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Drivers and Obstacles to Banking SMEs: The Role of Competition and the Institutional Framework

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  • de la Torre, Augusto

    ()
    (The World Bank)

  • Soledad Martinez Peria, Maria

    ()
    (The World Bank)

  • Schmukler, Sergio L.

    ()
    (The World Bank)

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    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.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4788.

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    Length: 51 pages
    Date of creation: 01 Dec 2008
    Date of revision:
    Handle: RePEc:wbk:wbrwps:4788

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    Related research

    Keywords: small and medium enterprises; bank finance; financial constraints; banking market structure; institutional factors; regulation; competition;

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    1. Beck, T.H.L. & Demirgüc-Kunt, A. & Maksimovic, V., 2008. "Financing patterns around the world: Are small firms different?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3132806, Tilburg University.
    2. Beck, Thorsten & Klapper, Leora F. & Mendoza, Juan Carlos, 2010. "The typology of partial credit guarantee funds around the world," Journal of Financial Stability, Elsevier, vol. 6(1), pages 10-25, April.
    3. 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.
    4. Mirjam Schiffer & Beatrice Weder, 2001. "Firm Size and the Business Environment : Worldwide Survey Results," World Bank Publications, The World Bank, number 13988, January.
    5. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
    6. Thorsten Beck, 2004. "The determinants of financing obstacles," Policy Research Working Paper Series 3204, The World Bank.
    7. Ayyagari, M. & Beck, T.H.L. & Demirgüç-Kunt, A., 2007. "Small and medium enterprises across the globe," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4731699, Tilburg University.
    8. Demirgüç-Kunt, A. & Beck, T.H.L. & Honohan, P., 2008. "Finance for all?: Policies and pitfalls in expanding access," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3508393, Tilburg University.
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    Cited by:
    1. Ricardo Bebczuk, 2010. "Acceso al financiamiento de las PYMES en Argentina: Estado de situación y propuestas de política," CEDLAS, Working Papers 0104, CEDLAS, Universidad Nacional de La Plata.

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