Latin American Capital Markets

394 HANNESTAKACS AND KINGA KORCSMAROSAccess to FinanceThis section analyzes the issues, sources, and instruments available to SME finance.First, it discusses the relevance and constraints of the SME business environment forhelping SMEs access finance and provides suggestions for improvement. Factors in thebusiness environment include a stable political system, macroeconomic stability, predictableand transparent legal and regulatory framework and enforcement, reasonabletax structures, and a sound and competitive financial sector Second, it introduces thefinancial sources and institutions that provide capital to SMEs and describes and discussesthe financing instruments available to SMEs.Bus/ness EnvironmentThe regulatory framework constitutes an important aspect of the impact of the environmenton SME access to finance (OECD 2000). Regulatory burdens on SMEsoriginate from regulatory systems developed for larger firms, which have the capacityto benefit from economies of scale and where stability rather than flexibility is theorder of the day. Smaller enterprises have less capacity to absorb unproductive expendituresbecause they have less capital and managerial resources at their disposal.High start-up costs (including licensing and registration requirements), complicatedpaperwork, high costs of settling legal claims, and long delays in court proceedings affectsmall enterprises much more than their larger counterparts.The lack of propertyrights limits SME access to foreign technologies, and the lack of antitrust legislation inmany cases favors larger enterprises.Several countries have made efforts to reduce regulatory burdens for smallerfirms. So-called one-stop shops have been established, where businesses can bothgather information about all relevant regulations and complete administrative formalities.For instance, in the European Union, the Business Environment Simplification TaskForce, adopted in April 1999, has removed, simplified, and standardized legislation inmany areas of regulation and has led to a number of instruments promoting reformof SME requirements.Although regulatory issues in many areas have a major impact on the successand survival of SMEs, there are specific issues regarding regulations that affect the availabilityof financing for SMEs. Small businesses tend to rely primarily on self-financing,that is, the personal resources of owners. Regulations affect the attractiveness of startingand operating an enterprise and can influence the amount of available financial resources.They can affect the type of financial instruments available to finance new en-Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub