Area 1  
 

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

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
  • 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

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

Link to: Online Inventory of Best Practices in Entrepreneurship
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