5: Improving Access to Finance

5: Improving Access to Finance

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