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

By Thorsten Beck, Asli Demirgüç-Kunt, María Soledad Martínez Pería. 2008

290 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/e67378798d21543f0599d12dcdcf95da909f1a67

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Citations in the corpus

Small and medium enterprises : a cross-country analysis with a new data set (2011, background): “We do not find a statistically significant correlation between the share of foreign- or state-owned banks and levels of SME financing, which is consistent with bank level evidence in Beck et al. (2008b).”
Bank Financing for SMEs: Evidence Across Countries and Bank Ownership Types (2009, background): “In 2 The working paper version of this paper (see Beck, Demirguc-Kunt, and Martinez Peria, 2008) provides more information regarding banks’ perceptions of the SME segment, discusses the perceived drivers and obstacles to SME finance, and…”
Bargaining power and information in SME lending (2010, unknown): “Second, we believe that our results are characteristic for SME finance because they are based on data from countries with a very high share of SMEs.1 Hence, our analysis may have implications for SME finance in other developed countries (e.g., for a recent international survey see Beck et al. 2008).”
Closing the Credit Gap for Formal and Informal Micro, Small, and Medium Enterprises (2013, unknown): “In addition, there is evidence that SMEs are the major sources of employment in many economies (Beck et al., 2008).”
The Status of Bank Lending to Smes in the Middle East and North Africa Region: The Results of a Joint Survey of the Union of Arab Bank and the World Bank (2011, unknown): “The share of SME lending in the non-GCC is higher, but still lower than the shares of SME lending in developing and developed countries (Beck, Demirguc-Kunt, and Peria (2008), and OECD (2010)).”