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A more complete conceptual framework for financing of small and medium enterprises

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  • Berger, Allen N.
  • Udell, Gregory F.

Abstract

The authors propose a more complete conceptual framework for analysis of credit availability for small and medium enterprises (SMEs). In this framework, lending technologies are the key conduit through which government policies and national financial structures affect credit availability. They emphasize a causal chain from policy to financial structures which affect the feasibility and profitability of different lending technologies. These technologies, in turn, have important effects on SME credit availability. Financial structures include the presence of different financial institution types and the conditions under which they operate. Lending technologies include several transactions technologies, plus relationship lending. The authors argue that the framework implicit in most of the literature is oversimplified, neglects key elements of the chain, and often yields misleading conclusions. A common oversimplification is the treatment of transactions technologies as a homogeneous group, unsuitable for serving informationally opaque SMEs, and a frequent misleading conclusion is that large institutions are disadvantaged in lending to opaque SMEs.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3795.

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Date of creation: 01 Dec 2005
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Handle: RePEc:wbk:wbrwps:3795

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Keywords: Banks&Banking Reform; Financial Intermediation; Investment and Investment Climate; Economic Theory&Research; Financial Crisis Management&Restructuring;

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References

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Cited by:
  1. 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.
  2. Brick, Ivan E. & Palia, Darius, 2007. "Evidence of jointness in the terms of relationship lending," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 452-476, July.
  3. Demirguc-Kunt, Asli, 2006. "Finance and economic development : policy choices for developing countries," Policy Research Working Paper Series 3955, The World Bank.
  4. De Haas, Ralph & Naaborg, Ilko, 2006. "Foreign banks in transition countries. To whom do they lend and how are they financed?," MPRA Paper 6320, University Library of Munich, Germany.
  5. Belén Gill de Albornoz Noguer & Manuel Illueca Muñoz, 2007. "La calidad de los ajustes por devengo no afecta al coste de la deuda de las PYMES españolas," Investigaciones Economicas, Fundación SEPI, vol. 31(1), pages 79-117, January.
  6. Beck, Thorsten, 2006. "Creating an efficient financial system : challenges in a global economy," Policy Research Working Paper Series 3856, The World Bank.
  7. World Bank, 2007. "Colombia : Bank Financing to Small- and Medium-Sized Enterprises (SMEs) in Colombia," World Bank Other Operational Studies 7654, The World Bank.
  8. Doris Neuberger & Solvig Räthke, 2009. "Microenterprises and multiple bank relationships: The case of professionals," Small Business Economics, Springer, vol. 32(2), pages 207-229, February.

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