SME Credit Availability Around the World: Evidence from the World Bank's Enterprise Surveys

Abstract

We use data from the World Bank’s Enterprise Surveys to test the importance of governance to the availability of credit. We model the credit-allocation process for SMEs in three steps. Based upon these steps, we classify small businesses into four groups based upon their credit needs – firms that do not need credit (No-Need), firms that need credit but fail to apply (Discouraged), firms that apply for credit and either are turned down (Denied) or extended credit (Approved). We find that firms in countries with better governance are less likely to report needing credit, being discouraged from applying for credit, or being denied credit.

Keywords: availability of credit, denied credit, discrimination, discouraged firm, entrepreneurship, small business, WBES

JEL Classification: G21, G32, J71, L11, M13