SME Finance Policy Guide

74 GLOBAL PARTNERSHIP FOR FINANCIAL INCLUSION
more adversely affected than other clients (consumers,
large corporates) by Basel III, and an objective evaluation
of the potential impacts may be merited. The
gradual implementation of the new Basel III rules
(which are to be fully adhered to by 2019) gives banks
time to adjust to the new capital requirements.
Enabling Regulatory Frameworks
for Alternative SME Finance
products: Leasing, Factoring
Factoring is an important source of working capital
finance for SMEs, and leasing is an important source of
investment finance for SMEs, especially in jurisdictions
where the financial infrastructure is deficient.
A legislative framework for leasing should: i) clarify
rights and responsibilities of the parties to a lease; ii)
remove contradictions within the existing legislation;
iii) create non-judicial repossession mechanisms; iv)
ensure that tax rules are clear and neutral, removing
any bias against leasing; and v) clarify the rights of lessors
and lessees under bankruptcy.
The laws governing contracts between parties and
assignment of receivables are most directly relevant to
factoring. Where these laws are clear and enforceable,
factoring has developed without any specific legal or
regulatory framework for factoring as such. A major
area for decision in a regulatory framework for factoring
is determining the criteria for the entities who will
be allowed to perform factoring activities.
Competition
Competition can be a powerful incentive for financial
players to develop their SME business. Based on best
practices around the world, competition can be promoted
through the following measures:
• Financial sector liberalization and banking regulations
that allow the entry of sound and efficient
banks and other types of financial providers;
• A legal and regulatory framework that promotes the
development of alternative lending technologies
such as leasing and factoring, as well as the development
of securities markets and institutional investors
as an alternative to bank lending;
• An antitrust authority that oversees decisions pertaining
to mergers and acquisitions and weighs the
pros and cons of these transactions;
• A competition authority that is ready to act against
potential cartels influencing the pricing of bank
products;
• Greater transparency and more information dissemination
about the pricing and conditions of bank
products, in order to empower borrowers to make
good decisions and to “shop for the best deal.”
Financial literacy could also help borrowers make
better decisions and would pressure banks to offer
more suitable products.
• A consumer protection agency that watches out for
evidence of anticompetitive behavior of banks and
takes the matter up with the competition authority;
• Efforts to improve the scope, access, and quality of
credit information among banks, which would level
the playing field between large and small banks
(including new foreign banks) and allow these
banks to expand more rapidly; and
• Complementary prudential regulation, and coherence
between competition policy and regulation in
the financial sector, to minimize any potential destabilizing
effects from increases in competition.
LDC policymakers often have only a limited range of
effective tools and capacity, however, to set up or
enforce competition measures, such as a competition
authority. In the interim, bank supervisors could be
given a clear mandate to promote sound competition
in the banking sector. For example: i) bank regulators
should give greater weight to sound competition
when implementing licensing criteria; and ii)
strengthening the credit concentration regime may
also contribute to increased competition translating
into access gains 91 (the latter could be achieved by
91 World Bank, 2011, MENA Financial Sector Flagship