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Drivers and obstacles to banking SMEs : the role of competition and the institutional framework

Author

Listed:
  • de la Torre, Augusto
  • Martinez Peria, Maria Soledad
  • Schmukler, Sergio L.

Abstract

This paper studies the factors banks perceive as drivers and obstacles to financing small and medium enterprises (SMEs), focusing on the role of competition and the institutional framework. Using a survey of banks in Argentina and Chile, the paper shows that, despite alleged differences in the countries'environments regarding rules, regulations, and ease of doing business, SMEs have become a strategic segment for most banks in both countries. In particular, banks have begun to target SMEs due to the significant competition in the corporate and retail sectors. They perceive the SMEs market as highly profitable, large, and with good prospects. Moreover, banks are developing coping mechanisms to overcome the particular institutional obstacles present in each country and to compete for SMEs. Banks'interest in SMEs is not based on government programs, yet policy action might help reduce the cost of providing financing, especially long-term lending.

Suggested Citation

  • de la Torre, Augusto & Martinez Peria, Maria Soledad & Schmukler, Sergio L., 2008. "Drivers and obstacles to banking SMEs : the role of competition and the institutional framework," Policy Research Working Paper Series 4788, The World Bank.
    • Handle: RePEc:wbk:wbrwps:4788
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    References listed on IDEAS

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    2. de la Torre, Augusto & Martínez Pería, María Soledad & Schmukler, Sergio L., 2010. "Bank involvement with SMEs: Beyond relationship lending," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2280-2293, September.
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    8. de la Torre, Augusto & Gozzi, Juan Carlos & Schmukler, Sergio L., 2007. "Innovative experiences in access to finance : market friendly roles for the visible hand ?," Policy Research Working Paper Series 4326, The World Bank.
    9. Augusto De La Torre & Sergio L. Schmukler, 2004. "Coping with Risks through Mismatches: Domestic and International Financial Contracts for Emerging Economies," International Finance, Wiley Blackwell, vol. 7(3), pages 349-390, December.
    10. Stephanou, Constantinos & Rodriguez, Camila, 2008. "Bank financing to small and medium-sized enterprises (SMEs) in Colombia," Policy Research Working Paper Series 4481, The World Bank.
    11. Beck, Thorsten & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2008. "Financing patterns around the world: Are small firms different?," Journal of Financial Economics, Elsevier, vol. 89(3), pages 467-487, September.
    12. Meghana Ayyagari & Thorsten Beck & Asli Demirguc-Kunt, 2007. "Small and Medium Enterprises Across the Globe," Small Business Economics, Springer, vol. 29(4), pages 415-434, December.
    13. Augusto de la Torre & María Soledad Martínez Pería & María Mercedes Politi & Sergio L. Schmukler & Victoria Vanasco, 2008. "How Do Banks Serve SMEs? Business and Risk Management Models," World Bank Publications - Reports 12959, The World Bank Group.
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    Cited by:

    1. Arráiz,Irani & Bruhn,Miriam & Stucchi,Rodolfo Mario, 2015. "Psychometrics as a tool to improve screening and access to credit," Policy Research Working Paper Series 7506, The World Bank.
    2. Roman Angela & Rusu Valentina Diana, 2012. "The Access Of Small And Medium Size Enterprises To Banking Financing And Current Challanges: The Case Of Eu Countries," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(14), pages 1-21.
    3. World Bank, 2010. "Scaling-Up SME Access to Financial Services," World Bank Publications - Reports 12515, The World Bank Group.
    4. Tanja Jakimova & Neda Popovska Kamnar, 2019. "Bank financing to SMEs in the Republic of North Macedonia: Evidence from Survey Data," Working Papers 2019-01, National Bank of the Republic of North Macedonia.
    5. Bebczuk, Ricardo N., 2010. "Acceso al financiamiento de las PYMES en Argentina: estado de situación y propuestas de política," Financiamiento para el Desarrollo 5207, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    6. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," CESifo Working Paper Series 2692, CESifo.
    7. Angela ROMAN & Valentina Diana RUSU, 2015. "Access to Finance of SMEs in CEE Countries and Supportive Measures," The Journal of Accounting and Management, Danubius University of Galati, issue 3, pages 37-48, December.
    8. Parmendra Sharma & Neelesh Gounder, 2011. "Supply Side Obstacles to Financing the Private Sector: Empirical Evidence from a Small Island Developing State," Discussion Papers in Finance finance:201101, Griffith University, Department of Accounting, Finance and Economics.
    9. Irani Arráiz & Marcela Meléndez & Rodolfo Stucchi, 2014. "Partial credit guarantees and firm performance: evidence from Colombia," Small Business Economics, Springer, vol. 43(3), pages 711-724, October.

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    More about this item

    Keywords

    Banks&Banking Reform; Access to Finance; Financial Intermediation; Debt Markets;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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