Study on Banks’ Risk Assessment of Financing Small Medium Enterprises’ Project: the findings and experience from Uzbekistan Banking Sectors

Abstract

Small-Medium Enterprises (SME) fulfill important tasks in an economy. They play main role to create jobs opportunities and generating profit for low income nation, also support social stability and significant effect to development of a private sector dynamically. Banks have played a major role in financing and helping SMEs, work to grow up access of them to provide loan. Bank lending is the most common source of external finance for SMEs. However, no comprehensive investigation has yet been focused in banks to examine risk assessment of SMEs project. They have limited access to credit resources comparing to big companies (Jaroslav B., 2010). Therefore, most of SMEs do not use annual reports, annual file accounting or main statistics figures. So, it makes challenges for banks to identify risks and deciding to finance SMEs’ project. This paper focus on analyze risk assessment of financing SMEs’ projects in banking of Uzbekistan and investigate on identify risks, examine strong risk assessment for SMEs, try to find out various tools and techniques deal with bank financing projects. Carrying out the research, both qualitative and quantitative methods were used. Questionnaires distributed to the 100 lending managers and credit specialists, consisted three parts which two parts include 29 questions and final part include 5 open questions. We used Cronbach’s alpha to estimate reliability variables and subject regression analysis conducted on research objectives. Research found that credit managers have still challenges in understanding uses techniques and tools for assessing risks. It seems to be lacking understanding and unsophisticated approach to fully identify and manage risks. According to questionnaires’ results and case study analysis, data indicated the key indicator signals to finance SMEs’ project are financial standing, past performance of SMEs, leverage ratio and evaluated project concern significantly. Data showed an optimization of lending process lead to additional interest incomes and assessing risks in early stage. The model postulates that factors in the external, operating and internal environments of individual banks can influence risk assessment decisions for financing SMEs.