IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/4785.html
   My bibliography  Save this paper

Bank Financing for SMEs around the World: Drivers, Obstacles, Business Models, and Lending Practices

Author

Listed:
  • Beck, Thorsten

    (Tilburg University)

  • Demirguc-Kunt, Asli

    () (The World Bank)

  • Soledad Martinez Peria, Maria

    () (The World Bank)

Abstract

Using data from a survey of 91 banks in 45 countries, the authors characterize bank financing to small and medium enterprises (SMEs) around the world. They find that banks perceive the SME segment to be highly profitable, but perceive macroeconomic instability in developing countries and competition in developed countries as the main obstacles. To serve SMEs banks have set up dedicated departments and decentralized the sale of products to the branches. However, loan approval, risk management, and loan recovery functions remain centralized. Compared with large firms, banks are less exposed to small enterprises, charge them higher interest rates and fees, and experience more non-performing loans from lending to them. Although there are some differences in SMEs financing across government, private, and foreign-owned banks -- with the latter being more likely to engage in arms-length lending -- the most significant differences are found between banks in developed and developing countries. Banks in developing countries tend to be less exposed to SMEs, provide a lower share of investment loans, and charge higher fees and interest rates. Overall, the evidence suggests that the lending environment is more important than firm size or bank ownership type in shaping bank financing to SMEs.

Suggested Citation

  • Beck, Thorsten & Demirguc-Kunt, Asli & Soledad Martinez Peria, Maria, 2008. "Bank Financing for SMEs around the World: Drivers, Obstacles, Business Models, and Lending Practices," Policy Research Working Paper Series 4785, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4785
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2008/11/24/000158349_20081124111459/Rendered/PDF/WPS4785.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Berger, Allen N. & Rosen, Richard J. & Udell, Gregory F., 2007. "Does market size structure affect competition? The case of small business lending," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 11-33, January.
    2. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    3. Mirjam Schiffer & Beatrice Weder, 2001. "Firm Size and the Business Environment : Worldwide Survey Results," World Bank Publications, The World Bank, number 13988.
    4. Beck, Thorsten & Demirguc-Kunt, Asli & Laeven, Luc & Maksimovic, Vojislav, 2006. "The determinants of financing obstacles," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 932-952, October.
    5. Berger, Allen N. & Udell, Gregory F., 2006. "A more complete conceptual framework for SME finance," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2945-2966, November.
    6. Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
    7. Beck, Thorsten & Demirguc-Kunt, Asli, 2006. "Small and medium-size enterprises: Access to finance as a growth constraint," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2931-2943, November.
    8. Stephanou, Constantinos & Rodriguez, Camila, 2008. "Bank financing to small and medium-sized enterprises (SMEs) in Colombia," Policy Research Working Paper Series 4481, The World Bank.
    9. Beck, Thorsten & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2008. "Financing patterns around the world: Are small firms different?," Journal of Financial Economics, Elsevier, vol. 89(3), pages 467-487, September.
    10. Meghana Ayyagari & Thorsten Beck & Asli Demirguc-Kunt, 2007. "Small and Medium Enterprises Across the Globe," Small Business Economics, Springer, vol. 29(4), pages 415-434, December.
    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. Ardic, Oya Pinar & Mylenko, Nataliya & Saltane, Valentina, 2011. "Small and medium enterprises : a cross-country analysis with a new data set," Policy Research Working Paper Series 5538, The World Bank.
    2. Gersbach, Hans & Hahn, Volker & Liu, Yulin, 2017. "Macroprudential Policy in the New Keynesian World," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168185, Verein für Socialpolitik / German Economic Association.
    3. Laura Vasilescu, 2014. "ACCESSING FINANCE FOR INNOVATIVE EU SMEs KEY DRIVERS AND CHALLENGES," Economic Review: Journal of Economics and Business, University of Tuzla, Faculty of Economics, vol. 12(2), pages 35-47.
    4. Saadani, Youssef & Arvai, Zsofia & Rocha, Roberto, 2011. "A review of credit guarantee schemes in the Middle East and North Africa Region," Policy Research Working Paper Series 5612, The World Bank.
    5. Thorsten Beck & Asli Demirgüç-Kunt & María Pería, 2011. "Bank Financing for SMEs: Evidence Across Countries and Bank Ownership Types," Journal of Financial Services Research, Springer;Western Finance Association, vol. 39(1), pages 35-54, April.
    6. Veelaiporn Promwichit & Shamsher Mohamad & Taufiq Hassan, 2014. "PLS Based Financing for SMEs: Returns to IFIs," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 10(2), pages 61-75, April.
    7. World Bank, 2010. "Scaling-Up SME Access to Financial Services," World Bank Other Operational Studies 12515, The World Bank.
    8. repec:eee:glofin:v:34:y:2017:i:c:p:72-88 is not listed on IDEAS
    9. Michael Fuchs & Leonardo Iacovone & Thomas Jaeggi & Mark Napier & Roland Pearson & Giulia Pellegrini & Carolina Villegas Sanchez, 2011. "Financing Small and Medium Enterprises in the Republic of South Africa," World Bank Other Operational Studies 12687, The World Bank.
    10. Hossein Askari & Abbas Mirakhor, 2014. "Risk sharing, public policy and the contribution of Islamic finance," PSL Quarterly Review, Economia civile, vol. 67(271), pages 345-379.

    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:wbk:wbrwps:4785. 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: (Roula I. Yazigi). General contact details of provider: http://edirc.repec.org/data/dvewbus.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.