Risks in SME Financing: Experience 1
Mr. Robin, a small business entrepreneur, engaged with wholesale trading of paddy, at Koisat bazaar, near about 30 kilometer from Indian border with Bangladesh, once came to my office with one of existing customer and applied for a loan of amount $15000.
I went to visit his business after two days and found his business strong enough to approve the loan. The entrepreneur was a brother of local chairman and had high social status, the fixed asset was satisfactorily enough, the sale of business was good, over all reputation of market was excellent.
I had approved the loan. About 9 to 10 installment were collected smoothly and the entrepreneur began “today or tomorrow“in payment of installment. I went to his business to meet him physically to know the exact matter that happened. He did not want to inform me what happened, but after discussion of a long time he said one of his deliveries of goods was canceled by his customer and he did not pay for that order, excusing the bad quality of goods. So, the relation with that customer became worse and his business was faced shortage of capital. In this situation payment of installment became hard.
And he did not pay his installments for a long period of time. Now a legal process is under consideration to recover the outstanding amount of loan.
In this case, the cause of failure to recover the loan installment from the SME entrepreneur is the limited investment in business. This investment is so small that if the amount of investment is reduced anyhow, the business loses its speed as well as its profitability and ability to repay the loan.
In this case if the entrepreneur had some extra income from anywhere or he had any other support to business, he could overcome that situation.