The primary objective of banks and lending institutions is to ensure timely repayment of loan and hence, focus on assessing cash flows of an enterprise while undertaking evaluations.
DRE is a nascent sector as compared to traditional sectors that the banks lend to and therefore, is perceived to be riskier. All lenders, including banks and NBFCs, are concerned with recovering their loan and earning an interest on the same. Banks and NBFCs, while evaluating enterprises to disburse loans, make sure that they generate enough cash flows to pay the interest as well as the principal amount.
The DREEM tool may assist lenders in answering the following questions –
1. How credit worthy is the enterprise being evaluated?
2. How stable is the off-grid sector in the medium term?
The financial analysis undertaken by the tool based on key enterprise financials evaluates: (i) financial efficiency of the enterprise including its liquidity, leverage, and profitability position over the last few years; (ii) customer information to assess regularity of payments.
This assessment along with an evaluation of the management capacity will help the lender get an understanding of the creditworthiness of the enterprise. The tool also compares the DRE sector with other industry sectors across the economy to show the attractiveness of DRE in comparison to others.
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