Inadequate access to finance remains a major obstacle for many aspiring entrepreneurs, particularly in developing countries. As recent studies confirm, the global financing gap for micro, small and medium-sized enterprises remains enormous. Entrepreneurs of all types and sizes require a variety of financial services, including facilities for making deposits and payments as well as accessing credit, equity and guarantees.
- Policy Objectives
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Improve access to relevant financial services on appropriate terms
Policy options (recommended actions):
- Develop public credit guarantee schemes
- Stimulate the creation of private mutual guarantees
- Promote FDI in financial services, supply chain finance (factoring) and leasing
- Facilitate collateral-free loan screening mechanisms
Promote funding for innovation
Policy options (recommended actions):
- Provide incentives to attract venture capital investors and business angels
- Encourage equity and “risk capital” financing modalities
- Provide performance-based loans and incentives for innovation and green growth
- Facilitate the use of intellectual property as collateral
Build the capacity of the financial sector to serve start-ups
Policy options (recommended actions):
- Establish a national financial charter
- Promote public-private sector "access to finance partnerships" for specific groups
- Provide capacity-building grants and technical assistance to expand lending activities (e.g. financial service provision through post offices and other “proximity lenders”; use of new banking technologies to reach rural areas)
Provide financial literacy training to entrepreneurs and encourage responsible borrowing and lending
Policy options (recommended actions):
- Set up financial and accounting literacy training
- Undertake appropriate supervision of financial products offered to social and micro-entrepreneurs
- Expand private credit bureau and public credit registry coverage
- Checklist of key questions
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- Are there measures to encourage financial institutions to lend to start-ups and SMEs?
- Does the government require banks and other financial institutions to report their lending by size of firm?
- Are there public–private funds for entrepreneurs?
- Is FDI promoted to broaden access to finance to local entrepreneurs?
- Are factoring and leasing schemes encouraged?
- Are there incentives for venture capital and the development of networks of business mentors or supporters, including business angel networks?
- Are development-oriented funds encouraged to invest in seed capital and small firms?
- Has the government taken steps to improve access to finance for target groups (minorities, youth, women, immigrants, expatriates, those in rural areas, etc.)?
- Is the adoption of financial service provision through post offices and other “proximity lenders”; and new banking technologies (e.g., mobile phone banking) encouraged?
- Are effective intellectual property rights (IPR) accepted as collateral?
- Is there a financial charter?
- Does the government provide appropriate supervision and regulation to prevent unsustainable lending?
- Are there formal courses on financial literacy designed and available for SMEs and micro-enterprises?
- Is training available to lenders to design ways to expand lending activities to SMEs and entrepreneurs?
- Are there credit bureaux?
- Indicators to measure effectiveness
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Possible indicators
- Share of microfinance/SME loans in total business loans
- Average value of collateral required for SME loans (per cent of loan)
- Total VC invested in SMEs
- Credit bureau coverage (per cent of adult population)
What they monitor
- Performance of banking sector in facilitating loans to entrepreneurs
- Support by private investors for start-ups
- Adequacy of financial infrastructure for entrepreneurship lending