Latin American Capital Markets

390 HANNESTAKACS AND KINGA KORCSMAROSfinancial data, and negative bank experience in dealing with small asset-backed borrowingare intensified in high-inflation environments.The primary objective of this chapter is to analyze the importance of accessto finance for the development of SMEs and the role capital markets can play.Thechapter reviews the situation and financing issues of SMEs in general and presents examplesfrom various regions, highlighting successful financing structures in the contextof specific economic and political environments. Going beyond the issue of capitalmarkets, the chapter focuses on the comprehensive set of factors that determine thelevel of access of SMEs to finance (financial and capital markets) and its constraintsand the strategies, programs, and available best practices in the field. Additional SMEgrowth factors, such as legal and tax issues, are mentioned.A main conclusion of this chapter is that, although SMEs can access capitalmarkets (via either equity or debt instruments), there is not a preponderance of evidencethat indicates that capital markets would constitute a panacea for resolving theconstraints to finance that SMEs face. Instead, the analysis should explore SME accessto financial markets in general. In this context, the initial public offering (IPO), which isregarded as one of the main drivers of capital and stock market development, becomesan effective instrument for SMEs only at later stages of their growth.Unfortunately, there is no uniform definition of SMEs that is accepted worldwide.SMEs are a heterogeneous group, even within the context of national economies.In certain economic sectors (for example, the agriculture or craft sector), SMEsmight play a dominant role, whereas in others (such as financial institutions or communication),they might be less heralded. However; most of the existing definitions ofSMEs state that they include micro, small, and medium-size enterprises. Many countriesand regions have developed their own definitions for SMEs. As expected, the definitionis significantly influenced by the importance SMEs play in a country's economy.However; given the lack of a single SME definition of global validity, it is difficult to makeinternational comparisons.This chapter uses the European Union's official definition ofSMEs, unless indicated otherwise (table 12-1).The Importance of Small and Medium EnterprisesIn many countries, the SME sector is a core element for economic growth. More than95 percent of enterprises in the Organisation for Economic Co-operation and Development(OECD) are SMEs, and they account for approximately 60-70 percentCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub