Unlocking Access to Finance for SMEs: A Cross-Country Analysis

IMF Working Papers, March 13, 2020

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Countries in the MENAP and CCA regions have the lowest levels of financial inclusion of small and medium enterprises (SMEs) in the world.
The paper provides empirical evidence on the drivers of SME access to finance for a large sample of countries.
Key policy priorities identified for MENAP and CCA: economic and institutional stability, competition, public sector size and government effectiveness, credit information infrastructure (e.g., credit registries), the business environment (e.g., legal frameworks for contract enforcement), and financial supervisory and regulatory capacity.
The analysis shows that improving credit information, economic competition, the business environment along with economic development and better governance would help close the SME financial inclusion gap between MENAP and CCA regions and the best performers.
Conclusion: adopt holistic policy strategies that take into account the full range of macro and institutional requirements and reforms, and prioritize these reforms in accordance with each country’s specific characteristics.

MENAP and CCA regions register the lowest SME financial inclusion globally.
Drivers of SME access to finance identified empirically include:
- Economic and institutional stability.
- Competition in product and service markets.
- Public sector size and government effectiveness.
- Credit information infrastructure (example: credit registries).
- Business environment factors (example: legal frameworks for contract enforcement).
- Financial supervisory and regulatory capacity.
Improvements in credit information, competition, business environment, economic development, and governance are linked to closing the SME financial inclusion gap with top-performing countries.

Prioritize reforms that build:
- Credit information infrastructure (e.g., credit registries).
- Business environment improvements, particularly legal frameworks for contract enforcement.
- Financial supervisory and regulatory capacity.
- Measures to enhance economic and institutional stability.
- Policies to foster competition and manage public sector size while improving government effectiveness.
Adopt holistic, country-specific policy strategies that sequence and prioritize reforms according to each country’s characteristics.

Subjects: Bank credit, Business environment, Credit, Economic sectors, Financial inclusion, Financial markets, Financial services, Money, Small and medium enterprises.
Keywords: Business environment, Central Asia and the Caucasus, Credit, Europe, Financial inclusion, firm, Global, MENAP country, Middle East, North Africa, return on equity, Small and medium enterprises, Small and Medium Sized Enterprises, SME, SME access, SME financial inclusion, World Bank enterprise, WP.