Bank lending criteria for SMEs : |ba comparative study between the SME bank and non-SME banks in Malaysia

Abstract

Small and Medium Enterprises (SMEs) are largely considered an engine of economic growth with finance the fuel upon which to run the engine. Therefore, the role of finance has been viewed as a critical element for the development of small and medium enterprises. However, the majority of SMEs regard financial resources as a major obstacle due to their inability to meet the lending criteria set by the banks. In order to overcome this problem, this research studies the lending criteria used by the SME bank and Non-SME banks (Conventional and Islamic banks) in order to ascertain the important criteria required by banks from SMEs before approving financing in Malaysia. Upon having ascertained the necessary criteria for financing, the study then endeavours a comparison between the lending criteria for government owned banks, namely the SME banks, and non-SME banks, namely conventional and Islamic banks. The result shows a number of similarities in the criteria requirements of the two banking groups. However, as the SME bank is a government owned bank, it is very much influenced by country specific factors such as the country`s economic condition and government policy. The limitation of this research is that it focuses solely on bank lending criteria for SMEs. There remains the need for future research to ascertain how the SME financing application is processed by the banks.