access
financing can be due to an incomplete range of financial products and services, regulatory
rigidities or gaps in the legal framework, lack of information on both the bank’s and the
MSME’s side. Banks may avoid providing financing to certain types of MSMEs, in
particular, start-ups and very young firms that typically lack sufficient collateral, or firms
whose activities offer the possibilities of high returns but at a substantial risk of loss. Banks
are often subject to ceilings on the interest rates they can charge, which make it difficult to
price credit in a way that reflects the risk of lending to MSMEs.In a market where banks can
earn acceptable returns on other lending, it will not develop the skills needed to deal with
MSMEs.Hence this study is accelerated towards in knowing the perception and expectation of
the Entrepreneurs in getting credit loan from the banks, and the banks expectation with the
Entrepreneurs in repayment of the loan.

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OBJECTIVES OF THE STUDY
1. To study the role and importance of the MSME growth and expansion in India.
2. To ascertain the difficulties of Entrepreneurs in receiving loan from the commercial
banks.
3. To offer suggestions for the MSME Entrepreneurs and the bankers.

METHODOLOGY OF THE STUDY

The research strategy for this thesis began by gathering and studying some
background information regarding the situation of MSMEs in Coimbatore District; thereafter
the research questions were decided. Questions for the interviews are structured based on the
research from significant literature within the MSMEs area. The results from the primary and
the secondary data collected have analysed and discussed in order to identify the results.
Conclusionswere drawn based on the results associated to the research questions.
SAMPLING DESIGN
 During the year 2010- 2011, 59,031 registered micro, small, medium enterprises were
functioning in the district.Out of the Fifty nine thousand and thirty one unit which
were functioning in the year 2010-2011, the researcher has taken 500 units as sample
units for the present study and data were collected from the proprietors of these units.
 Initially, the researcher has obtained the list of total number of registered list of Micro,
Small, Medium scale Enterprises in Coimbatore District from District Industries
centre (DIC), Coimbatore. The sample units were selected on the basis of random
sampling using lottery method.While selecting the sample for the present study, the
researcher has given adequate weightage for ensuring fair and equitable distribution of
respondents covering all segments of the industry.
SOURCES OF DATA
The present study is based on both primary data and secondary data. The main source
of the primary data has been collected from MSME Entrepreneurs. To elicit information from
the Entrepreneurs interview schedule was designed and administered. The schedule has been
used for collecting information from the MSME Entrepreneurs. The secondary data are
collected from the books, Journals, District Industries Centre, Coimbatore, Ministry of
MSME Website and RBI.Personal interview by the researcher was the major tool of data
collection. Interview schedule was used during the interviews.

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TOOLS APPLIED
According to the nature of data and interpretations required, appropriate statistical
tools have been applied. The following tools have been applied in the study: Summary
Statistics, , Factor Analysis, Henry Garrett ranking analysis, Rotation Factor Analysis, and ‘F
‘test.
REVIEW OF LITERATURE
 Small-scale industries (Presently MSMEs) have been given an important place in the
economy of both developing and developed countries.The importance of small-scale
industrial sector and its growth and development has attracted a good deal of the
academic attention.Large volume of Literature thus available on the different aspects
of small-scale industries has been studied at length. Extensive literature reviews
showed that only few studies have dealt with the role of development banks,
commercial banks and financial institutions in the development of small and medium
enterprises.Literature reviews also revealed that no studies were conducted previously
related to the Perception and expectation of MSME Entrepreneurs on bankers lending
criteria in Coimbatore District.Based on the research gap identified this study aims to
analyse MSME Entrepreuner’s Perception, Expectation and Satisfaction towards
Bankers lending criteria with special reference to Coimbatore District.

FINDINGS, SUGGESTIONS AND CONCLUSION

I. SOCIO ECONOMIC FACTORS

1. The study reveals that most of the respondents’ i.e., 97.2 per cent of are male and 35.2 per
cent of the respondents’ belong to the age category of 51-60 years. It has also observed
that 32.4 per cent entrepreneurs had School level Education.
2. 43.2 percent of the Entrepreneurs owned Micro enterprise, 43.6 percent of them owned
Medium enterprise and 22.2 percent of the Entrepreneurs owned Small Enterprise.
3. The maximum life span of the unit run by the Entrepreneur was 5 years and above.From
the total survey, the Entrepreneurs were mostly involved in art silk, jewellery making,
cotton weaving and metal products.
4. It has been observed that 34.4 percent of the Entrepreneurs are running their enterprises in
the area of Commerce and Trade.The Entrepreneurs who were taken for study, utmost
have employed up to 40 employees in their units.

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5. Further it has been identified that 8.60 per cent of the respondents’ do not have any
additional income other than regular earnings.
6. From the analysis, 50.8% of the Entrepreneurs have raised their capital through Banks and
by the contribution from their family.
7. It has been inferred that, 34.4 percent of the Entrepreneurs have expected the assistance
while their unit was facing problems.
8. Invariably those Entrepreneurs who were running Micro, Small, and Medium enterprise
and who expect a loan from bank at a maximum of 1-15% their capital as financed
through banks.
9. It was understood from the analysis 34% of the Entrepreneurs have received more than
3,00,000 rupees as loan from Banks.
10. The study indicates that, 33.4% of the Entrepreneurs expected loans from banks for
meeting their working capital requirements.
11. Invariably the Micro, Small and Medium enterprise owners have opined that the bank
charges up to 1- 4 percent as their mark-up charges while providing loan.
12. It is observed from the Entrepreneurs that the MSME owners were charged 1-5 percent as
the bank margin while issuing loan.

II. DIFFICULTIES OF ENTREPRENEURS AND PERCEPTION OF BANKERS IN

PROVIDING CREDIT TO MSMEs
1. From the analysis the difficulties of MSME, like inability to submit a properly audited
financial statement and inability to furnish a proper source of repaying the loan to the
banks.
2. It was understood that the expectation of banker from an entrepreneur, to have a clear
Profit And Loss Account for the Past 3 Years.
3. Banker expects the MSME Entrepreneur to provide a clear statement of their
personal asset and liabilities and non-altered balance sheet while applying loan.
4. Bankers are reluctant to make a loan to a new firm where the repayment of the loan
primarily depends on the success of the business.
5. Banker expects a persistent attitude, a tough mind to compete with the competitions,
a better understanding of the strategies in the areas of marketing and management of
their units on the part of MSME owners.
6. In structuring a loan agreement, the banker usually has two non-negotiable
(1)Personal guarantees for closely-held firms, and

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 (2)The need for equity investment by the Entrepreneur to complement the loan.
7. To make a loan by a banker there must be both a primary source of repayment
(usually cash flows from operations) and a secondary source for repaying the loan
(usually collateral).
8. Every Entrepreneur invariably Micro, Small and Medium portrays a bank as a blessed
institution in order to avail loan and to establish their business in a phased manner.
9. The loan applications, business proposal, necessary documents affixed have been
done in an exact manner in order to receive loan.
10. After the scrutiny by the banker, the modification expected by the banker surges the
entrepreneurs with a negative attitude about cancellation of the application.
11. In the view of the bankers, if proper documents were affixed, there will be no point of
rejection of a loan application.
12. Entrepreneur can spare enough time in writing the business proposal documents
affixing and the mandatory disclosures expected by the bank to ensure surety of loan.
13. Entrepreneur fulfils the banker’s expectation, on providing loan the possibility of
securing loan will not be defaulted at any cause by the banker.

SUGGESTIONS TO THE ENTREPRENEURS

1. Applicant has to propose a neat, clear and evident business proposal with a sound
method of repaying strategies for the availment of loan from the bank
2. Entrepreneurs have to make a proper analysis on finding ways for repayment of loan.
3. Entrepreneurs can increase the confidence level of the banker in issuing loans by
taking insurance for their business unit.
4. Applicant can take ample time for the preparation of business plan, through possible
lights on the figures which are on the side of loan expectation amount, repayment
schedule, and means of attaining profit.
5. Loan applicant has to inhibit the best character within to gain confidence from the
banker.
6. Loan applicant has to pay enough concentration in cash flows as these are very
important while restructuring the loan repayment.
7. Banker will argue too much on collateral security though the Character, Cash flow,
and credit analysis are good so the applicant should be prepared for it.

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SUGGESTIONS TO THE BANKERS
1. Reduction in the processing time of sanctioning the loan and speeding up of services
is the necessity of the present time in the Banking system to avoid losing customers to
Non-banking financial companies.
2. Entrepreneur should not be imposed with any preclosure charges ,if they come
forward to quickly pay the debts in the period of huge profits as it is a demotivating
factor for the timely payment of debts.
3. Banks should come forward to sanction loan with less legal formalities for the fear of
loosing customers to non banking companies
4. Banks should provide adequate services to the MSME entrepreneurs as the Customers
choose those banks which offer them high range of services.
5. Banks have the high responsibility to provide the clear subsidy details to the
entrepreneurs and encourage them to obtain them as this further motivate them to get
loans.
6. Bankers must give them the clear picture about the loan schemes and prospectus
offered to the entrepreneurs.
7. Bankers should periodically give credit awareness programme to the entrepreneurs,
which cannot be provided else were.
8. Equal preference for both large scale industries and small scale industries should be
given to stimulate Industrial Growth in the Country.
9. Timely financial assistance can strengthen and expand the business sector. Banks
should take due care with regard to this matter.
10. Banks are advised to follow the guidelines on collateral free lending, encourage
branch level functionaries to avail the credit guarantee cover and making performance
in this regard a criterion in their appraisal.Collateral free lending system will
encourage the MSME Entrepreneurs to avail loans from the banks.
11. To maintain a healthy relationship, Kind service should be offered to Entrepreneurs.

CONCLUSION
 The study has been a gratifying experience in the sense that it has recognised the
expectation and the satisfaction of MSME Entrepreneurs in Coimbatore District
towards the lending system of banking sector.

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  India is labour intensive countries demanding for lot of employment opportunities
which can be successfully accomplished through the MSME sector as it require less
capital investment providing employment for more number of people.
 Though Micro, Small and Medium Enterprises sector is included in the priority sector
affording there is a general feeling among the Entrepreneurs of MSME units that they
have not been provided loans from the banking sector with operational flexibility.
 By probing into the problems it can be concluded that probably available of finance is
not as difficult as repayment of it is. The repayments are problematic due to low
paying capacity which is affected by lack of education, poor skills, and certain
problems related to marketing viz. Lack of mobility, prejudiced attitude towards
MSME and caste to which they belong and poor infrastructural support.
 If the MSME are to be successful Entrepreneurs, they are to be educated, skilled and
trained sufficiently and to be supported rigorously by external environment to handle
their Entrepreneurial problems.
 Further it is suggested that Multi-pronged approach should be adopted to motivate
MSME to pursue Entrepreneurial activities. Concerted effort must be made to raise
the level of MSME Entrepreneurship in micro and small scale industries.
 Social activists, NGOs, government agencies as well as the corporate sector can and
should play an active role in the transformation of MSME as wholesome individuals
and assist in driving them to explore Entrepreneurial opportunities in small- scale
industries.
 It is hoped that this type of study and the suggestions contained therein will be useful
to the banking companies thereby increasing the level of satisfaction and expectation
of the Entrepreneurs while availing financial assistance.

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