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Does expanding collateral for medium-term lending facility alleviate financing challenges for small and micro enterprises? Evidence from China

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  • Ouyang, Yizhi
  • Li, Wei

Abstract

Utilizing the dataset of Small and Micro Enterprises (SMEs) defined under China's statistical standards, we assess the impact of the People's Bank of China (PBOC) collateral expansion policy targeting SMEs, implemented in 2018, on SME loan availability. Our analysis, leveraging a Double Machine Learning framework, reveals that the traditional DID model used in prior literature yields may understate the policy effect when covariate adjustment is constrained in high-dimensional settings; our DID-DML approach alleviates this concern by flexibly controlling for a rich set of confounders. Empirically, we find that between 2013 and 2020, allowing AA+ and AA-rated SME bonds as eligible collateral for the Medium-term Lending Facility significantly increased loan access for SMEs. The effect is stronger for high-tech SMEs, higher-quality SMEs, and SMEs in the eastern region. Overall, through the novel DID-DML hybrid model, our findings demonstrate the efficacy of the PBOC's collateral expansion in mitigating SMEs' financing difficulties and provide an empirical framework for accurate policy assessment.

Suggested Citation

  • Ouyang, Yizhi & Li, Wei, 2026. "Does expanding collateral for medium-term lending facility alleviate financing challenges for small and micro enterprises? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 105(C).
    • Handle: RePEc:eee:reveco:v:105:y:2026:i:c:s1059056025010056
    DOI: 10.1016/j.iref.2025.104842
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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