Bank Financing for SMEs around the World : Drivers, Obstacles, Business Models, and Lending Practices

Using data from a survey of 91 banks in 45 countries, the authors characterize bank financing to small and medium enterprises (SMEs) around the world. They find that banks perceive the SME segment to be highly profitable, but perceive macroeconomic instability in developing countries and competition in developed countries as the main obstacles. To serve SMEs banks have set up dedicated departments and decentralized the sale of products to the branches. However, loan approval, risk management, and loan recovery functions remain centralized. Compared with large firms, banks are less exposed to small enterprises, charge them higher interest rates and fees, and experience more non-performing loans from lending to them. Although there are some differences in SMEs financing across government, private, and foreign-owned banks - with the latter being more likely to engage in arms-length lending - the most significant differences are found between banks in developed and developing countries. Banks in developing countries tend to be less exposed to SMEs, provide a lower share of investment loans, and charge higher fees and interest rates. Overall, the evidence suggests that the lending environment is more important than firm size or bank ownership type in shaping bank financing to SMEs.

Bibliographic Details

Main Authors:	Martínez Pería, María Soledad, Beck, Thorsten, Demirgüç-Kunt, Asli
Language:	English
Published:	Washington, DC: World Bank 2008-11
Subjects:	ACCESS TO CREDIT, ACCESS TO FINANCE, ACCESS TO INFORMATION, BANK CONSOLIDATION, BANK FINANCING, BANK INVOLVEMENT, BANK LENDING, BANK LOANS, BANK POLICY, BANKING INDUSTRY, BANKING PRACTICES, BANKING RELATIONSHIPS, BANKING SYSTEM, BANKS, BEST PRACTICES, BRANCH NETWORKS, BUSINESS LOANS, CAPITAL REQUIREMENTS, COLLATERAL, CONSOLIDATION, COST OF CREDIT, CREDIT ASSESSMENT, CREDIT BUREAU, CREDIT BUREAUS, CREDIT DECISIONS, CREDIT HISTORY, CREDIT HISTORY INFORMATION, CREDIT INFORMATION, CREDIT PROGRAM, CREDIT PROGRAMS, CREDIT REGISTRIES, CREDIT REGISTRY, CREDIT SCORING, DECENTRALIZATION, DEFAULTS, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DIRECTED CREDIT, DOCUMENTATION REQUIREMENTS, DOMESTIC BANKS, ECONOMIC ACTIVITY, EMERGING MARKETS, EMPLOYMENT, EQUIPMENT, EXCHANGE RATE, EXTERNAL FINANCE, FACTORING, FEDERAL RESERVE, FEDERAL RESERVE BANK, FEDERAL RESERVE BANK OF NEW YORK, FINANCIAL DEEPENING, FINANCIAL INSTITUTIONS, FINANCIAL PRODUCTS, FINANCIAL STATEMENTS, FINANCIAL SYSTEM, FINANCING OBSTACLES, FOREIGN BANKS, FORM OF COLLATERAL, FORMS OF COLLATERAL, GOVERNMENT BANKS, GOVERNMENT SUPPORT, GUARANTEE SCHEMES, HIGH INTEREST RATES, INCOME, INCOME GROUP, INFORMATION SHARING, INTEREST RATE, INTEREST RATES, INTEREST SUBSIDIES, INTERNATIONAL BANK, INTERNATIONAL FINANCE, INVESTMENT LOANS, INVESTMENT PURPOSES, LARGE BANKS, LARGE BUSINESS, LARGE BUSINESSES, LARGE ENTERPRISE, LARGE ENTERPRISES, LARGE FIRM, LARGE FIRMS, LEGAL CONSTRAINTS, LENDING DECISION, LENDING DECISIONS, LENDING TECHNIQUES, LIQUID ASSETS, LOAN, LOAN APPROVAL, LOAN APPROVALS, LOAN DECISION, LOAN DECISIONS, LOAN EXPOSURES, LOAN MARKET, LOAN OFFICER, LOAN RECOVERY, MACROECONOMIC CONDITIONS, MACROECONOMIC ENVIRONMENT, MACROECONOMIC INSTABILITY, MACROECONOMICS, MARKET SHARE, MARKET SIZE, MEDIUM ENTERPRISES, NON-PERFORMING LOAN, NON-PERFORMING LOANS, NONPERFORMING LOANS, PERSONAL GUARANTEE, PERSONAL GUARANTEES, PRIVATE BANKS, PRIVATE CREDIT, PROFITABILITY, PRUDENTIAL REGULATIONS, PUBLIC BANKS, PUBLIC POLICY, QUESTIONNAIRE, REAL ESTATE, REAL ESTATE AS COLLATERAL, RELATIONSHIP LENDING, RESEARCH ASSISTANCE, RISK MANAGEMENT, SALE, SALES, SHARE OF INVESTMENT, SMALL BANKS, SMALL BUSINESS, SMALL BUSINESS FINANCE, SMALL BUSINESS LENDING, SMALL BUSINESS LOANS, SMALL BUSINESSES, SMALL ENTERPRISE, SMALL ENTERPRISES, SMALL LOANS, SUPPORT PROGRAMS, TYPES OF ASSETS, UNIVERSAL BANKING, USE OF COLLATERAL,
Online Access:	http://documents.worldbank.org/curated/en/2008/11/10048262/bank-financing-smes-around-world-drivers-obstacles-business-models-lending-practices https://hdl.handle.net/10986/6315
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