Financial Information Infrastructure and Small and Medium-Sized Enterprise (SME) Finance

Post-event Statement

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Background

Small and medium-sized private enterprises are expected to play a major role in creating jobs and maintaining economic dynamism. In transition economies, however, they are faced with a host of obstacles in their business activities: a multitude of administrative barriers, lack of entrepreneurship, limited access to finance, lack of skills and technologies, etc. Among these constraints, financing difficulty is often the most serious particularly for smaller businesses. Banks used to channel funds almost exclusively to state-owned enterprises. This behavior is understandable since lending to new and small private firms is costly and risky in the absence of adequate information about these firms. Credit to these firms is particularly limited when banks are subject to interest ceilings.

There are three broad approaches to addressing the financing difficulties of small and medium-sized enterprises (SMEs). First, as a way of reducing information asymmetry between banks and small private firms, appropriate bookkeeping and accounting practices can be encouraged. Loan application and evaluation processes can also be simplified in light of the realities of these firms. Second, new financial institutions or facilities may be established to better meet the financing needs of SMEs and to support start-up firms. They may include specialized banks, non-bank financial institutions, and various funds for investment or lending to SMEs. Finally, the government can help SME financing by putting in place financial infrastructures—such as credit guarantees, credit rating and credit bureaus—geared to better support SMEs. Though these efforts have been made in all the Asian transition economies to some extent, the progress and experience are different across countries.

This course will focus on

• reduction of information asymmetries between SMEs and financial institutions at the enterprise level,
• institution building for better functioning financial markets for SMEs, and
• provision of financial infrastructures for improved information about creditworthiness of SMEs.

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Objectives

The course aims at helping government and financial sector officials to

• Share experiences in other transition economies with initiatives for alleviating financing difficulties faced by SMEs,
• Better understand best practices in financial support for SMEs in transition economies, and
• Formulate medium-term visions and strategies for developing the financial market better geared to supporting SMEs.

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Outputs

• A concept note describing financing environment for SMEs initiatives for improving the situation in the participating countries
• About 15 trained participants who have a clearer vision and strategies for developing financial markets and infrastructure geared to better support SMEs, and
• Workshop materials published in a book form and on the website.

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Participants

Senior officials involved in financial market regulations and financial policies relevant for SMEs will be invited from Cambodia, Lao PDR, Myanmar, Viet Nam, and some central Asian countries.

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Language

English (interpretation not provided)

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Responsibilities

Each participant, or participants from a country as a group, is expected to bring a report on SME financing in each country. The note might be refined during the course to sharpen ideas about priorities for improving the financing environment of SMEs. The country reports will be presented by country participants and discussed among all participants.