THE ROLE OF SPECIALISED BANKS CREDIT

DELIVERY IN MSME: A CASE STUDY FROM HARYANA (NCR)

INTRODUCTION

MSMEs is the backbone of Indian economy which has emerged as a most important sector of

Indian economy. As per Kwadwo Boateng, MSMEs domestic and international market

contributes 45% of industrial output, 40% of total exports of transformation brought through

banks in Indian economy. The existing growth of MSMEs is 8% and expected to create a

workforce for 12 million people in next three years. The GDP contribution is noticeable which

52% to 57% is in India (Abor and Quartey, 2010). The employment generation in SMEs sector is

more than five times than large-scale sector in India (Balasubramanian and Madhavan, 2017).

SMEs come at second position in employment generation after agriculture in India (73 rd round of

National Sample Survey, 2015-16). Developing countries like India, in which SMEs play a

significant part with respect to employment generation, development of professional skill,

sustainable growth of economy and export enhancement. The SMEs sector contributes

immensely to country’s export, employment and Industrial Production.

Credit is the biggest factor for promoting SMEs growth and SMEs are highly dependent on

banks finance for fulfilling its needs. SMEs growth and progress is highly dependent on

available external and internal sources of credit in the market. The availability and accessibility

of funds always remain a key issue in growth of MSMEs. The various sources of funds for SMEs

are own capital, family and friends, banks, small business loans, personal loans, trade credit,

private equity firms, venture capital funds and crowd funding. SMEs are dependent on internal

sources of financing such as family and friends in India and other sources include private money

lenders and unorganized financial agencies. SMEs face high financial hindrance than large
enterprises since beginning (Beck, Demirguc Kunt, Laeven, 2006). There is no second opinion

that right kind of financing is utmost requirement of SMEs. The debt burden on SMEs reduces

their profit and increases tension. The high interest rate and unclear terms of private lenders are a

big hindrance in the progress path of SMEs. SMEs are more vulnerable to banks strict credit

constraints and fluctuating conditions of Banks lending.

THEORY AND LITERATURE REVIEW

George et al., 2018 found the role of Mudra bank in the growth of MSMEs in Kerala (India). The

aim of the study is to find out the various factors to analyze performance of Mudra Bank. The

study utilized the secondary data from websites, reports and journals. The MSMEs export

contribution (40%) and manufactured output (45%) cannot be ignored in the Indian economy.

The various factors such as marketing, skill, infrastructure and finance related to MUDRA

(Micro Units Development and Refinance Agency) were evaluated. Mudra was launched in 2015

for the development of MSMEs. The regular bank service was incepted by MUDRA in remote

areas. It launched a new scheme “Funding the Unfunded” on 8 th April to cater the finance

requirement of small business. The various schemes were initiated by MUDRA bank like Shishu,

Kishore and Tarun, Mahila Udyami. The study catered the ten lakhs MSMEs units’ requirement

in rural and urban areas. The morale of unemployed youth was boosted due to scheme in Kerala.

Rehana Kouser et al., 2012 investigated the Banks loan criteria for SMEs in Multan district of

Pakistan. The banks were avoiding loans to SMEs due to their small scale operations. The loan

criteria improved due to government interference. A structured questionnaire was formulated to

crosscheck the lending criteria based on earlier studies. The study utilized t-test for data analysis
of banks and SMEs responses. Research identified 8 factors such as firm’s age, distance,

collateral security, financial documentation, collateral requirements, number of sources, loan

relationship and deposit relationship. The findings proved the significance of factors which are

affirmed by SMEs and its focus must be more on these factors in fetching funds from banks.

Z Zairani et al., 2013 analyzed problems and prospects of SMEs while securing funds from

Banks in the development stage in Malaysia. The objective behind the paper was to understand

the problems of Banks while granting credit to SMEs and to examine the SMEs factors involved

in obtaining loans from Banks. Primary data was collected through interviews with officers of

five banks. The analysis was done on loan application process, nine factors were identified. The

banks were named as A. B, C, D, and E rather than their original names due to confidentiality of

information. The study highlighted the importance of document while proceeding for loans. The

identified nine factors were collateral, cash flow statement, viable industries, good track record,

good relationship with banks, convincing project, business registration, existing liabilities, and

business experience. Thus the process was very tedious for SMEs as they have to fulfil all nine

parameters.

Abhijeet et al., 2018 studied the factors influencing financial gap for MSMEs sector and suggest

a credit rationing approach by the Banks in Varanasi (Uttar Pradesh). The study utilized

secondary data in the form of Review of Literature. The descriptive survey was carried on the

115 Bank officials in Chandauli districts of Varanasi. Research used both primary and secondary

data for analysis. Secondary data was collected in the form of MSMEs annual reports, SIDBI

annual reports and Handbook of annual statistics. Credit rationing adopted by banks further
widens the gap between MSMEs and Banks. And other factors were bankruptcy laws, property

rights, moral Hazards etc. The results of the survey indicated that MSMEs face or suffer more

credit crunch than large enterprises.

David Irwin, 2011 found the barriers faced by SMEs in raising Bank Finance in UK. The

purpose behind the study was to investigate the impact of personal characteristics on SMEs

performance. A survey of 400 SMEs was conducted to collect data by Barclays Bank team. The

stratified random sampling was used to collect data from entire SMEs sample. The research

stated that level of education differentiated the sources of finances for SMEs. The sufferers were

the minority businesses, black owners. Thus marginalized groups have less access to finance.

Pallegedara et al., 2017 did a study to evaluate the impact of bank finance on SMEs performance

in Sri Lanka. The purpose behind the study was to evaluate the impact of commercial and other

banks financing on MSMEs accessibility. The research collected primary data from 149 MSMEs

in Matara district of Sri Lanka. The qualitative technique descriptive statistic and econometric

estimation was utilized to analyze the quantitative data. The qualitative findings were extended

by quantitative findings. The findings revealed that banks loans are less accessible for good

monthly income. The bank finance is no way correlated to demographic factors such as gender,

age, religion and education level. Thus new findings revealed modifications and new broader

policies for SMEs and Banks.

Khan et al., 2020 noted that access to financial services through the MFIs is more prevalent with

the male compared to the female counterpart. Nigeria has been in the grasp of this position
through the development of the MFIs in the process of poverty reduction. Thereby, provision

was made that sixty per cent (60%) of the MCF, which was equivalent to N132 billion, was set

aside for the provision of financial services to women (Central Bank of Nigeria, 2009). Also, this

provision was incorporated into the Revised Microfinance Policy, Regulatory and Supervisory

Framework (Section 4.2,[iv]), and it was categorically noted that the access to financial services

by women should increase annually by fifteen per cent (15%), which was targeted towards the

achievement of gender parity in access of financial services.

The Federal Government of Nigeria (FGN) recognized and believed in the capacity of

microfinance banks in reducing poverty. Thereby, the Central Bank of Nigeria (CBN) made an

additional provision of 42.02 billion as of December 2007 through the Deposit Money Banks

(DMBs) and at the same time 21.72 billion had been invested in 523 projects across the

country. The fund was to ensure the availability of microcredit advances towards meeting the

financial services needs of Micro, Small and Medium Enterprises (MSMEs) (Central Bank of

Nigeria, 2008). The main objective of making these funds available is to complement the

“Microfinance banks in supplying a large but cheap source of finance to the small and micro-

entrepreneurs” towards poverty reduction (Central Bank of Nigeria, 2008). Also, the Micro,

Small and Medium Enterprises Development Fund (MSMEDF) has a seed capital of N220

billion. In the same vein and around the same time, the Bankers’ Committee in Nigeria set up a

Micro-Credit Fund (MCF) with an initial amount targeted at N20 billion and expected the

amount to increase to N100 billion in the next two years; all the efforts were geared towards

enhancing microcredit to the micro- entrepreneurs (Central Bank of Nigeria, 2008). All these

interventions were referred to as Microfinance Development Fund, which was set up as a means
of providing for wholesale funding requirements of MFBs/MFIs.

According to IFC (International Finance Corporation) (2012) report, approximately 32.5 trillion

INR finance was provided to SME sector. The self-finance, informal finance and formal finance

comprise total funds of contributions. The amount 24.4 and 25.5 trillion accounts formal and

(informal & self) finance respectively. Thus we can say that 78% Informal sources and self-

finance are used by the MSME and balance 22% is being supported by the NBFCs. Thus report

concludes there are various sources of finance available for SMEs funding.

Venkatesh et al., 2012 did a study on MSMEs contributions in India and its importance. The

objective behind the study was to estimate the export, employment and output of MSMEs to

know the performance. The five year plan in our country has included aspect of MSMEs. The

policy makers must take effective and stringent measure to overcome the problems of MSMEs

like marketing, finance and quality. He observed various supporting organisations such as SIDO,

LUB, SSIB, ICSI, IIE, WASME and ASSOCHAM for MSMEs. as SIDO ( Small Industries

development organisations), SIDBI Small Industries development bank of India), LUB (Laghu

Udyog Bharti), SSIB (Small Scale Industries Board), ICSI (Indian Council of Small Industries),

IIE ( Indian Institute of Entrepreneurship), WASME (World association of Small and Medium

Enterprises), FICCI (Federation of Indian chamber of commerce and industry), WASME ( World

association for small and medium enterprises) and ASSOCHAM ( Associated chamber of

commerce and industry of India) The research concluded that MSMEs share of export (40%) and

manufacturing output (45%) during 2010-11 is very significant in the economy.

Nagaya (2017) evaluated the growth of output in relation to SMEs in Odisha (India). The major

aim behind the study was to measure manufacturing output of SMEs in relation to bank lending.

The period ranges between1992 to 2016. The analysis (Regression) revealed that there is

insignificant relation between manufacturing output and bank loan in respect to SMEs. The

neoclassical production function (Y=F (K, L)) was utilized to examine the impact of bank loan

on MSMEs manufacturing output. There are constant returns to scale and labour according to

neoclassical aggregate production function. The various tests like unit root test, Co-integration

Estimate, Short run Estimate were used for analysis in the study. The study concludes that there

is a great need of government genuine efforts in order to provide loan to needy people. There is

an utmost need to make MSMEs attractive by bringing changes in collateral and interest rate.

Rao et al (2016) conducted a research on MSMEs and its economic obstructions in India. He

observed that paucity of finance is the biggest hurdle in SMEs growth in South East Asian

countries. The banks, credit corporations and development banks are the main sources of finance

for SMEs. The growth and survival of MSMEs were largely dependent on investment capital,

working capital and set up capital. The primary data was collected through questionnaire using

likert scale from SMEs manager. Questionnaire was delivered to 300 managers of SMEs. The

performance was analyzed through by examining the financial obstacle of SMEs managers and

owners. The high weight age were given to external financing, less capital, costly raw material,

high wholesale prices, venture capital and less

weightage points were advertising cost, expensive raw material price, high wholesale price,

promotional and training & development cost. The study framed policies for MSMEs in

designing and implementing for the benefit of MSMES.

 RESEARCH METHODOLOGY

Objective

1. To find the factors of credit delivery mechanism from Banks to MSMEs.

2. To find the relationship of factors with credit delivery system.

Population and Target population

Population includes the managers of Banks of five districts of Haryana.

Target Population:

The population in the research is total Specialised and three public sector Banks (Punjab

National Bank, Oriental bank of Commerce and State Bank of India) branches in five districts of

Haryana. The sample size of banks 220 was chosen from total 3,120 banks of Haryana district

which is shown in below table 1. The rural, semi urban and urban area was taken in sample

collection. The managers acted as participants in Banks.

 Table 1

Banks Sample size

Banks Gurugram Rohtak Faridabad Kundli Bahadurgarh Total

(Sonepat)

SIDBI 1 0 1 1 1 4

NABARD 1 1 1 0 0 3

HSIIDC 1 1 1 1 1 5

HFC 1 1 1 1 1 5

NSIC 1 2 0 0 0 3

PNB 23 33 25 35 25 140

OBC 30 14 18 4 4 60

SBI 95 16 54 16 8 180

Total 400

out of 3120

branch in

Haryana

Sample Design:

Sample Frame-List of Banks obtained from RBI

Sampling Method-Stratified Random Sampling

Determination of Sample size:

The required sample size is 220 Banks. The following formula has been used in calculating

sample size and it is provided by Easter Smith.

 SS=Z^2pq/(N/E^2(N-1)+Z^2pq)

 SS=Sample Size

 Z= 1.96 (95% Confidence level)

 P=Target Population (50%)

 q= 100-P=50%

 N=Total Population

 E=Margin Error

Nature of Study:

The research analyzed the present situation and found study descriptive, analytical and

exploratory in nature as it explores the various hurdles and challenges of banks and factors were

extracted to analyse the credit delivery mechanism.

Sampling design in the research:

The data was collected through Stratified random sampling method.

Research Instruments

 Structured Questionnaire for Banks (On Likert Scale)

 5 dimensions were Strongly agree, agree, neutral, disagree, Strongly disagree

Data collection method :-

Primary - Structured Questionnaire

METHOD OF DATA ANALYSIS AND MODEL SPECIFICATION

FACTOR ANALYSIS (BANKS)

Adequacy of the data is tested on the basis of results the Kaiser-Meyer-Olkin (KMO) measure of
sampling adequacy and Bartlett’s test of sphericity (homogeneity of Variance) provided in table

2.

Table 2

Kmo AND Bartlett’s Test

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .721

Bartlett's Test of Sphericity Approx. Chi-Square 6176.389

Df 435

Sig. .000

For this data the value is 0.721, which falls into the range of good: so, we should be confident that

factor analysis is appropriate for these data.

The output of the Factor Analysis is obtained by requesting Principal Component Analysis

(PCA) and specifying the rotation (Here we used varimax rotation with Kaiser Normalization).
 Table 3

Communalities

Communalities

Initial Extraction

Q1 1.000 .485

Q2 1.000 .539

Q3 1.000 .580

Q4 1.000 .867

Q5 1.000 .432

Q6 1.000 .864

Q7 1.000 .125

Q8 1.000 .223

Q9 1.000 .905

Q10 1.000 .892

Q11 1.000 .909

Q12 1.000 .352

Q13 1.000 .747

Q14 1.000 .708

Q15 1.000 .532

Q16 1.000 .854

Q17 1.000 .615

Q18 1.000 .680

Q19 1.000 .713

Q20 1.000 .657

Q21 1.000 .435

Q22 1.000 .679

Q23 1.000 .817

Q24 1.000 .708

Q25 1.000 .905

Q26 1.000 .864

Q27 1.000 .909

Q28 1.000 .867

Q29 1.000 .854

Q30 1.000 .892

Extraction Method: Principal Component Analysis.

Factor extraction process wherein the objective is to identify how many factors are to be

extracted from the data. There is also a rule of thumb based on calculation of an Eigen value to

determine how many factors to extract. The higher the Eigen value of a factor, the higher is

amount of variance explain by the factor.

 Table 4

Total Variance

Total Variance Explained

Compo Initial Eigenvalues Extraction Sums of Squared Rotation Sums of Squared

nent Loadings Loadings

Total % of Cumulativ Total % of Cumulative Total % of Cumulativ

Variance e% Varianc % Varianc e%

e e

1 5.81 19.36 19.36 5.81 19.36 19.36 5.17 17.23 17.23

2 3.89 12.97 32.34 3.89 12.97 32.34 3.90 13.00 30.24

3 3.48 11.60 43.94 3.48 11.60 43.94 3.30 11.02 41.26

4 3.10 10.33 54.28 3.10 10.33 54.28 3.04 10.13 51.40

5 2.57 8.59 62.88 2.57 8.59 62.88 2.91 9.71 61.11

6 1.74 5.81 68.69 1.74 5.81 68.69 2.27 7.57 68.69

7 .97 4.92 73.62

8 .80 4.33 77.95

9 .69 3.98 81.93

10 .67 3.58 85.52

11 .53 3.10 88.62

12 .524 2.41 91.04

13 .521 1.73 92.77

14 .432 1.43 94.21

15 .411 1.37 95.58

16 .346 1.154 96.74

17 .328 1.09 97.83

18 .227 .75 98.59

19 .166 .55 99.14

20 .106 .35 99.49

21 .066 .22 99.72

22 .047 .15 99.87

23 .037 .12 100.00

24 4.81 1.60 100.00

25 2.81 9.37 100.00

26 1.70 5.67 100.00

27 6.33 2.11 100.00

28 -7.59 -2.53 100.00

29 -1.32 -4.41 100.00

30 -3.24 -1.08 100.00

Extraction Method: Principal Component Analysis.

As evident from the table-4 (Total Variations Explained) we find out that from the total 30

components, 6 factors are extracted and these 6 factors together account for only 69% of the total

variance (Information contained in original 30 variables) hence we have reduced the number of

variable from 30 to 6 underlying factors. Thus sacrificing around 31% of the total variation,

which is not so high percentage of total variance or

information that is sacrificed.

 Figure 1

Scree Plot

The below table-5presents the result of factor analyses which shows correlation of various items

with respect to six factors. Considering the nature of items grouped under respective factors in

Rotated Component Matrix and literature reviewed by the researcher in the study, it is

appropriate to name the above six factors as below:

 Table 5

Factors

Factor No. Factors Description

1 Banks support to SMEs (Rehana Kouser, 2012)

2 Banks Challenges (Z Zairani,2013)

3 Bank Schemes (George, 2018)

4 Banks Evaluation criteria for MSMEs for providing finance (Abhijeet Biswas,

2018)

5 Bank hurdles David (Irwin, 2010)

6 Banks support to MSMEs according to sector (Pallegedara, 2017)

Table 6

Factor 1- Bank support to SMEs

1 Q. 11 Banks are satisfied in terms of perceived profitability or income .775

from MSMEs.

2 Q.25 The incentives to sales personnel to lend to MSMEs and the terms .847

they are evaluated are satisfactory.

3 Q.21 Accounting skills and standards applied in MSMEs do not meet your .442

bank's requirements.

4 Q.3 Number of years of survival of an MSME is an important factor in .598

 deciding whether or not to make loans to that enterprise.

5 Q. 5 Does financial regulatory environment in economy helps to facilitate .873

commercial financing availability to MSMEs?

6 Q.7 It is socially and politically more difficult to enforce repayment of .311

loans or to recover assets in cases of default by MSMEs.

Table 7

Factor 2- Bank Challenges

1 Q.2 The increasing burden of NPAs and officers pressure of increasing profit .506

force banks not to support MSMEs.

2 Q.10 There are issues in registering collateral (especially movable collateral) .866

that inhibit MSMEs secured lending

3 Q.15 MSMEs lack of assets to meet collateral requirements is a biggest hurdle .598

for banks in providing loans.

4 Q.20 Projects proposed by MSMEs are less reliable due to their low capacity of .794

analyzing projects and a poor finance base.

 Table 8

Factor 3-Bank Schemes

1 Q. 30 Is Credit Guarantee Fund Trust for Micro and Small Enterprise scheme .866

beneficiaries are satisfactory?

2 Q.29 Is Prime Minister’s Employment generation programme is up to the mark? .871

3 Q.28 Are banks satisfied in terms of MSMEs Marketing assistance scheme .844

beneficiaries?

4 Q.24 Are Credit Linked Capital Subsidy scheme beneficiaries are satisfactory or .796

increasing?

5 Q.27 Is SFURTI (Scheme of fund for regeneration of traditional industries) of .775

KVIC and COIR enterprises beneficiaries are satisfactory or increasing

every year?

6 Q.23 Is Coir Vikas Yojna scheme beneficiaries are up to the mark? .797

Q.26 item 1 rejected

 Table 9

Factor 4-Banks Evaluation criteria for MSMEs for providing finance

1 Q.4 Does your bank adopt specific definition criteria provided by MSMEs 2006 .844

while providing loans?

2 Q.6 Do banks have sufficiently MSMEs among its clients as banks have large .890

and other client members?

3 Q.8 You have an active involvement or an active member with MSMEs .323

requirements and assistance.

4 Q.9 Your level of experience in dealing MSMEs loan request is up to the mark .847

or highly satisfactory.

Table 10

Factor 5-Bank Hurdle

1 Q.12 Ratios of non-performing debts on MSMEs lending are higher than the .508

ratio on large enterprises lending.

2 Q.14 To gather reliable information from primary as well as secondary sources .796

on MSMEs is much more costly than large enterprises.

3 Q.13 In general, average administrative costs on loans made to MSMEs are .823

comparatively high than large enterprises.

4 Q.16 In general, does government policies and incentives to facilitate access to .871

commercial finance favour large enterprises more than MSMEs?

 Table 11

Factor 6- Banks support to MSMEs according to sector

1 Q.17 Banks have a specific geographic focus in dealing with MSMEs or .602

Geographical assessment differentiates the financial supply to MSMEs.

2 Q.18 Banks have a sector-specific focus in dealing with MSMEs. .891

3 Q.1 Banks have a well-defined identification process to determine the MSME .437

target market.

4 Q.22 MSMEs are important and crucial segment in customer base for banks .594

RELIABILITY TEST

The value of Cronbach's alpha will generally increase for factors with more variables, and

decrease for factors with fewer variables. Each factor should aim to have at least 3 variables. In

case of challenges faced by SMEs in getting credit, there are six variables of Bank Support to

MSMEs and Cronbach’s alpha coefficients this dimension was 0.788, Cronbach’s alpha

coefficients for Bank Challenges dimension having 4 items was 0.752, Cronbach’s alpha

coefficients for Bank Schemes dimension having 6 items was 0.802, Cronbach’s alpha

coefficients for Evaluation criteria for MSMEs for providing finance dimension having 4 items

was 0.612, Cronbach’s alpha coefficients for Bank Hurdle dimension having 4 items was 0.549.

While, Cronbach’s alpha coefficients for Banks support to MSMEs according to sector

dimension having 4 items was 0.537. The reliability test is highlighted in table 4.44
 Table 12

Reliability Test

Factors Private

Bank Support to MSMEs .788

Bank Challenges .752

Bank Schemes .802

Evaluation criteria for MSMEs for providing finance .612

Bank Hurdle .549

Banks support to MSMEs according to sector .537

CONFIRMATORY FACTOR ANALYSIS

Confirmatory Factor Analysis (CFA) is used to verify the factor structure of a set of observed

variables. In this study, confirmatory factor analysis model is run through AMOS 21 software.

Further EFA, the succeeded phase was to assure those escorted parameters. The assurance phase,

systematically known as Confirmatory Factor Analysis (CFA), was conducted utilizing AMOS

software with Maximum Likelihood Estimation (MLE). Whole of the escorted parameters were

examined in a sole dimension design (Figure 1). The dimension design was aided grounded on

the uniform dimensions advised through variant scholars (Byrne, 2010; Hair et al., 2010; Kline,

2011). The design advanced for the research is revealed in figures below. 10 runs were

performed until the satisfactory ‘goodness of fit statistics’ was achieved. Model was developed
by performing CFA pertaining along with goodness of fit measures. The results of CFA are

given below.

Figure 2

CFA Model
Validity Analysis

The rationality of design must be confirmed with the aid of different succeeding instruments of

rationality point.

Discriminant Validity

Two problems have been attended whereas functioning the constructional reaction designing:

(a) Average variance explained , (AVE) must be larger than Maximum shared variance (MSV)

(b) Average variance explained (AVE) must be larger than Average shared variance (ASV).It

can be summarized that Average variance explained (AVE) of parameter 1 (0.545) is larger than

Maximum shared variance (MSV) of the similar structure that is 0.423.Same Average variance

explained (AVE) of parameter 2 is 0.562, parameter 3 is 0.554, parameter 4 is 0.621, parameter 5

is 0.645, and parameter 6 is 0.623.

And the different problem of biased rationality examine is Average variance explained (AVE)

must be larger than Average shared variance (ASV). Once again from the table it can be

summarized that Average variance explained (AVE) of parameter 1, parameter 2, parameter 3,

parameter 4, parameter 5, and parameter 6 is 0.545, 0.562, 0.517, 0.568, 0.54, and 0.478 is larger

than Maximum shared variance (MSV) of parameter 1, parameter 2, parameter 3, parameter

4,parameter 5, and parameter 6 is 0.248, 0.276, 0.263, 0.186, 0.261, and 0.314.

Convergent validity

Three problems have been attended whereas conducting the bodily reaction designing: (a) Alpha

must be larger than 0.7 (b) Average variance explained (AVE) must be larger than 0.5 (c) Alpha

must be larger than Average variance explained (AVE).

The alpha worth of whole structures (parameter 1, parameter 2, parameter 3, parameter 4,

parameter 5, and parameter 6) is larger than 0.7.

The Average variance explained (AVE) of factor 1, factor 2, factor 3, factor 4, factor 5, and

factor 6 (i.e. 0.545, 0.562, 0.517, 0.568, 0.54, 0.478) is higher than 0.5.

The alpha worth of total structures (parameter 1: 0.75, parameter 2: 0.82, parameter 3: 0.8,

parameter 4: 0.86: parameter 5: 0.78, and parameter 6: 0.79) is larger than Average variance

explained (AVE) of parameter 1, parameter 2, parameter 3, parameter 4, parameter 5, and

parameter 6 (i.e. 0.545, 0.562, 0.517, 0.568, 0.54, 0.478).

Construct validity

Entire the structures have important weighting over 0.50 and for the resolution of advancement

of design, the advancement guides were asked. Table reveals that the righteousness of well for

our dimension model is capable.

GOODNESS OF FIT STATISTICS IN CFA

Nomological validity

It is examined through analyzing if the relationships amid the structures in the dimension

designed form discern. The structure variances aids in finding the important range of every

structures with all further and productive relations are utilized to approach nomological

rationality. The below Table 13 indicates that the goodness of fit indices (CFI, RFI and NFI) is

significantly high. Hence, the model is fit. The RMSEA value indicates the amount of

unexplained variance or residual. The lower it is, the better it is. The lower value of RMSEA

(0.083) also supports that the model is fit.

 Table 13

Goodness of fit indices

Name Judgement
Literary Contribution
of index Value

Comparative fit index CFI ¿0.90 Bentler (1995)

Goodness-of-fit index GFI ¿0.85

Hu and Betler (1999)
Adjusted Goodness of Fit Index AGFI ¿0.80

Parsimonious Goodness of Fit

PGFI ¿0.50 Mathwick (2001)
Index

Root mean square error of Browne and Cudeck

RMEA ¿0.08
approximation (1993)

Root Mean Square Residual RMR ¿0.05 Hair et.al (1998)

 MULTIPLE REGRESSION ANALYSIS

Multiple Regression analysis was used to establish the relationship between the variables of the

simple linear Regression. It was calculated to find out the impact of various six factors on credit

delivery mechanism, multiple regression analysis has been done. It was done to achieve the

second objective.

 Y=β0+β1x1+β2x2+β3x3+β4x4+β5x5+β6x6+Є

 Y-DEPENDENT VARIABLE (Are you satisfy with the existing credit delivery mechanism for

channelizing funds to SMEs?).

 β1-β6 =model parameters or coefficients

 X1-X6=INDEPENDENT VARIABLES

 X1-Bank support to SMEs

 X2-Bank Challenges

 X3-Bank Schemes

 X4-Banks evaluation criteria for SMEs according to sector.

 X5-Bank Hurdles

 X6-Bank support to SMEs according to sector

 Є-error term
 Table 14

Multiple Regression Result

R Adjusted

Model R Square R Square Std. Error of the Estimate

1 .840a .706 .702 .54574608

Predictors: (Constant), (Bank Support to SMEs), (Bank Challenges), (Bank Schemes),

(Banks evaluation criteria for MSMEs according to sector),( Bank Hurdle),

(Banks support to MSMEs according to sector),

Dependent variable: Are you satisfy with the existing credit delivery mechanism for

channelizing funds to SMEs?

MODEL SUMMARY

In given model, R-Square is 70.6% which explains the total variation in dependent variable

(credit delivery mechanism) due to Six independent variables which are Bank support to

MSMEs, Bank challenges, Bank Schemes, Banks evaluation criteria for SMEs for providing

finance, Bank support to MSMEs according to sector, Bank hurdles.

 TABLE 15

COEFFICIENTS

Unstandardized Standardized

Coefficients Coefficients

Model B Std. Error Beta T Sig.

1 (Constant) 3.581E-15 .024 .000 1.000

Bank Support to MSMEs .224 .039 .224 5.684 .000

Bank Challenges .073 .037 .073 1.998 .046

Bank Schemes .328 .034 .328 9.626 .000

Evaluation criteria for .137 .052 .137 2.659 .008

MSMEs for providing

finance

Bank Hurdle .146 .033 .146 4.422 .000

Banks support to MSMEs .610 .036 .610 16.947 .000

according to sector

Dependent Variable: Are you satisfy with the existing credit delivery mechanism for

channelizing funds to SMEs.

The beta value shows the change in the dependent variable due to a unit change in the predictor.

The positive β-value represents that there is a positive relationship between the predictor and the

dependent variable whereas a negative coefficient represents a negative relationship.

From the table-6 we can see that the values of unstandardized coefficients for Bank Support to

SMEs is 0.224, Bank Challenges is 0.073, Bank Schemes is 0.328, Evaluation criteria for SMEs

for providing finance is 0.137, Bank Hurdle is 0.146, Banks support to MSMEs according to

sector is 0.610.

Now, we can say that by changing Bank Support to SMEs, Bank Challenges, Evaluation criteria

for SMEs for providing finance, Bank Hurdle, Banks support to MSMEs according to sector by

one-unit standard deviation, while holding other variables constant, would increase dependent

variable overall satisfaction by 0.224 unit standard deviations, 0.073 unit standard deviations,

0.137 unit standard deviations, 0.146 unit standard deviations, 0.610 unit standard deviations and

change in one unit in Bank Schemes dimension in making effective credit delivery mechanism, it

will increase by 0.328 unit standard deviation in effectiveness of various factors on SME

financing schemes of Specialized banks for SMEs and Selected public sector banks in India.

RESULT AND DISCUSSION

The analysis part justifies the delivery mechanism in terms Banks credit delivery to SMEs in five

districts of Haryana. The study has been conducted to know the credit delivery mechanism and

its effectiveness between banks and SMEs. The primary data in study was collected through a

questionnaire from bank. The data has been verified in testing results and reliability of data was
 tested through Cronbach Alpha test. To study the effectiveness of credit delivery system

following points are discussed:-

 Data have been collected from 193 bank respondents and to evaluate the effectiveness of credit

delivery system.

 The reliability of data has been tested through Kaiser Meyer Olkin test and correlation between

variables were tested through Bartletts test of sphericity which is more than 0.5 mean value.

 The Stratified Random sampling method was used to collect data from banks in five NCR cities

of Haryana.

 Banks could focus on important government schemes which should be analysed and evaluated

separately to find effectiveness of schemes from banks and SMEs perspectives.

 Banks could focus on specific sector while allocating funds to SMEs.

 The Government could work on specific schemes which are neither productive for SMEs and nor

generating funds for Banks.

 MSMEs non-financial problems could be catered by government in order to reduce their

challenges.

 Banks policy must be eased on collateral norms as many SMEs deprive due to non-availability of

collateral.

 The SMEs could inculcate value chain and cluster development approach in order to know about

the targeted sectors in SMEs development strategies.

 Banks must not be overburdened with NPA, there must be separate department to deal this issue

strictly and stringent measures must be adopted to recover this amount as many MSMEs become

soft victims of shortage of funds.

 There could be separate department for dealing problems of large enterprises. SMEs must not be
 compared with large enterprises in granting and recovering loans.

 Bankers must adopt specific definition criteria while allocating funds to SMEs.

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Table

S.No Title Table No.

1 Banks Sample size I

Kmo AND Bartlett’s Test

2 II

3 Communalities III
4 Total Variance IV

5 Factors V

6 Factor 1-Bank support to SMEs VI

7 Factor 2- Bank Challenges VII

8 Factor 3- Bank Schemes VIII

9 Factor 4- Banks Evaluation criteria for MSMEs IX

for providing finance

Factor 5-Bank Hurdle

10 X

Factor 6- Banks support to MSMEs according to

11 XI
sector

Reliability Test
12 XII

Goodness of fit Indices

13 XIII

Multiple Regression Result

14 XIIII

Coefficients
15 XIIIII
 Figure

S.No. Title Figure No.

1 Scree Plot I

2 CFA model II