Abstract
Banks entering a developing market face a lot of uncertainty about the risks involved in lending. This paper models the effective factors on default rate (DR) loans to small and medium size enterprises (SMEs) in Iran based on the case study of branches of Melli Bank in Khorasan Razavi province. For this purpose a set of data about loans made to 300 SMEs between years 2004 to 2015 and Delphi, SEM and Tobit models were applied. Results of Delphi technique indicated that 48 factors affect the DR. The structural equation model (SEM) estimations showed that between 10 latent variables which describe the DR, the “loans properties” latent variable have the most effect. Also, findings of Tobit econometric model stated that between 48 variables which affect the DR, “loan volume” variable has the most effect. These and other factors emphasize the need for SMEs credit scoring in developing countries.
Highlights
Small and medium sized enterprises (SMEs) have played a critical role in industrial and economic development globally
According to missing evidence of the default model of loans to SMEs and lack of economic literature on the performance of SME loans, including their default rates in a developing economy, in this paper we model the effective factors on bank loans default rate using Delphi, structural equation model (SEM) and Tobit techniques in Iran
In this research the Delphi technique will apply for assessing the factors which affect the loan default rate and its questionnaires will distribute between 10 experts of credit union of Melli bank in Korasan Razavi province of Iran. 3.2 SEM Model Analyzing research data and interpreting results can be complex and confusing
Summary
Small and medium sized enterprises (SMEs) have played a critical role in industrial and economic development globally. SMEs financing in Iran is receiving increased attention given the importance of SMEs in the economy, especially in employment generation. SMEs find it difficult to get loans This means that, due to the lack of financial intermediation, their potential contributions to growth and employment are wasted. These markets can be expected to keep growing in the future provided the firms are credit-worthy. While there is some literature on access to finance for SMEs in Iran, there is no economic literature on the performance of SME loans, including their default rates.
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