Question

There are many Approaches to Credit Appraisal processes. Four (4) of such

approaches are: i. The Broad Area Analysis Approach; ii. The CAMPARI

Approach; iii. The 7Cs Approach, and iv. The 7Ps Approach.

(a) List the components of each of the four (4) approaches above.

(b) Discuss the similarities, linkages and differences among these Four

approaches

Answer 1

The components of 4 approaches are :

• Broad Area Analysis Approach - political, economic, socio-demographic (social), and technological.
• CAMPARI Approach - Character; Ability; Means; Purpose; Amount; Repayment; Insurance.
• 7 C's Approach - clear, concise, concrete, correct, coherent, complete and courteous
• 7 P's Approach - Principle of Productive Purpose, Principle of Personality, Principle of Productivity, Principle of Phased disbursement, Principle of Proper utilization, Principle of repayment, and Principle of protection

Differences and linkages between the four approaches are

Broad Area Analysis Approach - The componenets of Broad Area Analysis Approach affects operating environment of business that defines opportunities and threats to the company and also on its competitors. Therefore, these factors becomes important for credit appraisal.

CAMPARI Approach = As copmpared to Broad Area Analysis Approach which also focus on external factors, CAMPARI approach focuses on interanl factors. For example, character component specifies sense of professionalism, attitude and integrity of a company, ability defines the ability of a company to repay the loan amount and interest, means factor is used to estimate the sources of income through comprehensive business plans. etc.

7 C's Approach - This approach deals with the creditbility of the company in communication of information to the bank or lender. All the factprs defines how the communication to be made for aappropriate credit appraisal purposes.

7 P's approach - The 7 P's Approach is similar to 7 C's Approach to some extent. All the phases in this approach identifies the purpose of loan, personality (professionalism), productivity or ability to earn of the company, utilization of loan amount, repayment ability of business.