Obstacles to Bank Financing of Micro and Small Enterprises: Empirical Evidence from the Pacific with Some Policy Implications

Abstract

Recognizing on one hand the importance of the MSE sector for growth and development of economies in the Pacific region and on the other, the financing constraints of the sector, we survey a group of MSEs in a Pacific island country and find that they may particularly be constrained by banks’ interest rates, fees and charges, and collateral requirements. Policy implications emerge and this article proposes a banking sector led initiative. Keeping in mind an economy’s specific financial, regulatory, economic and other structures and circumstances, voluntary or mandatory, direct or indirect, bank involvement appears vital. Implications for economic growth and development are considerable.

Keywords: Fiji, Pacific, financing obstacles, micro and small enterprises (MSEs), bank loans

JEL Classification: G21, G28, O10, O16, O50