Risks in Sme Financing: Experience 2

Mr. Lion, a grocery shop owner, applied for a loan after a long negotiation with our Customer Relations Officer. Since the business was very good to look and had high daily sale, the entrepreneur was also well mannered, the loan officer was very eager to give him the facility of credit. We approved the facility favoring his SME business and after 9 months we found him as a defaulter. When we went to his business to meet him physically to know the exact matter for which the entrepreneur failed to repay his installment we discovered that the entrepreneur flew away from the business and he sold his business to another entrepreneur. We fell in danger to recover the loan since the outstanding amount of that loan was big. We were looking for the relatives of the entrepreneur to discuss and know the method of recovery of loan, and found that the entrepreneur sold his products by credit and he could not collect the credit amount from his customers and he had another loan from local society who were creating pressure on him to repay their loan for which he flew away. It is mentionable that the entrepreneur was unmarried.

Here the cause of failure of entrepreneur to repay the loan was his mistake of sale goods in credit, since the SME businesses own a small amount of capital; they should not loss their capital from their business anyhow. The entrepreneur had lack of proper plan and policy of business, for which the stability of the business fell in risk. Moreover his marital status was also a notable point to his unconsciousness. His managerial skill was poor.

We had collected the whole outstanding amount from his relatives since they were wealthy and helpful enough, though we had to threat them of legal harassment.

Q1: What initially led to the approval of a credit facility for Mr. Lion's grocery shop?

Answer: Mr. Lion's grocery shop was initially approved for a credit facility due to its thriving business, high daily sales, and the entrepreneur's commendable demeanor during negotiations with the Customer Relations Officer.

Q2: Why did the situation take a downturn after 9 months?

Answer: Unfortunately, after 9 months, Mr. Lion turned into a defaulter, prompting an investigation into the matter. The loan officer discovered that he had abandoned the business, selling it to another entrepreneur, leaving the outstanding loan in a precarious state.

Q3: How did the lender attempt to recover the outstanding loan?

Answer: In an attempt to recover the loan, the lender sought out Mr. Lion's relatives. Despite facing difficulties, they ultimately succeeded in collecting the entire outstanding amount, resorting to legal threats to ensure compliance.

Q4: What were the primary reasons behind Mr. Lion's inability to repay the loan?

Answer: Mr. Lion's failure to repay the loan stemmed from his decision to sell goods on credit, leading to a loss of capital. Additionally, he lacked a proper business plan, putting the stability of his SME business at risk. His poor managerial skills and unmarried status also contributed to the downfall.

Q5: How did the discovery of Mr. Lion's credit sales affect the recovery process?

Answer: The investigation revealed that Mr. Lion had sold products on credit, facing difficulty in collecting the credit amounts from his customers. This information added another layer to the recovery challenge, complicating matters for the lender.

Q6: What role did Mr. Lion's marital status play in the business failure?

Answer: Mr. Lion's unmarried status was highlighted as a notable point contributing to his business failure. This suggests that his personal circumstances might have influenced his decision-making and overall business management.

Q7: How did the lender deal with the pressure from another loan Mr. Lion had from a local society?

Answer: Mr. Lion had another loan from a local society, creating additional pressure. Faced with this situation, he chose to flee. The lender, however, had to deal with the repercussions and eventually resorted to legal threats to recover the outstanding loan.

Q8: What was the outcome of the lender's efforts to recover the loan from Mr. Lion's relatives?

Answer: The lender successfully recovered the entire outstanding amount from Mr. Lion's relatives, who were wealthy and helpful. However, the process involved resorting to legal threats to ensure compliance with the repayment.