Boosting SME Finance for Growth

Effective Support Policies Ana Fiorella CarvajalTatiana Didier BOOSTINGSME FINANCEFOR GROWTHThe Case for more Effective Support Policies BOOSTINGSME FINANCEFOR GROWTHThe Case for more Effective Support Policies SEPTEMBER 2024 Ana Fiorella CarvajalTatiana Didier 1818 H Street NWWashington DC 20433Telephone: 202-473-1000Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations,and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board ofExecutive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in thiswork and does not assume responsibility for any errors, omissions, or discrepancies in the information, orliability with respect to the use of or failure to use the information, methods, processes, or conclusions setforth. The boundaries, colors, denominations, links/footnotes and other information shown in this work donot imply any judgment on the part of The World Bank concerning the legal status of any territory or theendorsement or acceptance of such boundaries. The citation of works authored by others does not meanthe World Bank endorses the views expressed by those authors or the content of their works. Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of theprivileges and immunities of The World Bank, all of which are specifically reserved. Rights and PermissionsThe material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as fullattribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World BankPublications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625;e-mail: pubrights@worldbank.org. Cover design: Diego Catto ValLayout: Good News Resources Sdn Bhd/www.gnrsb.com CONTENTS ForewordxiAcknowledgmentsxiiiAbbreviationsxivExecutive Summaryxv CHAPTER 1 The Enabling Role of Access to Finance for Productivity, Growth, and Resilience1 CHAPTER 2 The Evolution of SME Financing3 2.1Debt Financing......................................32.1.1Bank Lending for SMEs..............................32.1.2Fintech Lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52.1.3Asset-Based Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52.1.4Capital Markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62.2Equity Financing for SMEs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72.2.1Equity Financing for Innovative Firms. . . . . . . . . . . . . . . . . . . . . . .72.2.2Equity Financing for Mature SMEs. . . . . . . . . . . . . . . . . . . . . . . . .82.3Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 CHAPTER 3 A Road Map for Enabling SME Finance10 3.1Action 1. Continue Enhancing the Availability of SME Credit Information.......103.2Action 2. Complete the Enabling Environment for Asset-Based Financing,Including the Implementation of Movable Collateral Registries. . . . . . . . . . . . .113.3Action 3. Overhaul Insolvency Regimes. . . . . . . . . . . . . . . . . . . . . . . . .123.4Action 4. Complete the Enabling Environment for Alternative Sources of Financing. .123.5Action 5. Foster Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153.6Action 6. Develop the Enabling Environment for Equity Financing. . . . . . . . . . .153.7Action 7. Enhance Consumer and Investor Protection.................173.8Action 8. Establish Robust Foundational Infrastructure. . . . . . . . . . . . . . . . .18 CHAPTER 4 Toward a More Effective Use of Targeted Public Interventions19 4.1Action 1. Enhance Data Availability and Diagnostic Analyses toEnsure Outreach to Underserved SMEs. . . . . . . . . . . . . . . . . . . . . . . . .214.2Action 2. Emphasize Financial Additionality and Private Capital Mobilizationas Clear Objectives of Targeted Interventions. . . . . . . . . . . . . . . . . . . . . .224.3Action 3. Deploy Concessional Financing Sparingly..................234.4Action 4. Leverage Developmental Finance from Donors forPrivate Capital Mobilization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .244.5Action5.ComplementTargetedInterventionswithNon-financialSupport. . . . . . .244.6Action 6. Improve the Evaluation of Targeted Interventions..............254.7Action 7. Improve Coordination, Including by Better Leveraging Existing DFIs,and Ensure Proper Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .254.8Additional Recommendations for the Design of Debt Interventions..........264.9Additional Recommendations for the Design of Equity Interventions. . . . . . . .