Enhancing smE financing in acp countries - ACP Business Climate

4
The sme financing gap: causes
4.3 Constraints in the business
environment
Basic steps are required to address basic business environment
obstacles. In many ACP countries, although in varying degrees,
the business environment makes it difficult for SMEs to
develop, and considerably increases the risks taken by banks.
• Governments appear insensitive to possible tax incentives,
both for SMEs and for banks expanding SME lending;
• Procedures for setting up and registering businesses are
cumbersome and costly, which together with taxation is
one of the causes of high levels of SMEs operating in the
informal sector;
• Customs duties and procedures constitute an additional
obstacle, at least for those SMEs that import directly;
• Banking regulators/supervisors are inflexible in their
treatment of risk by supervised banks, such as in the
collateral requirements, and requirements in terms of
historic data, cash-flow analysis, and other requirements
are difficult for SMEs to fulfil;
• On the whole, credit risk is accentuated in many ACP
countries by a weak financial and legal infrastructure,
including a lack of information, poor reliability of financial
statements, and poor creditor rights (including difficulty in
registering and enforcing collateral, and overall weakness
of the judicial system, which may be slow and unreliable).
Enhancing SME financing in ACP countries
19