International Journal For Multidisciplinary Research

E-ISSN: 2582-2160   •   Impact Factor: 9.24

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Volume 8 Issue 5
September-October 2026

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Impact of Credit Rationing on Productive Investments: A Study Based on Small and Medium Enterprises

Author(s) Dr. Matthew Bhaskar Singh, Dr. Rahiba Malik
Country India
Abstract The study investigates the reasons for credit rationing in small and medium enterprises (SMEs), with particular emphasis on the firm’s size and its exposure to financial constraints. Credit rationing, in the first instance, is driven by information asymmetry between the banks and borrowers, which restricts loan approval even when firms are willing to pay prevailing interest rates. Using empirical evidence and secondary data, the study examines how firm size, collateral availability, financial transparency, and firm age influence the likelihood of credit constraints. The findings reveal that SMEs are more vulnerable to credit rationing than larger firms due to limited collateral, lower financial transparency, and weaker bargaining power. The results further indicate that credit rationing significantly reduces the opportunity of undertaking productive investment due to constrained capital expenditure, which further hampers profit potential. Statistical evidence supports that smaller firms face higher credit constraints, while improved access to finance enhances profitable investment outcomes. The study also highlights the role of relationship lending and information accumulation in mitigating credit constraints over time. It concludes that policy interventions aimed at financial access, supported by the policy framework, and transparent support mechanisms are essential to strengthen SME performance and promote sustainable economic growth.
Keywords Credit Rationing; SMEs; Productive Investment; Information Asymmetry; Financial Constraints; Collateral; Firm Size; Relationship Lending; Economic Growth; Banking Sector
Field Sociology > Banking / Finance
Published In Volume 8, Issue 5, September-October 2026
Published On 2026-09-20
DOI https://doi.org/10.36948/ijfmr.2026.v08i05.87941
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