Small Enterprise Development in MACEDONIA

Small Enterprise Development
6. Financial instruments for the SME sector
6.1 introduction
There were a series of positive changes in the country’s banking sector in recent
years. The credit rating – BBB+ (Standard & Poor) and BBB (Moody) – has
improved and is slowly approaching investment grade, the macroeconomic
situation is stable and ranks 30 out of the 127 countries covered by the World
Economic Forum Report (2006). Interest rates are finally decreasing due
to macroeconomic stabilisation, and a larger volume of credit is being made
available to the enterprise sector as a result of the increasing competition and
greater liquidity in the banking sector.
Despite these developments, SMEs still experience considerable difficulties
in accessing commercial bank loans. As in other countries of the SEE region,
commercial banks perceive SMEs as risky clients because of their limited assets
and low managerial skills, while SMEs complain about commercial banks being
overly conservative and risk adverse, and generally not interested in financing
of SMEs.
The difficulties that SMEs experience when trying to obtain commercial credit
are due to several factors. First, the banking sector in the country is still relatively
underdeveloped, and suffers from low levels of competition and financial
intermediation. Second, there are particular problems related to SME financing
that discourage banks from lending to SMEs.
From the perspective of commercial banks, SMEs are considered as high-risk
clients, due to their small size and their limited prospects of earning sufficient
funds to service a loan. Moreover, insufficient and often unreliable credit
information does not permit banks a proper assessment of the capabilities of
SMEs to service their debts. The generally smaller loan amounts required by the
SME sector lead to disproportionately high management costs that eat into the
profitability of the banks. Finally, many commercial banks do not have sufficient
experience to properly evaluate loan applications from the SME sector, even
if sufficient credit information would be available. Most banks still find it more
attractive to invest in tax free government bonds with relatively high returns or to
extend loans to larger corporations 11 .
From the viewpoint of SMEs, cumbersome lending procedures and documentation
requirements, and overly stringent collateral requirements make it difficult for
SMEs to apply for a loan. SMEs are also frequently not very well informed about
11 See the study on financing for SMEs (SMEDP, 2006a), available on www.smedp.org.mk.
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