IDEAS home Printed from https://ideas.repec.org/p/nam/befdwp/0106.html
   My bibliography  Save this paper

Policy instruments to improve MSMEs access to external financing in developing countries: A survey

Author

Listed:
  • Modeste Dayé

    () (CRED, University of Namur)

  • Romain Houssa

    () (CRED, University of Namur)

  • Paul Reding

    () (CRED, University of Namur)

Abstract

This paper presents the salient factors that characterize important aspects of firms’ access to external finance in developing countries. Cross-country data show that micro, small and medium-sized enterprises (MSMEs) face more external financing constraints in Low Income Countries than in their rich counterparts. To explain this fact we distinguish both demand and supply factors underlying external financing constraints. We then argue for a catalytic role that development cooperation can play in alleviating these constraints. We present an illustration based on the policy instruments that have been used by development cooperation. Our particular interest is to document how well the Belgium Development Cooperation support of MSMEs compares to that provided by four other European countries: France, Germany, The Netherlands, and Sweden. We conclude with a discussion on the critical policy issues as regards the effectiveness of these interventions.

Suggested Citation

  • Modeste Dayé & Romain Houssa & Paul Reding, 2015. "Policy instruments to improve MSMEs access to external financing in developing countries: A survey," BeFinD Working Papers 0106, University of Namur, Department of Economics.
  • Handle: RePEc:nam:befdwp:0106
    as

    Download full text from publisher

    File URL: http://www.befind.be/publications/WPs/WP6
    File Function: First version, 2015
    Download Restriction: no

    References listed on IDEAS

    as
    1. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
    4. Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 663-691.
    5. John A. Weinberg, 1994. "Firm size, finance, and investment," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 19-40.
    6. Claudio A. Bonilla & Christian A. Cancino, 2011. "The Impact of the Seed Capital Program of SERCOTEC in Chile," IDB Publications (Working Papers) 3824, Inter-American Development Bank.
    7. David Neumark & Brandon Wall & Junfu Zhang, 2011. "Do Small Businesses Create More Jobs? New Evidence for the United States from the National Establishment Time Series," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 16-29, August.
    8. Gladys Lopez-Acevedo & Hong W. Tan, 2011. "Impact Evaluation of Small and Medium Enterprise Programs in Latin America and the Caribbean," World Bank Publications, The World Bank, number 2298.
    9. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    10. Meghana Ayyagari & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2008. "How Important Are Financing Constraints? The Role of Finance in the Business Environment," World Bank Economic Review, World Bank Group, vol. 22(3), pages 483-516, November.
    11. Chong, Terence Tai-Leung & Lu, Liping & Ongena, Steven, 2013. "Does banking competition alleviate or worsen credit constraints faced by small- and medium-sized enterprises? Evidence from China," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3412-3424.
    12. Hellmuth Milde & John G. Riley, 1988. "Signaling in Credit Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 101-129.
    13. Voordeckers, Wim & Steijvers, Tensie, 2006. "Business collateral and personal commitments in SME lending," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3067-3086, November.
    14. Claudio A. Bonilla & Christian A. Cancino, 2011. "The Impact of the Seed Capital Program of SERCOTEC in Chile," IDB Publications (Working Papers) 61258, Inter-American Development Bank.
    15. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
    16. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Romain Houssa & Paul Reding & Albena Sotirova, 2017. "Methodological issues of an impact evaluation of development support in agriculture," BeFinD Working Papers 0120, University of Namur, Department of Economics.

    More about this item

    Keywords

    MSME; external finance; DFI; information asymmetry;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Y10 - Miscellaneous Categories - - Data: Tables and Charts - - - Data: Tables and Charts

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nam:befdwp:0106. 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: (Marie-Helene Mathieu). General contact details of provider: http://edirc.repec.org/data/fsfunbe.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.