Open AccessViability of pro-SME financing schemes: A developing country perspective
Author(s) -
Ashenafi Beyene Fanta
Publication year - 2015
Publication title -
corporate ownership and control
Language(s) - English
Resource type - Journals
eISSN - 1810-0368
pISSN - 1727-9232
DOI - 10.22495/cocv12i2c2p1
Subject(s) - factoring , finance , subsidy , moral hazard , business , developing country , government (linguistics) , extant taxon , collateral , economics , incentive , economic growth , microeconomics , linguistics , philosophy , evolutionary biology , market economy , biology
To curb SME financing difficulty, various schemes were suggested as alternative financing techniques that include, among others, relationship lending, factoring, credit scoring, leasing, and credit guarantees. This paper aims at examining the viability of each of the schemes by considering the institutional and legal conditions in developing countries. Critical analysis of extant body of literature revealed that not all pro-SME financing schemes are suitable for SMEs in developing countries. This is because they demand development of legal, informational, and financial frameworks that the countries acutely lack at the moment. This, however, does not rule out the utility of schemes such as credit scoring that can be effectively used to ease SME access to finance if well designed credit offices are in place. Similarly, credit guarantee schemes are crucial as an interim solution if they are allowed to run without government subsidy as it aggravates moral hazard