a more complete conceptual framework for sme strongfinancestrong.pdf

A More Complete Conceptual Framework for SME Finance Allen N. Berger Board of Governors of the Federal Reserve System, Washington, DC 20551 U.S.A. Wharton Financial Institutions Center, Philadelphia, PA 19104 U.S.A. aberger@ Gregory F. Udell Kelley School of Business, Indiana University, Bloomington, IN 47405 U.S.A. gudell@ Prepared for presentation at the World Bank Conference on Small and Medium Enterprises: Overcoming Growth Constraints World Bank, MC 13-121 October 14-15, 2004 The opinions expressed do not necessarily reflect those of the Federal Reserve Board or its staff. The authors thank Thorsten Beck and Asli Demirguc-Kunt for helpful direction with the paper. 1. Introduction The availability of external finance for small and medium enterprises (SMEs) is a topic of significant research interest to academics and an issue of great importance to policy makers around the globe. The conceptual framework to which most of the current research literature adheres has proven to be quite helpful to advancing our understanding of the markets for providing funds to SMEs in both developed and developing nations. As well, this framework has aided our understanding of the effects of policies that both facilitate and hinder the access to funding by creditworthy SMEs in these nations. However, we argue that the current framework presents an oversimplified model that overlooks some important distinctions across national financial