MSME Loan Appraisal, Sanction and Disbursement: A Process-Based Study of Credit Decision-Making in a Public Sector Bank

Author

Vedika Jamuwant Kurmelwar

Abstract

 Micro, Small and Medium Enterprises (MSMEs) depend significantly on institutional credit to meet working-capital requirements, acquire assets, expand operations and manage business cash flows. This study examines the practical process of MSME loan appraisal, sanction and disbursement through a process-based case study of a public sector bank. The study adopts a qualitative and descriptive approach based on supervised on-the-job training, direct observation of branch-level activities, review of loan-related documentation and practical exposure to customer verification, financial assessment, proposal preparation, site visits, end-use verification and post-sanction monitoring. The study finds that MSME credit decisions are not based on a single financial indicator or the availability of collateral. Instead, effective appraisal requires an integrated assessment of borrower credibility, business characteristics, financial position, repayment capacity, documentation, KYC compliance and field-level verification. The observed workflow demonstrates that documentation and verification provide the foundation for appraisal, while sanction and disbursement represent distinct stages that require fulfilment of applicable conditions. Post-sanction monitoring further extends the bank's responsibility beyond the initial release of funds. The study also identifies practical challenges such as incomplete documentation, the need to understand different business models, confidentiality requirements and the translation of classroom concepts into operational banking work. Based on these observations, the paper recommends stronger preliminary document screening, systematic tracking of pending requirements and structured post-sanction monitoring. The study contributes a practical branch-level perspective on how credit-risk concepts are translated into day-to-day MSME lending activities.

Keywords

MSME lending; credit appraisal; credit risk; KYC; loan sanction; loan disbursement; repayment capacity; banking

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References

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