SME Finance Policy Guide

G-20 SME FINANCE POLICY GUIDE
81
ANNEX I
Access to Finance for SMEs in LDCs
Access to finance remains a key constraint to SMEs
development especially in emerging economies. 93 For
example, data from World Bank Enterprise Surveys
indicate that access to finance is disproportionately difficult
for SMEs in Least Developed Countries (LDCs).
As shown in Figure 1, 41 percent of SMEs in LDCs
report access to finance as a major constraint to their
growth and development, compared with 30 percent
in middle-income countries (MICs) and only 15 percent
in high-income countries. 94
Figure 1 Access/Cost of Finance as a
Major Constraint
60
50
40
30
20
10
0
15
High Income
30
Middle Income
41
Least Developed
Countries
SMEs in their early stages of development rely on internal
sources of funding, including the owner’s personal
savings, retained earnings, or funding through the sale
of assets. As firms starts expanding, external sources
become more important and their availability can
determine the firms’ growth possibilities. External
finance is positively and significantly associated with
productivity and conversely, while financing from
internal funds, and other informal sources, is typically
negatively associated with growth and firm performance.
95 Figures 2 and 3 show how SMEs use different
financing sources for working capital and fixed investments
by country income groups. LDC SMEs show a
higher dependence of internal financing compared
with SMEs in more developed countries. Their use of
bank financing 96 is significantly lower than high- and
medium-income groups. Supplier credit, an arrangement
between two businesses that allows delaying
payment for the goods and services purchased, seems
to be a substitute for bank financing to meet shortterm
working capital needs.
Bars indicate standard deviation across countries
Source: World Bank Enterprise Surveys, 2006-2009
Figure 2 SME Working Capital:
financing sources
100
80
60
40
20
0
10 7 6
8 11 11
15
67 70 76
High Income
Internal Financing
Middle Income
Supplier Credit Financing
Source: World Bank Enterprise Surveys
12
Bank Financing
8
Least Developed
Countries
Other Financing
15
12
9
6
3
0
15 8
High Incom
Bank
Other
93 See Beck, Demirgüç-Kunt and Maksimovic (2005)
94 Numbers by income group are simple averages of all countries, with data available, that fall in the group.
95 Beck, Demirgüç-Kunt, and Levine. (2005)
96 See Beck, Demirgüç-Kunt and Maksimovic (2008)