VIABILITY OF PRO-SME FINANCING SCHEMES: A DEVELOPING COUNTRY PERSPECTIVE

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Abstract

To curb SME financing difficulty, various schemes were suggested as alternative financing techniques that include, among others, relationship lending, factoring, credit scoring, leasing, and credit guarantees. This paper aims at examining the viability of each of the schemes by considering the institutional and legal conditions in developing countries. Critical analysis of extant body of literature revealed that not all pro-SME financing schemes are suitable for SMEs in developing countries. This is because they demand development of legal, informational, and financial frameworks that the countries acutely lack at the moment. This, however, does not rule out the utility of schemes such as credit scoring that can be effectively used to ease SME access to finance if well designed credit offices are in place. Similarly, credit guarantee schemes are crucial as an interim solution if they are allowed to run without government subsidy as it aggravates moral hazard.

Keywords: SME, Relationship Lending, Factoring, Credit Scoring, Leasing, Credit Guarantee

How to cite this paper: Fanta, A. B. (2015). Viability of pro-SME financing schemes: A developing country perspective. Corporate Ownership & Control, 12(2-2), 269-279. https://doi.org/10.22495/cocv12i2c2p1