Access to Credit
An efficient, inclusive, and sustainable financial services sector provides a broad range of deposit and payment services, multiple levels of lending based on relevant criteria, and insurance and other risk management services to businesses so they can lease and purchase property.
Property markets continue to rely mostly on collateral as the basis for lending, favoring those who already own property or are connected to the government or banks because property rights are not properly protected in practice despite existing legal provisions. Thus, banks are very reluctant to loan even to titled properties for fear the title is not legitimate.
Small and micro businesses need to be able to obtain credit based on their operations, receipts, intellectual property, or future potential so they can begin to build a credit profile and grow. Startup funds should be available for new businesses with innovative ideas that meet proven market needs.
MEASURE
Research the access to finance in your country.
Consult the country Scorecards that have been developed or use the Access to Credit section of the Scorecard Methodology to develop or update that part of the Scorecard for your country.
UN Conference on Trade & Development (UNCTAD) – Improving Access to Finance
The UNCTAD provides an Entrepreneur Policy Framework that outlines six key areas of policy development including improving access to finance. Each section includes policy objectives, key questions, and indicators to measure effectiveness.
International Monetary Fund country profiles
Country and Local Sources
Each country has resources for access to credit issues such as:
Lagos State Ministry of Finance
Business Angels Network of Armenia
Compile the resources for access to credit in your city, country, and region.
Field Questions
Use these questions in interviews or roundtables with local stakeholders to get an idea of SMEs experiences with accessing credit:
- How available are loans for small and medium enterprises using property as collateral?
- Are there any peer-to-peer, community-based or other alternative forms of lending in your city?
- What informal barriers to borrowing exist, e.g., for women or minorities?
Identify key issues in access to credit and choose one or two issues to address with SMART goals:
- Specific – choose goals that are simple, significant, and likely to make a difference.
- Measurable – set a metric, e.g., more SMEs obtaining small loans based on their operations.
- Achievable – keep the goals within the realm of your organization and influence.
- Resourced – what time and money will be dedicated to achieving the goal?
- Time Defined – set a time for the goal to be achieved.
COLLABORATE
In many countries a significant percentage of the population remains unbanked or underbanked. They either have no bank account, or they have a bank account but still rely on alternative and informal financial services that usually cost more. While many formal barriers do exist, there is also a cultural distrust of the banking system often because of the disclosures required, lack of documentation, or the perceived high costs.
Without relationships with banks and credit histories, it is difficult to obtain credit to build businesses and purchase or lease property. Distrust runs both ways. When small businesses do obtain financing, interest rates are often high due to perceived risks associated with the borrowing firms. In addition, there are poor loan pricing mechanisms and risk evaluation. Local banks lack the skills to appropriately price small business loans.
Identify key stakeholders including potential partners and supporting organizations that will also benefit from more access to credit for SMEs.
- Educate small businesses on proper methods of financial record keeping and sound business plan preparation to help them become more credit worthy.
- Share examples of the costs of alternative and informal financial services compared to traditional banking.
- Explore innovative financial tools and technologies such as venture and angel financing.
- Provide examples of secure, fair, and understandable leases.
- Work with local lenders and share programs that are available for small businesses, including subsidized lending programs for housing, specific sectors, or start-ups.
- Develop a relationship with a chosen financial institution and share information about the breadth and capacity of SMEs to build trust.
- Encourage the financial institution to host events where SMEs can come to understand the bank’s lending and underwriting process and products available.
- Confirm the key issues and improvement goals.
- Develop an ongoing Stakeholder Engagement Plan, e.g., Stakeholder will meet twice a year to review progress and set new goals and targets.
ADVOCATE
SMEs must make their voices heard. Obtaining property rights without broader access to credit limits economic growth for everyone. Varied and innovative financial products benefit both banks and the entire community.
- Advocate for more lending programs targeting SMEs and new forms of financing, such as lending based on leasehold, business plans, purchase orders, or movable assets.
- Encourage banks to factor in future income based on business plans and documented receipts in loan eligibility.
- Work to develop greater availability of venture capital and angel investment.
- Ask the government to develop guaranty systems to finance start-ups and newly established small businesses.
“Empowering Women Entrepreneurs in Bangladesh”
There is a critical need to empower women entrepreneurs in Bangladesh to unlock their full potential and drive economic growth. Various initiatives have been designed to support women in overcoming barriers to entrepreneurship, such as limited access to financing, training, and networks. Key strategies include providing tailored business training, facilitating access to capital, and creating supportive networks for women business owners. These efforts aim to foster a more inclusive entrepreneurial environment, enabling women to contribute more effectively to the economy and achieve greater economic independence.
“The Factory” project is an initiative designed to support and accelerate startups in Armenia. The project provides a range of resources for early-stage companies, including mentoring, funding, and networking opportunities. The Factory aims to help startups scale their operations and enhance their chances of success by offering strategic guidance, operational support, and connections to potential investors and partners.