Evaluation of commercial loans to small industries in developing countries: empirical analysis using Colombian data

Abstract

The most apparent way to promote small scale industry in developing countries is to increase its access to credit. In most developing countries, however, small scale enterprises can not obtain credit through the commercial banking system, mainly because the administrative costs involved in such lending are high.

If available, the provision and use of efficient and simple evaluation criteria for small scale lending would reduce the concomitant administrative costs and thereby serve to increase commercial lending to small business enterprises.

This paper examines the viability of such an alternative procedure for loan evaluation, involving the use of credit scoring techniques with Colombian data.

The Author's conclusion is that such evaluation techniques, at least for the Colombian industries included in his data set, offer considerable promise for lending institutions.