A More Complete Conceptual Framework for Financing of Small and Medium Enterprises
Allen N. Berger
University of South Carolina - Moore School of Business; Wharton Financial Institutions Center; Tilburg University - CentER
Gregory F. Udell
Indiana University Bloomington - Department of Finance
World Bank Policy Research Working Paper No. 3795
The authors propose a more complete conceptual framework for analysis of credit availability for small and medium enterprises (SMEs). In this framework, lending technologies are the key conduit through which government policies and national financial structures affect credit availability. They emphasize a causal chain from policy to financial structures which affect the feasibility and profitability of different lending technologies. These technologies, in turn, have important effects on SME credit availability. Financial structures include the presence of different financial institution types and the conditions under which they operate. Lending technologies include several transactions technologies, plus relationship lending. The authors argue that the framework implicit in most of the literature is oversimplified, neglects key elements of the chain, and often yields misleading conclusions. A common oversimplification is the treatment of transactions technologies as a homogeneous group, unsuitable for serving informationally opaque SMEs, and a frequent misleading conclusion is that large institutions are disadvantaged in lending to opaque SMEs.
Number of Pages in PDF File: 31
Keywords: SMEs, Banks, Relationship Lending, Governance, International.
JEL Classification: G21, G28, G34, L11, F33working papers series
Date posted: January 11, 2006
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