Drivers and Obstacles to Banking SMEs: The Role of Competition and the Institutional Framework
AbstractThis 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.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 4788.
Length: 51 pages
Date of creation: 01 Dec 2008
Date of revision:
small and medium enterprises; bank finance; financial constraints; banking market structure; institutional factors; regulation; competition;
Find related papers by 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, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-14 (All new papers)
- NEP-BAN-2009-02-14 (Banking)
- NEP-CFN-2009-02-14 (Corporate Finance)
- NEP-COM-2009-02-14 (Industrial Competition)
- NEP-DEV-2009-02-14 (Development)
- NEP-REG-2009-02-14 (Regulation)
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