IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this book

Role of Central Banks in Promoting Small and Medium Scale Enterprises

Listed author(s):
  • Dagva Boldbaatar
Registered author(s):

    This collaborative project aims to present and compare the latest developments and policies concerning small and medium scale enterprises (SMEs) in SEACEN member economies. In doing so, the focus is placed on central banks¡¯ initiatives and involvement in national policy to promote SME. The paper presents major country-specific issues, including definition of SMEs, comparison of various financing schemes, and highlights of best-achieved financing policy measures in member economies. There is a variation in the definition of SME used in the individual SEACEN economies, reflecting differences in policy emphasis and SMEs¡¯ level of development. As a group, the sector dominates business establishments in SEACEN economies, accounting for 98 percent of total business establishments. It is also the biggest employer as it employs almost 70 percent of labour force. Thus, fluctuations in SME business lead to fluctuations in overall employment. In term of value added to GDP, the SME contributes to less than half of total GDP. It is also observed that the SME¡¯s contribution to GDP has not improved significantly over the years even though they employ more labour than before. In general, SME business is clustered in the commerce and agricultural sector. While financing continues to be one of the major problems in the SME sector, current measures to channel fund to the SMEs tend to be mostly market-based, via official financial intermediaries or banks. Efforts are focused on completing market by providing information, encouraging banks to specialise on small loans, organising meetings between banks and SMEs, and simplifying regulations and procedures to make it easier for SMEs to apply for loans. Although banks are the main provider of financing for SMEs, they have not been the major player in financing high-tech start-up and restructuring of SMEs. In this respect, bank financing may have to be supplemented by access to capital market, venture capitalist and business angels networking. Most SEACEN member central banks are generally active in supporting SME, with the measures being directing more toward strengthening and enhancing lending capacity of banks to the SMEs. These include obligatory loan portfolio share requirements, lowering risk weight on SME loans, building infrastructure for swift funding to SMEs, providing consultancy to the SMEs in applying for loans, enhancing SMEs credit information by establishing a credit information bureau, and providing credit guarantee. The study recommends that central banks should assist the SME sector through sustainable financing channel to help support profitable growth of SMEs. Market completing and promotional policies are preferred to protective and subsidy based or directed lending. In our opinion, there are three main areas where central bank should be involved in promotion of SME. They are: i) financial market infrastructure development; ii) enhancing availability of credit information; and iii) swift, safe and secure banking for small borrowers.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    in new window

    This book is provided by South East Asian Central Banks (SEACEN) Research and Training Centre in its series Research Studies with number rp60 and published in 2005.
    ISBN: 983-9478-47-8
    Handle: RePEc:sea:rstudy:rp60
    Contact details of provider: Postal:
    Level 5, Sasana Kijang, Bank Negara Malaysia, 2 Jalan Dato? Onn, 50480 Kuala Lumpur

    Phone: 603-9195 1888
    Fax: 603-9195 1801
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:sea:rstudy:rp60. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Azharin)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.