Question: . To what extent are the small numbers of SMEs in developing countries a result of the problems they face in obtaining external funding
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Historical Financing of Small- and Medium-Size Enterprises
Robert Cull, World BankLance E. Davis, Cal Tech and NBERNaomi R. Lamoreaux, UCLA and NBERJean-Laurent Rosenthal, UCLA
To what extent are the small numbers of SMEs in developing countries a result of the problems they face in obtaining external funding—that is, of financing constraints imposed on them by underdeveloped financial systems?
Sources of Credit for SMEs
SMES have little collateral:
Assets are small and often have limited residual value.
Access to credit depends on the wealth or reputation of their owners.
Institutions to leverage either wealth or reputation were diverse.
They were also abundant where SMES were numerous.
Lets look at some examples of this diversity
Not banks, but quantitative magnitude of market is large—in 1840, 650,000 loans, outstanding loans=25% GDP.
Implication: facilitates the rise of trade credit and to some extent competition among banks.