IMF research shows that the system plays a key role in the financing of SMEs -Part 1

Si Gyeongmin

Oct 20, 2021

Today, vibrant small and medium-sized enterprises are a major source of employment and innovation, helping to promote productivity, growth, and economic diversification. However, compared with SMEs in other regions, the contribution of SMEs in MENAP and CCA regions in terms of output and employment is relatively small. Unleashing its vitality for development requires facing a series of structural and institutional challenges, including the opportunity to obtain financing. In terms of obtaining bank financing for SMEs, the MENAP and CCA regions lag behind most other regions. In the MENAP and CCA regions, the average share of SME loans in total bank loans is about 7%, which is much lower than the global average (26%).

The analysis shows that economic foundation, banking characteristics, sound system, and favorable business environment are important factors for SMEs to obtain financings, such as macroeconomic stability, limited public sector scale (to avoid squeezing SMEs’ access to credit), the robustness of the financial sector, the competitiveness of the banking system, strong governance and financial supervision capabilities, the availability of credit information, and a supporting legal system with sound property rights and contract systems.

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