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Increasing access to finance for small-and-medium (SME) enterprises is vital for Europe to support a firm recovery and enhance the growth and employment outlook, according to a recent seminar on SME financing. As the euro area recovers slowly from the financial crisis, banks remain weighed down by bad loans and need to raise additional capital.

The European Bank for Reconstruction and Development (EBRD), in partnership with the EU and Turkey, will provide 338 million euros (TL 962 million) to women-led companies in Turkey within the framework of a new program, Finance and Advice for Women in Business, launched in Istanbul on Wednesday. The program aims to finance 15,000 women-led enterprises across Turkey, while also offering various training and educational services to help women run their companies. 

Women in Turkey are becoming increasingly active in business, but they still need some encouragement to make the final step to become entrepreneurs, says the head of Garanti Bank’s SME Banking Marketing Department. Garanti Bank's Woman Entrepreneur of the Year award is part of a program the Bank designed to support woman entrepreneurs. What triggered this program was the low rate of women’s participation in employment. Both the number of women as employers and employees are low in Turkey. 

Over 90 percent of all jobs are created by the private sector. In emerging economies, small and medium enterprises provide the vast majority of those jobs. Yet every second small and medium sized business remains credit constrained in emerging markets, and is struggling to raise the financing necessary to invest and create new jobs. Some 70 percent of the micro, small and medium enterprises in these countries do not use any external financing from formal financial institutions, and another 15 percent are underfinanced from formal sources.Young people are more than 2.5 times more likely to be unemployed than older people, with over 620 million young people world-wide are neither working nor in training. Emerging market countries must create another 600 million jobs by 2020, mainly in Asia and Africa, just to keep employment rates constant. Women make up 49.6 percent of the world’s population, but only 40.8 percent of the formal labor market. Growing formal jobs for women also may be constrained by the relatively limited role of women in the ownership and control of SMEs. Women entrepreneurs control less than 40 percent of formal microenterprises, less than 36 percent of small firms, and less than 21 percent of medium sized firms. Women operate more in the informal sector and lower value added service sectors, and more in home-based businesses – all of which are less likely to grow and add jobs.SMEs world-wide consider access to finance their greatest obstacle to growth. Firms that have access to finance have higher job growth rates. Higher proportions of enterprises receiving external finance correlates with higher start-up rates, and with higher indirect job creation affects when firms receiving finance are part of larger supply/value chains. Detailed case study work in Sri Lanka, for example, showed bank clients receiving loans growing jobs at more than twice the country’s jobs growth rate between 2009 and 2012.The estimated credit gap for formal and informal MSMEs worldwide has been revised upwards to $3.2-3.9 trillion globally, of which $2.1-2.6 trillion is in emerging markets. Lumping formal microenterprises with the formal SME population, the credit gap for the 100 million-plus formal MSME sector alone may be as high as $1.7 trillion. For formal SMEs, the new analysis estimates a total value gap for credit of $1.5-1.8 trillion, of which $0.9-1.1 trillion is from emerging markets. The vast majority of formal SMEs in emerging markets, unlike informal SMEs and microenterprises, have bank accounts with formal financial institutions. Fewer than 30 percent of SMEs reported that they did not have a deposit account. Thus, the financial access/inclusion gap for SMEs is qualitatively quite different than that for the informal sector and for poor households in general. Banks already have these customers inside their doors – but the sector is substantially underserved, particularly on the credit side of their business in emerging markets.Three areas, in particular, hold promise for closing the SME finance gap:1. Improving enabling environments. Support initiatives that increase knowledge of the main obstacles to SME Finance, and of good practice polic/regulatory models promoting SME Finance. These might include:a. Simplifying documentation requirements from regulators and financial institutions for opening SME accounts,b. Broadening collateral recognition for SME lending from regulators,c. Reexamination of directed lending programs that may be discouraging innovation,d. Expansion of electronic payments system as alternatives to cash transactions,e. Reducing restrictions on non-bank financial institution activities and products (such as leasing and factoring)f. Reexamining requirements by the regulator for credit reports(where these are causing delays)2. “Big Data” Based Innovation in SME Finance. Promote exchange with fintech companies from developed markets, and further innovation in “big data” mining by financial institutions in emerging markets. Data-driven solutions hold increasing promise in larger emerging markets and larger institutions, as more and more sources of electronic financial information on clients become available.3. Collaborative platforms to accelerate learning and good practice dissemination. The G20’s Global Partnership for Financial Inclusion has spawned several such initiatives which merit further support and attention. These include the SME Finance Forum/Women’s Finance Hub (knowledge exchange, networking and advocacy), the SME Finance Compact (support for policy reform), the SME Finance Initiative (blended finance and capacity building support for financial institutions and infrastructure), the Alliance for Financial Inclusion’s SME Finance Working Group (peer learning for policy reform), and the Financial inclusion Support Program (expertise for policy reform).This blog post originally appeared on the Business fights Poverty blog and may be accessed at http://community.businessfightspoverty.org/profiles/blogs/matt-gamser-c…. About the author: Matt Gamser, the Head of the SME Finance Forum, has over 30 years of experience in international enterprise development, local economic development, and finance. Prior to joining the SME Finance Forum, he led IFC’s advisory work in increasing access to financial services in the East Asia-Pacific region. Matt has worked for governments and private businesses around the world to create an improved policy and regulatory environment for private-sector growth and poverty reduction. He has edited and authored several books and numerous journal articles. Matt holds a BA and MA degrees from Harvard University, and a M.Sc and PhD from Sussex University (UK).

In recent years, support programs for female entrepreneurs have gained traction and prominence as a means to create jobs and boost prosperity. However, disparities in initial resources and endowments of male—and female-led firms, sector sorting into low productivity activities, social norms, and institutional arrangements, constrain the growth of female-led enterprises. This note reviews the outcomes of programs supporting female growth entrepreneurs and draws lessons from available evidence to inform the design of more effective programs.

The World Bank has approved a credit of $500 million about N83 billion for Nigeria to increase access to finance by Small and Medium Enterprises (SMEs). Limited access to finance is a key obstacle to enterprise growth and entrepreneurship, particularly for young people, and it is a major obstacle faced by the SMEs, the bank said. Only 6.7 per cent of Nigerian firms reported having a loan or active line of credit in 2014, adding that SME lending made up only around 5 per cent of the total commercial bank lending.

Banks are the principal source of outside capital for small businesses, but there have always been alternative forms of loan capital available, including credit unions, Community Development Financial Institutions (CDFIs), merchant cash advances, equipment leasing and factoring products. Historically, this segment of the market has been small compared to the $700 billion in small business bank credit assets. But since the onset of the financial crisis, and particularly during the economic recovery, there has been significant growth in innovative, online alternative funding for small businesses. 

Choosing to raise finance through debt or equity is a step that many SME owners and directors have to make at some point. Lending from major banks to smaller businesses has steadily declined over the last four years, contributing to an explosion in alternative finance formats available within the UK and a marked change in the business financing landscape. Now directors seeking financing for their business have a wider range of funding options available, which can further complicate the issue of whether to use debt or equity.

A total of 53 commercial banks are currently operating in Tanzania, the highest number in the East African region but agriculture sector remains under served in as far as loan disbursement is concerned. Although considered the backbone of the national economy, agriculture accounts for over 25 per cent of the national gross domestic product (GDP), over 27 per cent of exports earnings, and 80 per cent provider of jobs but banks are not yet convinced.

Since the 2007 crisis, financial reform has been so frenetic it is widely assumed that it is regulatory issues that will reshape the industry. This may be only half true. What is also threatening to reshape finance is something most of the central bankers and economists gathering in Wyoming for their annual convention have hitherto ignored: technology. For outside the circle of well-known regulated banks—and indeed shadow banks—a clutch of technology groups is quietly stepping up efforts to disrupt finance on both the retail and wholesale sides. And while the impact of this so far has been modest, it might yet end up redrawing parts of the financial map—if not our concept of how digital money operates today.