SME Loans Research Articles

An Investigation into the Impact of Interest Rate Fluctuations by Financial Lending Institutions on Small and Medium Enterprises’ (SMEs’) Loan Repayment among Selected Lusaka-Based Firms

This study purposed to investigate the impact of interest rate fluctuations by financial lending institutions on small medium enterprises’ (SMEs’) loan repayment Among selected Lusaka based SMEs. The issue of high interest rates charged by financial institutions is a significant concern for SMEs in Zambia. The study was guided by three research objectives; to examine the challenges SMEs face in repaying financial credit gotten from financial lending institutions; to find out the effect of interest rate fluctuations on loan repayment among SMEs operating in Lusaka City and to propose a policy framework amenable for stable and affordable interest rate by financial lending institutions operating in Lusaka City. The target population for this research was one hundred (100) SMEs registered and operating in Chilenje market in Lusaka city. This study employed a descriptive design and a mixed-method approach, combining qualitative and quantitative data collection to leverage the strengths of both methodologies. The research population was well-defined and complete for simple random and purposive sampling methods. The research paradigm was rooted in pragmatism, focusing on empirical data to explore the relationship between interest rate fluctuations and SME loan repayment behavior in Lusaka, using a sample size of 53 SMEs from Chilenje market. Data collection involved administering questionnaires with both open and closed-ended questions and interview schedules. This research study successfully established the effect of interest rate fluctuations on loan acquisitions among SMEs operating in Lusaka city. It demonstrated that SMEs are sensitive to changes in interest rates, with the majority indicating that their decision on loan acquisitions is affected by fluctuating interest rates. This underscores the importance of interest rate stability for SMEs in making informed borrowing decisions and managing financial risks. The study advocates for a framework which promotes transparency and market efficiency, implementing regulatory measures to mitigate risk and encourage competition, and facilitating access to credit information and alternative financing options. By comparing these findings with existing research, the study underscores the complex nature of SME loan repayment behaviors in response to interest rate fluctuations and emphasizes the need for collaborative efforts among policymakers, financial institutions, and SME stakeholders to address challenges and promote sustainable growth within the SME sector.

Nexus between small and medium-sized enterprise budgeting skills and loan repayment in South Africa

This study’s purpose is to assess the influence of small and medium-sized enterprises’ (SMEs) budgeting skills on loan repayment in South Africa. The quantitative research approach was selected as the appropriate methodology for this study, while the purposive sampling approach was selected as the appropriate way to select participants for this study. The primary data for this study came from respondents who were business owners of SMEs in the retail, hardware, construction, and manufacturing industries. SPSS was used to analyze the acquired data. A total of 380 research questionnaires were distributed, and there were 375 that were returned for analysis (which gives a response rate of 99%). Both a regression analysis and a correlation analysis using Pearson’s method were carried out. Pearson’s correlation coefficient revealed a positive and significant relationship between SMEs’ budgeting skills and loan repayment at the level of r =.250, p < 0.0005. These results were supported by the finding that there is a positive and significant association between these two factors. According to the findings of the study, it is recommended that financial providers educate their SMEs on how to prepare various types of budgets, how to follow up and compare their financial objectives to their performance, and that financial institutions and government organizations should assist SMEs with budgeting skills to decrease SME loan defaults.

Toda-Yamamoto Causality Test Between SMEs Loans And Economic Growth: Evidence From Turkiye

In Turkey, SMEs make up the great majority of businesses. Due to their contributions to production, employment, innovation, and export, SMEs are crucial to the process of economic growth. Yet, SMEs' production operations are hampered by financial insufficiencies, which weaken the link between them and economic expansion. For SMEs, who must depend on external financing because of equity capital deficiencies, the loan system is crucial. With the use of Turkey as an example, this study examines the connection between SME loans and economic growth. Analysis was conducted for three different categories, namely loans extended to micro, small, and medium-sized enterprises. Quarterly data for the 2007Q1-2022Q2 period were considered and the Toda-Yamamoto causality test was used. It was determined that the causal relationship between SME loans and economic growth differs depending on the size of the enterprises. The relationship between loans extended to micro-enterprises and economic growth is unidirectional and the direction of the relationship is from growth to loans. Although there is a bidirectional relationship between loans extended to small enterprises and economic growth, it has been found that there is no causal relationship between loans extended to medium enterprises and economic growth.

Does SME Loan Securitization Have Economic Value? The Historical Case of Germany

Does SME Loan Securitization Have Economic Value? The Historical Case of Germany

Türkiye’de Kobi Kredileri ve Büyüme İlişkisi (2007-2021)

"SMEs" are economic units or enterprises that employ less than 250 people and have a net revenue or balance sheet of less than 250 billion TL. According to the data for 2020, 99.76% of all firms operating in Turkey are SMEs. Moreover, 72% of all workers in Turkey work there, and they produce 42.75% of all production. This means that SMEs are an engine of the production and economy of Turkey. This study considers the relationship between SME loans and economic growth with the quarterly data from 2007 - 2021. GDP was employed as the dependent variable, while total SME loans in the banking sector in Turkey, other loans, the weighted average interest rate for banks' TL commercial loans, and the financial development rate were employed as independent variables. The method employed in the study is the Robust Least Square Method S-Estimation, as extreme conditions and outliers exist during the study period (e.g., the Global Crisis and COVID-19 Pandemic). A dummy variable was added to the model for these conditions. The analysis results show a positive and statistically meaningful relationship between SME loans and economic growth. Similarly, the relationship between GDP and other loans is positive and statistically meaningful. Moreover, the financial development's relationship with GDP is also statistically meaningful but in a negative direction. These argumentative findings are also reflected in the literature as well. The relationship between GDP and credit interest rate is negative and statistically meaningful. While the negative relationship between the dummy variable and GDP indicates that Global Crisis and COVID-19 Pandemic influenced the economy negatively, the positive relationship between GDP and SME loans indicates that SMEs need to be supported, and it is useful and productive for the Turkish economy.

Determinants of Banks’ Stability in Jordan

This paper aims to examine the determinants of financial stability in Jordanian commercial banks based on annual data for the period from 2011 to 2018. Based on the pooled effect model, this study shows that SME loans and capital adequacy positively and statistically affect the stability of Jordanian commercial banks, while financial inclusion, liquidity risk and credit risk negatively and statistically affect the stability of Jordanian commercial banks. The study recommends increasing the directing of bank loans towards small and medium enterprises, and the necessity for bank managers to commit to capital adequacy requirements because of their positive impact on banks’ stability. This study recommends that banks experiencing financial stability accelerate the increase in the rate of financial inclusion because financial inclusion ratios are very low in most of these stable banks. On the other hand, Jordanian commercial banks that have relatively high rates of financial inclusion should reduce the operating expenses resulting from financial inclusion. Bank managers also have to maintain sufficient liquidity in their banks and enhance credit standards by increasing collateral requirement from customers.

SME FINANCING OF COMMERCIAL BANKS IN BANGLADESH: POLICY DIRECTIONS BASED ON SME LOAN BORROWERS’ VIEW

The importance of bank financing for the growth and development of Small and Medium Enterprises is extensively documented in the literature. SME finance is essential not only to starting an SME business but also to enhance the growth of the business. Unfortunately, SME businessmen are facing difficulties in getting and repaying all kinds of financing in Bangladesh. Moreover, because of financing problems, SMEs cannot enter the manufacturing industry spite many potentialities. This research aims to identify key financing obstacles encountered by Bangladeshi SMEs and recommend policy guidelines to tackle those obstacles. Necessary data were collected through a structured questionnaire from 200 SME loan borrowers of 10 commercial banks by using a simple random sampling technique. Descriptive analysis was performed to analyze collected data. The findings indicate some constraints related to SME financing, such as higher interest rates, complex documentation, etc. SME borrowers face various obstacles before and after the sanction of SME loans. Although some initiatives related to SME financing have been adopted recently, most are not yet implemented. Moreover, SMEs' existing financing policies are inadequate, poorly designed, and inconsistent.

Factors Influencing Create Entrepreneurs’: An Empirical Evidence from Sonali Bank Limited, Kotbari, Cumilla Region

An entrepreneur is a man or woman who starts or organizes, operates, shifts economic resources, coordinating, controlling of instituting significant changes and assumes the risk of his or her venture as well as receives the financial profits and nonmonetary rewards from the market value of his or her product. In Bangladesh, the entrepreneurs’ rate is increasing with the assistance of different loans. Consequently, it is a burning quest for entrepreneurs to get loans in easy ways and conditions. To meet this demand, they need to be supported SME loans by Government and central banks. Moreover, the new entrepreneurs are taking loans from several sources like family members, relatives and different financial and non-financial institutions. This study aims to find out the role of Sonali Bank Limited in creating entrepreneurs: A survey on Kotbari Branch. From in-depth interviews, it was found that getting SME loans with previous business experience, especially for new entrepreneurs, is one of the significant problems. In other interviews, 14 entrepreneurs among 39 entrepreneurs (44% among 100%) who took SME loans from SBL found that entrepreneurs don’t get enough SMEs according to their demands and expectations. Findings show that the need for SME loans in developing countries like Bangladesh is increasing with the increasing number of new entrepreneurs. It is advised that the government and central bank improve SME loans by appropriate actions, such as abolishing past company experience criteria for new entrepreneurs, in addition to lowering superfluous formalities and increasing transparency. SME loans can change an economic image of a country cooperating with honest and bona fide entrepreneurs’ necessities. In the present economy of our country, the sector is shaking the face of our independent country Bangladesh.

Enterprise Financial Risk Analysis Based on Improved Model C-Means Clustering Algorithm

As a provider of loans to SMEs, banks should prudently examine loan risks while ensuring that they provide loans to SMEs from the perspective of cooperating with policy implementation and controlling their own risks. The existing loan risk measurement tools include multiple discriminant analysis models, multiple regression models, and machine learning methods. Most machine learning methods have higher prediction accuracy than traditional models when using historical data for calculation, but the existence of problems such as overfitting seriously affects the robustness of machine learning methods. A similar method is introduced into the loan default risk prediction of SMEs, and the mean clustering method is used to preset penalty items to reduce overfitting and high accuracy to help banks effectively identify the default probability of SMEs during the loan period. This study will use the mean clustering method to iteratively train 900,000 SME credit records published by the US Small and Medium Business Administration, with 27 dimensions of data provided by Small Business Administration (SBA) to provide partial guarantees. A regression tree evaluates the data, combining the scores of multiple regression trees to produce a final prediction of the probability of credit default on the input data. The research results show that the mean clustering method can effectively improve the prediction accuracy of traditional machine learning methods and multiple linear regression in the scenario of SME loan default prediction and reduce the overfitting and black-box properties. As a supplementary loan default risk measurement tool, it can strengthen the ability of commercial banks to control the risk of loan business and can also promote the development of small- and medium-sized enterprises and the market economy to a certain extent.

THE IMPORTANCE OF SMEs AND THE EFFECTS OF COVID-19 PANDEMIC OVER SMEs STATISTICS

It is described as “SME” economic units or enterprises that employed less than 250 people and net revenue or balance sheet less than 220 billion TL. In this study, it is considered SMEs’ importance in Turkish economy with the data annually between 2009 and 2021 by tables and graphs and by comparing larger companies’ data and mentioned the effects of Covid-19 Pandemic to SME statistics. According to the data of 2020, there are 3.295.995 SMEs in Turkey and it means that 99.76 % of all firms operate in Turkey is SME. In 2009, SMEs produced the 44.67 % of all production with 76 % of all workers in Turkey; in 2020, they produced the 42.75 % of all production with 72 % employment. Despite of that, SME Loan is 23 % of all cash credits. This credit rate increased only to 23, 73 % in 2020 by some credit support under government supports because of Covid-19 Pandemic. While SMEs created 44 % of all added-value in 2019, this rate decreased to 41 % in 2020 because of Covid-19 Pandemic. In the same way, it is seen that the added value per employee decreased from 23 % to 21 %. Shortly, even though SMEs are influenced negatively from the Covid-19 Pandemic, they are still engine of production and so economy of Turkey as before.

Does SME financing perform well from both demand and supply sides? The case of a developing country

This study provides a way of understanding to analyze the performance of SME credit both from the demand and supply sides. Both primary and secondary data are used which are collected from entrepreneurs of SMEs and the head office of Rajshahi Krishi Unnayan Bank, a leading SME loan providing government-owned agricultural development bank in the Rajshahi district of Bangladesh. Some descriptive statistics, accounting and financial techniques, and a regression model are used to analyze the data. The study finds that the average ROA of SMEs is 35.87% and the ROE of SMEs is 62.81%. It indicates that the SMEs are earning more than the cost of the fund collected from the institutional sources. It is also observed that there is a significant effect of institutional credit on ROE of SMEs but not on ROA. On the other hand, the growth rate of SME NPL is higher than the total NPL during the study years that is of course alarming regarding SME loan recovery. The institutional SME credit should be increased by applying proper strategies for increasing loan recovery performance.

Are franchises really more viable? Evidence from loan defaults

This study examines whether franchisees are less likely to default on loans compared to counterpart independent SMEs. Findings from analyses of SME loan defaults between 2001 and 2015 suggest that franchisees, young and old, were just as likely to default than non-franchisee counterparts. The likelihood of loan default is higher for franchisees than for non-franchisees for those with high debt burdens. While default rates vary by sector, these findings are robust to sector-specific estimations and alternative time horizons of default. Findings suggest that the benefits of the franchising model, such as new firms acquiring the franchisors’ brand name, do not necessarily lead to lower default rates for franchisees. Overall, this study finds evidence questioning the proposition that franchising is a relatively less risky form of business organization for prospective entrepreneurs.

Better Be Careful: The Replenishment of ABS Backed by SME Loans

We investigate the replenishment of 102 asset-backed securities (ABS) backed by more than 1.7 million small- and medium-sized enterprise loans. Based on our extensive data set from 2012 to 2017 obtained from the first and only central loan-level repository for ABS in Europe, we reveal that loans added to securitized loan portfolios after the transactions' closing perform worse than loans that are part of the initial portfolio. On average, we find that loans added to securitized loan portfolios demonstrate a 0.42 percentage points higher probability of default. We additionally provide evidence that originators induce these performance differences since they exploit their information advantage by deliberately adding low-quality loans to securitized loan portfolios. This adverse behavior is mitigated by originators' reputation efforts, by increasing transparency in the ABS market, as for example per the European Central Bank's loan-level initiative, and most effectively by their interaction.

Asymmetric information and the securitization of SME loans

Using credit register data for loans to Italian firms we test for the presence of asymmetric information in the securitization market by looking at the correlation between the securitization (risk-transfer) and the default (accident) probability. We can disentangle the adverse selection from the moral hazard component for the many firms with multiple bank relationships. We find that adverse selection is widespread but that moral hazard is confined to weak relationships, indicating that a strong relationship is a credible enough commitment to monitor after securitization. Importantly, the selection of which loans to securitize based on observables is such that it largely offsets the (negative) effects of asymmetric information, rendering the overall unconditional quality of securitized loans significantly better than that of non-securitized ones. Thus, despite the presence of asymmetric information, our results do not accord with the view that credit-risk transfer leads to lax credit standards.

SMALL BUSINESSES-ECONOMIC GROWTH NEXUS IN POVERTY REDUCTION IN NORTH-WESTERN NIGERIA

This study examines the role of SME in economic growth and poverty reduction in north-western Nigeria from 1987-2017 by employing time series data for Kano state, Nigeria and using ARDL method. All the variables are significant determinants of economic growth (GDP). Turnover of SME return is significant and negative, turnover on SME employment is significant and negative whereas the turnover of SME loan is positive and significant. In overall, the study’s findings are in line with the views of prior studies, therefore, we conclude that the results of the estimates of our ARDL are valid and reliable. Outcomes of the empirical test found link between SME, economic growth and poverty reduction, from our results, the turnover of SME loan is positive and significantly contributes to GDP and reduce poverty. This study recommends: a) The government should stress on promotion of SME because they assist in poverty reduction. b) Government should protect SMEs through tariff increase or banning the goods and services produced by SMEs so as to protect them because they are still infants. c) There is the need to maintain and sustain reasonable family size by SME operators because large family could have negative effect on income.

Republic of Korea

Non-Financial Corporate Sector. Non-financial corporate leverage as share of GDP in Korea remains higher than peer countries but has remained stable since 2013 at around 100 percent of GDP. The stock of non-corporate debt has become slightly more resilient due to the deleveraging of non-conglomerate affiliated firms. Average firm performance has remained resilient for conglomerate-affiliated corporates but weakened for all other firms. As a result, despite the low interest rate environment, around one-quarter of total corporate debt (around 28 percent of GDP) is registered ‘at-risk’. Banks balance sheets are at risk as over half of non-financial corporate debt-at-risk resides with SMEs; Stress tests show that (i) Korean firms which are more indebted, less profitable, smaller and have lower turnover are more likely to experience difficulties servicing their debt; (ii) corporate balance sheets are vulnerable to a sudden hike in interest rates, which combined with a profit shock, could double the amount of debt-at-risk held by non-SME firms and; (iii) exchange rate shocks appear manageable given low FX debt and natural FX hedges. Under a downside macro-financial stress test scenario, non-SME credit losses would total a touch over 2 percent of GDP. Bank stress tests suggest that the maximum cumulative bank losses from distressed SME loans in a stress scenario would total around 2 percent of GDP. Together, these losses would be broadly manageable for the financial system to absorb.

Analisis Kredit UMKM di Provinsi Aceh: Analisis Empiris Vector Error Correction Model (VECM)

The purpose of this study was to determine the effect of regional gross domestic product, non-performing loans, and loan interest rates on credit absorption by SMEs in Aceh province in the long term. The data used is secondary data in the form of a quarter 1st quarter 1995 to third quarter 2015. The model used in this study is a model of Vector Error Correction Model (VECM) to find out the results of short-term estimates, and using Johansen cointegration test to determine the relationship long-term between variables. The data used in this study has been tested with Augmented Dickey Fuller (ADF) to determine the stationary data. Based on this study it was found that in the long term there is a cointegration relationship between the variables studied. In the short term, the variables affecting the gross regional domestic product and has a one-way relationship with SME loans while variable interest rates have a causal relationship with SME loans in Aceh province, while the NPL variable does not have a causal relationship with SME loans. Keywords: SME Loans, Gross Domestic Product, Non Performimg Loan, Interest Rates, Vector Error Correction Model (VECM).

The Study on the Relationship between Bank Loan and Operating Efficiency: By Comparison between SME Loan and Housing Loan

The Study on the Relationship between Bank Loan and Operating Efficiency: By Comparison between SME Loan and Housing Loan

Better Be Careful: The Replenishment of ABS backed by SME Loans

We investigate the replenishment of 102 asset-backed securities (ABS) backed by more than 1.7 million small- and medium-sized enterprise loans. Based on our extensive data set from 2012 to 2017 obtained from the first and only loan-level central repository for ABS in Europe, we reveal that loans added to securitized loan portfolios after the transactions' closing perform worse than loans that are part of the initial portfolio. We additionally provide evidence that originators induce these performance differences since they exploit their information advantage by deliberately adding low-quality loans to securitized loan portfolios. This adverse behavior is mitigated by originators' reputation efforts, by increasing transparency in the ABS market, as for example per the European Central Bank's loan-level initiative, and most effectively by their interaction.

Predicting SME loan delinquencies during recession using accounting data and SME characteristics: The case of Greece

SummaryThe objective of this paper is the comparison of various credit‐scoring models (i.e. binomial logistic regression, decision tree, multilayer perceptron neural network, radial basis function, and support vector machine) in evaluating the risk of small and micro enterprises' (SMEs') loan delinquencies based on accounting data and applicants' specific attributes. Exploiting a representative large data set of SMEs' loans granted by a large Greek commercial bank in the expansion period, we track the evolution of SMEs' delinquencies over the recession period August 2010 to July 2012. This time frame encompasses a period of manageable levels of delays (early recession period: August 2011–July 2012) and a period when delays were increased to a very high degree (deep recession period: August 2011–July 2012). Comparison of the employed credit‐scoring models during the early recession period shows that the multilayer perceptron neural network produces the highest predicting capacity, followed by the support vector machine model. As the crisis deepens, the support vector machine model presents the highest predicting accuracy, followed by the decision tree and then the multilayer perceptron model. Generally, the predictive performance of all credit‐scoring models seems to be substantially reduced as the recession escalates. Our paper has important implications for the proper financing of SMEs given their importance for the European economy.