SME Finance Policy Guide

G-20 SME FINANCE POLICY GUIDE
77
Accounting and Auditing Standards
for SMEs
The lack of transparency of SME accounting and
financial statements makes them risky borrowers and
thus less attractive to lenders. Capacity building of
SMEs in terms of preparing financial statements and
business plans, as well as improving their financial
literacy and management training, may have a positive
impact on SME development. Care should be
taken in applying rigid and potentially harmful
reporting standards to smaller enterprises, which
could be counter-productive.
A clear case can be made in favor of simplified
accounting and financial reporting framework for
smaller enterprises, with requirements commensurate
with their size, the types of transactions they
conduct, and their limited range of stakeholders. A
“one-size-fits-all” approach to financial reporting and
auditing requirements ignores the capacity constraints
that SMEs face and unnecessarily increases
the cost of doing business for those enterprises,
which generally drive economic growth. In addition,
by increasing the requirements for SMEs, governments
may create disincentives for businesses to
operate in the formal sector. A holistic approach
would take into account SMEs’ need for relief from
excessive accounting and auditing requirements, as
well as their need for more time to implement appropriate
standards effectively.
While increased transparency for SMEs is central to
improving access to bank financing, improved financial
infrastructure (for example, credit information
systems) can be effective in improving transparency.
Rigidly applying IFRS in LDC’s, including even the
tailored “IFRS for SMEs,” could reduce rather than
promote economic activity by these enterprises, and
have negative implications for growth.
D.3 Public Sector Interventions
Governments can address market failures and incomplete
markets that inhibit the provision of adequate financing
for SMEs. Government measures to promote SMEs should
be carefully focused, aiming at making markets work
efficiently and at providing incentives for the private
sector to assume an active role in SME finance. LDC governments
are relatively more fiscally and capacity constrained,
and the potential for direct public sector
interventions is more limited, without donor assistance.
State Banks
For state-owned banks to play a positive and complementary
role in the provision of credit to SMEs, the
following have proven to be pre-requisites:
• Legislation specifying clear mandates (to deflect
political interference);
• Sound governance structures with independent
boards;
• Clear performance criteria;
• The obligation to price loans according to risk, and
to generate a positive return; and
• The ability to recruit and retain qualified staff.
Apexes and Other Wholesale Funding
Facilities
Second-tier funding facilities, or apexes, can be set up
to manage and on-lend funds to financial institutions,
and to accelerate the growth of sound SME retail capacity
in order to expand access to finance. Preconditions
for successful application of this model include:
• Define the apex mission and objectives clearly with a
focus on building strong, sustainable, and responsible
financial institutions and SMEs, not loan disbursements
and outreach.
• Focus on putting in place good governance, capable
management, and an appropriate organizational