Are Commercial Banks Really Absent From Micro And Small Enterprise Finance?

Hatice Jenkins

No 2002-12, Development Discussion Papers from JDI Executive Programs

Abstract: This study reports on the findings of a global survey of commercial banks with respect to their micro enterprise and small business financing activities. A sample of banks representing over sixty countries was examined in detail. Contrary to the general belief it is found that a large number of commercial banks have been involved in micro and small business finance for decades. The major incentive for banks to enter into this field was reported as profitability and market diversification, not social or political pressure as it was commonly believed. It is also found that newer banks tend to participate in micro and small business finance more than the older and often large institutions. Another important finding of this study is that banks have higher arrears in their small business loans than in their micro enterprise loans. Furthermore, small business loan arrears found to be positively and significantly related to the collateral taken from these businesses. This indicates that reliance on collateral tends to cause poor borrower evaluation and inadequate follow up once the loan has been made. The majority of micro enterprises however, do not have conventional collateral that can be used as a security to make loans. The level of interest rates charged on small business loans, are also found to be significantly related to banks’ arrears. This indicates the sensitivity small businesses to loan interest rates. In addition, the minimum deposit requirement of banks to open a bank account has a negative impact on the overall level of savings collected by these banks.

Keywords: Micro enterprise finance; small business finance; commercial banks; loan arrears; small savers; loan terms (search for similar items in EconPapers)
JEL-codes: G21 O16 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2002-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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