This partial explanation for the differences in the incidence of higher-priced borrowing, however, begs for its own explanation: Why is there a racial and ethnic difference in the tendency of borrowers to obtain loans from lenders that concentrate on higher-priced lending? Qualitative and quantitative research on such questions will be critical to understanding racial and ethnic differences in lending outcomes.
Besides, high administrative/ transaction costs of lending to small amounts may not make SME financing a profitable business. To encourage commercial banks to lend to SMEs, the Government and Reserve Bank of India have an important role to play by setting out a policy framework for channeling adequate funds to the SME sector.