China: internal market development and regulation
World Bank Discussion Paper No. 251. This study investigates the conflicting viewpoints of small- and medium-size enterprises (SMEs) and banks: the SMEs contend that the supply of bank financing is largely unavailable to them, while banks maintain that lending to these enterprises remains low because of lack of demand. Surveys were conducted among enterprises to assess demand and sources of finance, and financial institutions were interviewed to analyze the reasons for constraints on the supply side. Results show that credit is rarely granted for starting a new business. Thus, the smaller the enterprise, the greater the equity finance share of the initial investment. Evidence also suggests that exploitation of highly profitable opportunities could be accelerated by these enterprises if they had greater access to external financing. The study concludes that financial liberalization has had little effect on the access of SMEs to bank credit. It explains why banks have shown little interest in developing these enterprises as a market niche and suggests techniques that banks could adopt to overcome lending risks.
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Market Segmentation and Market Development
Tables in Text
3 Coefficients of Structural Difference
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