Gaps in Business
Access to Finance
Joe Lowther
Chief of Party
USAID Business Enabling Project
jlowther@bep.com
Approach: “Access” Defined
Healthy SMEs have access to formal lenders who are able and
willing to offer affordable and suitable financing.
Physical
Access
Availability
Proximity between lenders and SMEs, operating hours,
ease of making and keeping in contact, etc.
Supply of funds, willingness of lenders to lend, etc.
Affordability Cost of finance, level of borrower risk, management
burdens
Suitability
Suitability of products and services to SME needs
The Situation in the Region: Access to Finance Rankings
Availability of
financial services
Affordability of
financial services
Ease of access to
loans
Year
2010 2011 2012 2010 2011 2012 2010 2011 2012
SERBIA
111
103
97
99
93
100
91
97
105
ALBANIA
128
108
108
113
99
125
90
121
136
BOSNIA
119
126
121
120
124
113
102
122
123
BULGARIA
95
106
110
111
119
123
62
48
40
CROATIA
83
88
91
94
105
104
81
84
94
MACEDONIA
122
127
107
112
118
116
122
96
70
ROMANIA
104
104
109
100
106
103
78
82
75
SLOVAKIA
38
39
42
47
66
67
43
55
58
Source: World Economic Forum Global Competitiveness Report
The Situation in the Region: Financial Markets Rankings
Financial market
developmentsophistication
Financing through Venture capital
local equity market availability
Year
2010 2011 2012 2010 2011 2012 2010 2011 2012
SERBIA
94
96
100
101
112
124
102
121
126
ALBANIA
100
107
120
137
140
143
107
124
132
BOSNIA
113
124
119
102
111
89
126
125
127
BULGARIA
91
75
80
90
88
84
71
66
58
CROATIA
88
87
92
96
102
105
108
108
112
MACEDONIA
87
82
79
85
83
90
72
65
91
ROMANIA
81
84
77
89
89
80
80
77
76
SLOVAKIA
37
47
48
110
118
117
61
68
60
Source: World Economic Forum Global Competitiveness Report
The Situation in Serbia
• 60% of SME’s are not borrowing from formal sources
• 4 out of 5 SMEs report difficulty or have no wish to
access formal sources
• Distribution is skewed: Largest 8% (> RSD 1mn in
revenue) hold > 50% of debt
• Amounts small: 75% of loans less than EUR 50,000
• Key sectors under-served: Production, agriculture,
construction < 30% of total
• Banks are main credit source for 50-60% of SMEs, but
account for 30% of debt value
• 20% or less of finance directed for investment
Serbia ranked 105 out of 144 countries in access to loans
Percentage of sales – Serbia (2012)
Markets of the
neighboring
countries
3%
Other countries
3%
National market
12%
In the region
11%
In the hometown
71%
Average annual amount borrowed from the bank- SMEs sector
(2011, 2012)
50.80%
60.00%
50.00%
40.00%
2011
36.00%
39.30%
2012
29.70%
30.00%
20.00%
10.40%
10.50%
10.00%
6.70%
11.60%
2.40%
0.00%
2.60%
Up to 10 000
Eur
10 000 - 50
000 Eur
50 000 - 100
000 Eur
100 000 - 500
000 Eur
Over 500 000
Eur
Suitability of available finance – Serbia (2012)
% of surveyed enterprises
Denomination of the loan in local currency (dinars)
22%
41%
37%
Quality of service and support of financial
institutions / banks
25%
37%
38%
Reporting requirements by the bank
23%
36%
41%
Duration of loans
26%
40%
34%
Duration of the loan approval process
25%
41%
34%
Collateral requirements
Denomination of the loan in foreign currency
13%
10%
Interest rates and fees 6%
53%
51%
68%
34%
39%
26%
8
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Suitable
Not suitable
No opinion
Type of finance used – Serbia (2012)
% of surveyed enterprises
Corporate bonds
1%
99%
Issuance of shares
2%
98%
Letter of credit
6%
Revolving credit
94%
21%
Guarantees
79%
18%
Overdrafts
82%
33%
Term loans
67%
41%
59%
9
0%
10%
20%
30%
Used
40%
50%
Not used
60%
70%
80%
90% 100%
Constraints to Access to Finance In Serbia: The Big Picture
Supply-Side Constraints
Enterprise-Side Constraints


Weakened financial capacity

Borrower attitudes and risk
aversion

Weak capacity to present
business

Weak SME market leverage
Inefficient credit
enforcement

High costs of financing

Poor product suitability

Regulatory disincentives

Few alternative sources of
finance

Weak supporting services

Limited effectiveness of
state and donor funds
FINANCING
GAP
Demand-side Constraints
Weakened
Financial
Capacity
Borrower
Attitudes &
Risk Aversion
Information
Asymmetry &
Legitimacy
Liquidity
issues
Low risk
tolerance
Weak
capacity
Weak
national
advocacy
Inadequate
collateral
Expectations
of state
support
Informal
economy
Weak
negotiating
position
Negative
sentiment
Co-mingling
of finances
Weak credit
culture
Poor
SME Market
Leverage
Recommendations: Demand-side
Weakened
Financial
Capacity
Liquidity
Issues
Inadequate
Collateral
Various measures to improve liquidity conditions
– VAT tax payments, reduction of payment delays
through public sector supply chain, etc.
Better education for SMEs on collateral
management
Fast track permitting for qualified real estate
collateral
Recommendations: Demand-side
Borrower
Attitudes &
Risk Aversion
Low risk
tolerance
Expectations
of state
support
Negative
Sentiment
Weak Credit
Culture
More communication and collaboration needed
between lenders and SME’s (+professional
services community)
Reduce politicization of state support
Improvements in credit enforcement will help to
reduce the personal exposures of borrowing
Public-private collaboration in improving public
awareness and helping to promote positive credit
culture
Support for entrepreneurship and belief in SMEs
needs to be explicit and promoted by
government
Recommendations: Demand-side
Information
Asymmetry &
Legitimacy
Training and support to business organizations to
build capacity of members
Weak
capacity
More training and outreach by lenders and more
engagement by the professional services
community
Informal
Economy
Development of standardized guidelines and
toolkits
Adoption of simplified accounting standards for
SMEs
Targeted incentives to get businesses out of
informal economy
Recommendations: Demand-side
Poor
SME Market
Leverage
Weak
National
Advocacy
Weak
negotiating
position
Business associations to take a more active role in
advocating for specific reforms to improving
access to members
Business associations to take on intermediary
functions in working with banks and members to
facilitate credit flows
More education for SMEs on how to organize and
make joint approaches to lenders
Elevate the use of public institutions to identify
and promote reforms – Council of SMEs, regional
development organizations
Public-private initiatives to promote value chainbased financing
Large corporations should help with solutions
Strengthen knowledge about the SME sector
Recommendations: Key Legal Issues
 Improve banks’ ability to enforce loans
 Amend mortgage law and cadaster rules to enable resolution of junior claims
 Strengthen court adherence to mortgage law; reduce un-merited debtor-led
motions to halt foreclosures; streamline appeals process
 Strengthen bankruptcy administration
 Improve enforcement to prevent avoidance and fraudulent transfer
 Reduce regulatory barriers to SME lending
 Apply RIA to financial regulations; consider use of “SME test”
 Calibrate regulatory requirements to the risks of SME lending (e.g. banks vs.
leasing, SMEs vs. Large Corporates)
 Reduce reliance on minimum loan loss provisions based on payment status
 Consider expanding the definition of “acceptable” collateral and eliminate
regulatory differentiation between types of collateral
 Reduce credit file documentation requirements for SME lending
 Liberalize regulations to allow banks to innovate for SME lending
 Enable NBFI expansion
 Legislation to allow new non-bank non-deposit taking lenders; adopt Law on
Factoring; strengthen the law on leasing
See our Study and White Paper “Financing the
Growth of Small and Medium Sized Enterprises”
at http://www.policycafe.rs/english/financialresearch_en.php#access-to-finance