The Role of Small and Medium Enterprises and Bank Profitability - A Mauritian Perspective

Abstract

This paper empirically investigates the role that Small and Medium Enterprises (SMEs) play in influencing the profitability of Banks in Mauritius. Making use of panel data spanning from 2001 to 2008, the empirical findings reveal that SMES do not contribute to bank profitability in Mauritius. Banks are more concerned about large corporates as SME financing is seen to be highly risky as the latter do not have sufficient collateral to provide and are therefore constrained in terms of bank financing. The ideal source of finance is through leasing companies. However, the most important determinant of bank profitability is Credit risk.