Microfinance banks and MFIs generally venture in to SME financing without understanding the model and common pitfalls, which might result in losing the portfolio. In this episode, MSC’s Specialist, Venkata N. A., discusses the common pitfalls of SME financing. In his words “SME financing is completely different from Joint Liability Group model of lending. It has different HR requirements, different organisational structure, different MIS requirements etc.” The common pitfalls are lack of financial statements, lack of industry benchmarks, lack of credit history, lack of skilled appraisers and one size fits all dilemmas. It is very important for any institution to understand the pitfalls of SME financing and also to conduct institutional assessment before venturing in to it.

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