Demographic structure and SME credit availability: Rethinking SME finance amid unprecedented demographic transformations

This paper addresses a critical gap in the literature by exploring whether, how, and to what extent demographic structural dynamics affect SME finance. Both cross-country and single-country empirical analyses are conducted, based on a novel theoretical framework that establishes a causal relationship between demographic structure and SME credit availability. The cross-country analysis examines the impact of demographic structure on SME credit availability using panel data from 30 countries between 2007 and 2020. The single-country analysis further examines sector-specific and firm-size-specific effects using quarterly data from 2004 to 2023. The findings from the two-dimensional analyses consistently show that demographic structure significantly affects SMEs’ access to bank finance. Firstly, SMEs are likely to experience reduced access to bank finance as economies transition toward an aging demographic structure. Secondly, the impact of the working-age male population on SME credit availability appears to be more stable and pronounced than that of the working-age female population, suggesting the importance of gender dynamics in shaping SME finance. Thirdly, small firms, particularly those in the manufacturing sector, may face greater challenges in securing bank finance than medium-sized firms during the transition to an aging demographic structure. Finally, demographic structure variables related to the extent of the aging process have non-linear, inverted U-shaped effects on the availability of credit for SMEs. This paper highlights the need for SMEs to proactively adapt to unprecedented demographic transformations and recommends policy measures to support their sustainable growth during the ongoing global demographic transition.