Small And Medium Enterprises Financing Research Articles

Associating MFIs with SMEs to Assist Post Pandemic Economic Resilience in Bangladesh

Small and Medium Enterprises (SMEs) are one of the major sources of economic growth. Recent economic growth and development of Bangladesh have been highly linked with the flourishment of SMEs. Access to formal finance is one of the major impediments for the growth of SMEs. The recent economic slowdown due to the COVID-19 pandemic causes the SMEs to suffer to remain in the business. Supply chain disruption, unsold products, lack of product demand, liquidity crisis become more severe in this case. The government of Bangladesh is trying to help SMEs by providing funds through the banking sector but previous studies show the banking sector is not as effective for SME financing. Besides recent banking sector performance seems to be very poor. Therefore, to ensure the best use of funds we need an alternative channel. Mico-Finance Institutions (MFIs) can play a better role in this case. Several studies have shown microfinance was a successful tool to recover small businesses after natural disasters. This paper aims to address the role of microfinance to post-disaster SME financing and identifies the current gap between these two.

Factors behind trade credit financing of SMEs in Croatia

Small and medium enterprises (SMEs) contribute to the national economy in terms of employment, added value, knowledge generation, and innovation. However, their potential and in the case of economic downturns even their survival is affected by the difficulties in their access to external financing under acceptable terms and adequate timing and amount. In the case of asymmetric information problems, which make SMEs more sensitive to financial market imperfections, trade credit can be a valuable source of financing. In the European Union, trade credit is among the most relevant external funding sources and it is among the most important alternatives to financial intermediaries’ financing. However, there are substantial differences between the countries with respect to availability and use of trade credit. Therefore, this research examines determining (company-specific and country-specific) factors behind the use of trade credit as a financing source in Croatia. The empirical analysis is based on the data for 1,225 SMEs operating in Croatia in the period from 2008 to 2017 and is done using the panel data methodology. The findings confirm that firms’ characteristics, as well as the characteristics of financial, macroeconomic and legal environment in which the firms operate, influence the use of trade credit in SMEs in Croatia. The paper contributes to relatively scarce empirical evidence on the determinants of trade credit use by SMEs in South-East European countries.

The price of a disadvantaged location: Regional variation in the price and supply of short-term credit to SMEs in the UK

ABSTRACTAccess to inexpensive short-term credit from banks is vital for many small and medium enterprises (SMEs), which face liquidity problems because of an imbalance between cash outflows and receipt of outstanding payments. This article investigates the key determinants of short-term credit access and pricing for UK SMEs, disentangling between regional effects and firm-specific effects (that is, credit risk ratings). We use a large dataset of 30,183 responses to six waves of the SME Finance Monitor survey. While there are underlying differences at the firm level in risk behavior across regions, our key finding is that, faced with the same risk, banks do react fairly to funding applications in terms of access but not price at the regional level. We conclude that regional differences directly and indirectly affect the way banks allocate and price short-term credit. There is evidence of a peripheral region price penalty.

Is the Alternative Exchange achieving its objectives? A capital structure perspective

Orientation: Despite their significant contribution to the South African economy, the majority of small and medium enterprises (SMEs) fail because of lack of access to appropriate types of capital. The Alternative Exchange (AltX) was established to address the lack of access to equity finance for SMEs. Research purpose: This study aims to determine whether the AltX has adequately enabled access to equity finance for the firms listed thereon. Motivation for the study: This study was motivated by the apparent lack of SME access to appropriate forms of finance. By evaluating the effectiveness of the AltX, the study seeks to investigate whether further measures are required to enable access to equity finance for SMEs. Research design, approach and method: A quantitative methodology was employed and panel regression models were used to compare the levels of equity and debt of firms listed on the AltX to those listed on the Johannesburg Securities Exchange’s (JSE) main board. In this manner, the study aims to determine whether AltX firms enjoy the same level of access to capital markets as their counterparts on the JSE. Main findings: The findings indicate that firms listed on the AltX have significantly higher levels of debt than those listed on the JSE’s main board. This debt tends to be the more accessible yet risky short-term debt. Practical/managerial implications: The findings infer that despite the establishment of the AltX, SMEs still face considerable constraints to accessing equity finance and, as such, may be compelled to consider other means of raising finance. Contribution/value-add: This study contributes to the research on SMEs in South Africa and suggests that further interventions are required to enable their access to appropriate forms of finance.

Innovation and SME finance: Evidence from developing countries

This paper explores the relationship between firm-level innovation and external finance for small and medium enterprises (SMEs). Our sample consists of 13,430 firms from Eastern Europe and Central Asian countries. A propensity score matching approach reports a positive relationship between formal finance and product and process innovation, which is greater for early-stage SMEs than for mature counterparts. However, informal finance has more significant impact on mature firms' product innovation. Our empirical evidence highlights policy implications for countries desiring to enhance the innovation of their SMEs by improving the external finance of these SMEs.

SME financing innovation and SME development in Bangladesh: an application of ARDL

With this study, we try to explore new evidence about financial innovation in small and medium enterprises (SME) financing impact on SME development in Bangladesh from 1985 to 2016. To bring insight, we apply Autoregressive distributed lag (ARDL)-bound testing approach of ascertaining the long-run relationship between financing innovation and SME development, and also investigate directional causality by applying Granger-causality under error correction model. Bound testing confirms the existence of long-run relationship between SME financing innovation and SME development in Bangladesh. Furthermore, Granger-causality test provides evidence to support feedback hypothesis between proxy indicators of financing innovation and SME development both in long-run and short-run. Furthermore, among all control variables, only trade openness confirms unidirectional causality toward SME development in short-run; on the other hand, in long-run, all the variables cause SME development at country level. The study suggests that well-functioned SME financing is a necessary condition but not sufficient to maximize the potential of SME in Bangladesh. So, the government should encourage financial institutions for bringing new ways of SME financing by ensuring cost-effective financial services with a uniform cost structure at large.

Financial Intermediation Through Financial Disintermediation: Evidence from the ECB Corporate Sector Purchase Programme

We study the spillover effects of financial disintermediation on the supply of credit to small and medium enterprises (SMEs). We find direct central bank lending to large corporations induces banks to increase lending to SMEs by 8 to 12 percent. This effect is stronger for liquidity-constrained banks. SMEs with relationship banks affected by disintermediation borrow approximately €77,750 more relative to SMEs in the same country and industry. SMEs use these funds to invest in real activities and increase employment. We verify that our inferences are not due to changing economic fundamentals, demand from SMEs, or selection in central bank financing. Despite documenting positive effects, we also find that they disappear once new liquidity injections stop and the policy reaches a steady-state. Our findings provide some insights into this macroeconomic policy tool's ability to increase employment during the ongoing COVID-19 pandemic through financial disintermediation serving as an additional channel to provide access to financing for SMEs.

Overcoming SMEs Financing and Supply Chain Obstacles by Introducing Supply Chain Finance

Keeping in view the importance of small and medium enterprises (SMEs) for the growth of a nation, we must also keep an eye on the challenges faced by those SMEs. There are various kinds of financing and supply chain options available for SMEs but they still face lot of hindrances. This paper would help us to understand why SMEs are important for the development of any country and how could we help the SMEs from facing challenges related to financing and supply chain. This study further highlights the key financing issues faced by SMEs and also focuses on major supply chain challenges confronted by the SMEs. This study put emphasis on the concept of supply chain finance (SCF) and that how SCF could help SMEs to overcome those challenges. In addition, this paper also points out the benefits and prospects of SMEs. Even though the concept of SCF is still in developing phase but it has shown significant assistance to SMEs in order to grow further.

Overcoming SMEs Financing and Supply Chain Obstacles by Introducing Supply Chain Finance

Abstract Keeping in view the importance of small and medium enterprises (SMEs) for the growth of a nation, we must also keep an eye on the challenges faced by those SMEs. There are various kinds of financing and supply chain options available for SMEs but they still face lot of hindrances. This paper would help us to understand why SMEs are important for the development of any country and how could we help the SMEs from facing challenges related to financing and supply chain. This study further highlights the key financing issues faced by SMEs and also focuses on major supply chain challenges confronted by the SMEs. This study put emphasis on the concept of supply chain finance (SCF) and that how SCF could help SMEs to overcome those challenges. In addition, this paper also points out the benefits and prospects of SMEs. Even though the concept of SCF is still in developing phase but it has shown significant assistance to SMEs in order to grow further.

Potential Sources of Financing for Small and Medium Enterprises (SMEs) and Role of Government in Supporting SMEs

Potential Sources of Financing for Small and Medium Enterprises (SMEs) and Role of Government in Supporting SMEs Waseem Ahmed Abbasi, Zongrun Wang, Danish Ahmed Abbasi Abstract There is no second thought that financing is a key tool for the growth of any firm and accessing the right kind of financing according to the firm’s need is of more vital importance. Access to finance for Small and medium enterprises (SMEs) is always a hot discussion for the researchers. Having known that SMEs are considered as backbone of economy and play key role for the growth and development of country, they face hindrances while accessing the finance from financial institutes. Keeping in view the importance of SMEs, this paper aims to widen the understanding on the available alternative financing options accessible to SMEs and entrepreneurs; this will enhance their knowledge about the full scope of financing instruments that they can access in various circumstances and by having healthy discussion among stakeholders about new methodologies and creative strategies for SME and business enterprise financing. Other than that, this paper also aims to highlights the SME demographics and role of government for supporting the SMEs. Full Text: PDF DOI: 10.15640/jsbed.v5n2a4

SME firm characteristics impact on the choice of sources of financing in South-West, Nigeria

The purpose of this paper is to study the impact of firm-specific characteristics in the South-West, Nigeria on the choice of the sources of financing of small and medium enterprises (SME). To assess the impact of SME firm characteristics on choice of financing in terms of debt and equity, SEM-PLS and logistic regression are used. Significantly, the findings recommend that age, location, size, measure in terms of employment, sales turnover, expansion, and assets influence the choice of financing of SME in Nigeria. SME basically incline towards internal funding sources over external funding and the older and bigger firm makes less use of debt financing. The study has provided an indication concerning the application of the life cycle proposition. For this reason, the life cycle theory is supported. In extending the existing literature, this paper presented the evidence discussed. The methodological method and the experiential results give a degree of analysis unmatched through the earlier study on Nigeria firms from an academic degree of opinion. In addition, the findings will enlarge the cognition and the perception of SME firm managers. They can influence through valuable information to help them in their choice process with respect to their organisation's capital structure during a period when SME financing hassles are increasingly elicited in the Nigeria setting.

Difficulties and Countermeasures on the Financing of SMEs

It is normal for Small and Medium Enterprises (SMEs) to develop a variety of problems, but how do we solve these problems in the right way? In the development of SMEs, we sum up some effective measures, carry out various innovations, design a variety of modes of operation, all of these measures to some extent alleviate the plight of SMEs financing and promote the development of small and medium enterprises. In order to solve the financing difficulties faced by SMEs, to further promote the development of SMEs, better serve and promote the development of SMEs, based on the theory and successful practice, this paper puts forward the policy recommendations to solve the financing difficulties of SMEs.

Determinants of SME Finance: Evidence from Three Central European Countries

Abstract This paper explores the determinants of access to finance for small and medium enterprises (SMEs) in the context of three Central European countries: Czech Republic, Slovak Republic, and Hungary. The data set of the research is obtained from the BEEPS survey, which is conducted by the World Bank and the European Bank for Reconstruction and Development. This paper empirically analyses firms not only from the SMEs point of view, but also shows results for micro, small and medium enterprises separately. Additionally, we have analysed the determinants of access to finance for SMEs at each country level for an in-depth understanding of country-level variations in SME financing. The results indicate that micro firms and firms owned and operated by women are experiencing a shortage of credits from banks. On the other hand, we found a positive relationship between the pledge of collateral and access to finance. With respect to the medium firms, we found evidence that innovative firms have a larger amount of credit from banks. The empirical results also suggest that the loan size increases as the interest rates increase in particular for SMEs on the whole and for micro-firms, although the interest rate is in a negative relationship with the loan size in Czech Republic.

SME finance and the construction of value in Rwanda

PurposeThe purpose of this paper is to explore how entrepreneurs, banks, the government, and alternative lending respond to finance gaps for small and medium enterprises (SMEs). This paper considers valuation as a sociological construct where actors use different calculative devices, forming an assemblage that partly positions valuation of entrepreneurial finance as a contested and socially constructed process.Design/methodology/approachDrawing on the concept of “calculative devices”, the study articulates discursive institutional practices embedded within SME lending. This case study draws on analyses of 30 semi-structured interviews and archival data, government reports, and newspaper articles.FindingsThe study identified three triggers in Rwanda that were rooted in the informal and unincorporated nature of the SME governance structure, the lack of capacity for SME owners to manage their own projects, and normalising language around collateral requirements that marginalised the realities of SMEs, contributing to stagnation for SME finance.Practical implicationsThe research provides direction for understanding how calculative devices create new forms of valuation of entrepreneurship in developing countries, particularly when human and non-human actors come together in an assemblage. The study calls for further research to demonstrate the embedded power of valuation practices and the performance of value in entrepreneurial finance.Originality/valueThe study brings new findings to the market creation literature by extending the notion of distributive calculative agency to SME finance. The study mobilises theory to interpret how discursive institutional practices are embedded within a country’s finance infrastructure, yielding unintended consequences for SME growth.

Microfinance Sector and Sme Financial Suport in Albania

The creation of the microfinance sector and its functioning in Albania has played an essential role and has been and is a powerful tool for the development of small and medium enterprises (SMEs) of Albanian agribusiness. Microfinance has played an ever more decisive role in increasing output, reducing unemployment, improving the level of living conditions and welfare of the population, especially in rural areas, creating new jobs, contributing significantly to economic development Of the country. The growth and development of SMEs plays a fundamental role in the national economy, serving as a driving force in the country's economic development. Empirical evidence suggests that the growing SME sector and the dynamism of their development can strongly contribute to achieving a broad range of development objectives, such as: Achieving income distribution and poverty reduction; Creating employment; Savings mobilization; And production of goods and services that meet basic basic needs of the individual and society. Despite the great contribution to the growth and economic development of the country, the growth and development of SMEs in our country has been hampered by financial access, poor management skills, and lack of training opportunities and high input costs. Liquidities' sluggishness and low access to finance for SMEs is the biggest obstacle to them. SMEs have limited access to financial services provided by formal financial institutions to meet their liquidity and investment needs.

Trilinc Global Impact Fund

This case calls students to evaluate an investment in impact-oriented private-debt fund TriLinc Global. The fund is led by Wall Street veteran Gloria Nelund and provides debt financing to small and medium enterprises (SMEs) in emerging markets. The case discusses the well-known shortages in SME finance globally and the role SMEs play in emerging economies. In her desire to make the impact investing accessible to retail investors, Nelund registered TriLinc Global with the SEC. The case discusses the TriLinc Global Impact Fund's (TriLinc Global's) unique structure and how it addresses capital-shortage problems in global SME finance. The case opens with Abena Dede looking at the request for proposal from a new potential client, Yohan Van den Berg. Dede's private-wealth-management firm was transitioning from a single-revenue-source business to a more diversified family office. With a roughly $150 million potential account, Van den Berg was a very attractive prospective client who made clear that his investment objectives included “rational and return oriented” impact investing. He had already declined allocation of part of his portfolio to the BlackRock Impact Bond Fund.Dede was intrigued by TriLinc Global. The fund had made most of its investments through term loans and trade financing. TriLinc Global's loans were collateralized, short-to-medium maturity, had strict loan covenants, and were self-liquidating through repayment of principle with established businesses. The investments range was $1 million to $10 million per transaction with three-to-five-year terms. Trade financing involved short-term capital to importers and exporters. Most of TriLinc Global's experience had been with exporters through senior-secured trade finance. These trade-finance transactions ranged between $500,000 to $5 million and had terms between three and eight months. The material requires students to explore the TriLinc Global and BlackRock Impact Bond funds and evaluate investment strategies. Excerpt UVA-F-1779 Aug. 8, 2017 TriLinc Global Impact Fund Abena Dede was looking at the request for proposal from a new potential client, Yohan Van den Berg. Dede's private-wealth-management firm was transitioning from a single-revenue-source business to a more diversified family office. With a roughly $ 150 million potential account, Van den Berg was a very attractive prospective client. Dutch by birth and upbringing, Van den Berg moved to the United States in 1999 for a graduate degree in engineering at the California Institute of Technology. The U.S. education led him to Microsoft and then to a small start-up that in 2014 was bought by the technology giant at which Van den Berg had started his career. The sale left Van den Berg and his family with enough capital to retire in their newly built “fully sustainable” house in suburban Seattle, Washington. . . .

Firm-Level Determinants of the Financing Decisions of Small and Medium Enterprises: Evidence from Argentina

ABSTRACTThis article studies the determinants of the financing decisions of small and medium enterprises (SMEs), which we characterize through three cases: trade-off behavior, pecking order, and extreme aversion to debt. We test our hypotheses using a dataset of firms from Bahía Blanca (Argentina) for two years: 2006 and 2010. We find that firm characteristics related to information asymmetries, such as firm age, size, and legal form; and personal factors, such as owner’s age and education; and perception of emotional bankruptcy costs, are relevant variables in SME financing behavior. The recognition of extreme aversion to debt motivates reconsideration of the underleverage problem of SMEs.

The Role of the Banking System on the Financing of Businesses and the Determinants of the Lending Level on SMEs in Kosova

The bank-business relations are the basis of the business volume between them. It is the banking system which makes it possible to support the whole cycle of the business financial operations. The bank credits for investment, technology, purchase of raw materials and other opportunities. Banks do also make it possible to do the payments for different services that are already a legal liability for businesses. From a recent confrontation between the business, banks and other financial intermediaries in the banking sector in Kosova, several problems were detected such as: banks retain a high level of interest in business loans, which creates a not very friendly environment between them; banks have very high service payments which are almost unaffordable for small businesses but they are obliged to go through them; according to different statistical reports carried, banks have reached high profit rates compared to the difficulties of small businesses to survive in the current global crisis. Therefore, the creation of systems of guaranteed funds and soft loans must be part of the constant lending policy of the bank-business relation. The banking system in Kosovo has deeply obtained the confidence of individuals and businesses considering its developing from scratch. Based on the existing national and international studies the banking system in the region and wider is considered as consistent in front of the current global crisis. Nevertheless, although sustainable and powerful, the banking system in Kosova remains among the main barriers in the business environment in Kosovo. The SMEs in Kosova are playing an important role on the economical development of Kosova. They are considered as the main source of job vacancies and the rapid generation during the recent years. This scientific research aims to identify and analyze the activity of the banking system in Kosovo, which continues to expand, while maintaining a satisfactory level of sustainability in all its constituent segments. Case studies rely on quantitative data derived from reports of financial stability and where the main focus of this paper is to explain the role of Kosovo's banking system in the financing of SMEs through the economic analysis using econometric models tested in the Stata program. The empirical analysis will be accomplished by applying linear regression method. At the end of the study it is concluded that the ease credit offer is generally attributed to the ease of lending standards for small and medium enterprises (SMEs), for long-term loans and short term loans.

Viability of Musharakah as an Alternative Financing Mode for Small and Medium Enterprises: The Cases of Klang Valley and Selangor, Malaysia

Small and Medium Enterprises (SMEs) have been recognized as one of the most important component that contributes towards the economic growth of many countries around the world. Despite its importance, SMEs have limited access to external financing that is dominated by debt financing. They have difficulty in fulfilling debt requirements particularly in providing collateral, coping with high interest/ profit payment and adapting to credit rationing. Such limitations curb their growth and expansion.Therefore, there is a need to explore an alternative financing,which is more accessible by SMEs. Quantitative method is adopted in this study. Questionnaires were self administered using drop-off method, to a sample of 100 SMEs firms in Klang Valley and Selangor, Malaysia. The data were analyzed using Exploratory Factor Analysis. Musharakah is found to be s viable alternative financing mode for SMEs. Its three main features, namely (i) risks sharing (ii) profit and loss sharing and (iii) participation have immense potential of salvaging SMEs from their debt based challenges of access to financing, collateral, high interest. This study contributes towards a better understanding of the potential of Musharakah as a viable financing for SMEs. Hence, it provides foundation and direction in structuring Musharakah as an alternative financing mode for SMEs

Financing patterns of SMEs in India during 2006 to 2013 – an empirical analysis

The main purpose of the study is to provide a comprehensive view on the financing state of small and medium enterprises (SMEs) in India. Using the information from the financial statements of 1524 SMEs, provided by the database of Centre for Monitoring the Indian Economy, PROWESS, it analyses the financial ratios of SMEs and the components of debt during the period of 2006–2013. The study describes the financing pattern of SMEs by examining differences across the firm characteristics, namely size, age, ownership, sector, and region. The major findings revealed the dependence of SMEs on short-term debt, and the most frequently used sources of finance are trade credit and bank loans. Hierarchical regression analysis revealed that the major determinants of the capital structure of SMEs are age, profitability, tangibility, and liquidity. Overall, this study concludes that the financing condition of SMEs in India needs to be improved and, therefore, suggests exploring new financing avenues specifically designed to solve the problems of SME financing.