GLOBAL FINANCIAL DEVELOPMENT REPORT 2014
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Washington, DC, http://www.enterprise surveys.org. This information is from the same IFC Enterprise Finance Gap Database through the SME Finance Forum, http://smefinanceforum.org. The data set considers as informal all microenterprises and SMEs that are not registered with the authorities and all nonemployer firms (independently of registration status). For additional information on the informal surveys, see “Enterprise Surveys Data,” World Bank, Washington, DC, http://www .enterprisesurveys.org/Data. The evidence on the impact of these training courses is summarized in McKenzie and Woodruff (forthcoming). The study measures aggregate effects, that is, increases in average income (Bruhn and Love 2013). Critics have been concerned that Banco Azteca may do more harm than good among some borrowers because of its high interest rates and diligent repossession of collateral, including household appliances, in the case of default. These issues are of particular concern with respect to individuals with low levels of financial literacy. Note, however, that a recent study examining the impact of loans with a 110 percent annual interest rate given out by the largest microlender in Mexico, Compartamos Banco, finds little support for the hypothesis that microcredit causes harm (Angelucci, Karlan, and Zinman 2013). Although average returns to capital are high among microenterprises, there may be considerable variation in these returns across firms. The study relies on cross-sectional data whereby firms report employment levels for multiple years so that employment growth may be calculated. The data thus do not capture firms that have closed by the time the survey was conducted. A study on the United States using repeated survey data finds that small firms display higher net employment growth than large firms (Haltiwanger, Jarmin, and Miranda 2010). However, once the authors control for firm age, there is no relationship between firm size and employment growth. See the discussion in our chapter here on young firms. SMEs in developing economies face many other constraints to growth, including regulatory obstacles, missing physical infrastructure (such as roads and reliable electricity supply), and lack of skills.
FINANCIAL INCLUSION FOR FIRMS
12. Another potential explanation for the findings is that small firms were less productive so that they could not pay market interest rates. However, more than 95 percent of small firms had at least some credit at market interest rates. Moreover, the paper does not find that more productive firms were less affected by the drop in subsidized credit. 13. For most countries, the survey does not include comprehensive information on the share of loan applications that were rejected or on the reasons for rejection. 14. The incentives for banks to lend to SMEs can also depend on the regulatory framework, for example, on capital requirements. Regulators are currently introducing Basel III, which is a new global regulatory standard on the capital adequacy and liquidity of banks agreed by the Basel Committee on Banking Supervision in response to the deficiencies in financial regulation revealed by the global financial crisis. Basel III introduces new regulatory requirements on bank capital, liquidity, and leverage. The higher capital requirements are expected to raise the average cost of bank liabilities, which could push up the interest rates charged on loans, including to SMEs (GFPI 2011f). Also, see chapter 1 for an in-depth discussion of how banking market structure influences access to finance. 15. These numbers also reflect a merger with Fortis Bank in 2010. 16. For more information, see IFC (2012b) and the underlying IFC case study on Turkey. 17. Other products offered by IFC include lines of credit to banks in developing economies for on-lending to SMEs. There is a lack of rigorous evidence on the impact of these credit lines. More research is needed to determine how effective they are in increasing access to credit among SMEs that would not otherwise have received a loan. 18. Another type of credit guarantee helps financial institutions raise long-term funds. For example, the World Bank is providing a partial credit guarantee for up to €200 million to the Croatian Bank for Reconstruction and Development to support fundraising in financial markets for on-lending to private sector exporters and foreign currency earners. 19. Given the scale of credit guarantee schemes around the world, there is relatively little evidence on whether and how they work. More research is needed in this area to complement the few existing studies.
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