An Exploratory Study on the Determinants of Loan Approval for Indian Small and Medium Enterprises

Abstract

Micro, Small, and Medium Enterprises (MSMEs) are integral to the Indian economy, yet they persistently face significant barriers in accessing formal credit, which stifles their growth and potential. This research offers a comprehensive investigation into the
multifaceted factors that impede SME loan approvals within the unique context of the Indian banking sector. Grounded in Information Asymmetry Theory and employing an interpretivist paradigm, the study identifies the critical explicit and implicit reasons for loan rejections across various financial institutions, including public sector banks, private sector banks, and non-banking financial companies (NBFCs). Through rigorous grounded theory coding, thematic analysis, and financial data analysis, this study unpacks the operational manifestations of information asymmetries, regulatory compliance challenges, and the quality of financial documentation.