Quantitative analysis of small and medium-sized enterprises (SMEs) financing in El Salvador, Central America. A situation complicated by high criminality

Abstract

This article analyzes financing alternatives for SMEs in El Salvador (Central America) that operate in the context of high levels of crime. SMEs represent 9.0% of the country's business sector, and together with micro-enterprises they account for 99.6%. Likewise, both participate with 35% of GDP and 67% of employment. The loans from the financial system, as of December 31, 2020, amounted to $3,107.22 million, which covered 60% of SMEs’ demand. Four hypotheses are proposed and tested using Multiple Indicators Multiple Causes (MIMIC), a structural equation model (SEM). The model revealed that the Salvadoran banking system has low confidence in the country's SMEs, which makes it extremely difficult for these companies to obtain loans. Some structural changes in the country's financial sector are urgently needed, but the state of violence and degree of mistrust in financial and social institutions are difficulties that only a real state of law and order can overcome. This, in turn, can act as a catalyst for sustainable economic progress. The sample includes 405 cases obtained from the surveys of managers in various companies. They were carried out during the months of March, April, May and June in 2019.