SMEs comprise the overwhelming majority of firms in almost all countries, and contribute to at least two thirds of total employment. New firms in any year account for around 5 per cent of all jobs in that year. As well as creating jobs, SMEs and entrepreneurs drive economic growth through their contribution to innovation and productivity growth.
However, access to finance is a major barrier to SMEs and entrepreneurs, who consistently report problems in obtaining external financing. In part, this is because these businesses seek small scale lending, which might not compensate banks for their monitoring and screening costs. Unproven business models also make new entrepreneurs relatively risky. Lack of collateral, demand for longer maturities, and information opacity strengthen the magnitude of the problem.
This collaboration between OECD and the Asian Development Bank on SME and entrepreneurship financing in OECD and Asian countries provides some concrete tools to support policymakers in design appropriate responses to the finance challenge.
The main points this report highlights are:
Since 2012 the OECD has been producing an annual Scoreboard on SMEs and Entrepreneurship Financing. It examines 13 core indicators of debt, equity and general market conditions, and is complemented by a review of government policy measures. The OECD Scoreboard is a toolkit to assess and formulate government policies for SMEs and entrepreneurs that contribute to better policies for better lives.
Following the 2008-2009 financial crisis, governments expanded both the scale and the scope of financing options for SMEs, often making use of the existing infrastructures they had in their public financial institutions. These temporary measures need to be scaled back once the market recovers, but public financial institutions also have a structural role to play in overcoming long-run finance challenges.
While debt finance from banks is crucial for SMEs and entrepreneurs, it is also important to increase the range of financial instruments available and knowledge of them in the market. Equity instruments, hybrid debt-equity instruments and asset-based finance all have under exploited potential.