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Helping SMEs meet the requirements of formal financing - Increasing SME Access to Finance: A Four Pronged Approach
Written by: OECD Development CentreArticle Overview: Apart from the need to boost SME capacities, some financial instruments can help provide missing information or reduce the risk stemming from some SMEs’ lack of transparency.
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Free Download - BIBLIOGRAPHY - E-COMMERCE FOR DEVELOPMENT: PROSPECTS AND POLICY ISSUES By OECD Development Centre |
Helping SMEs meet the requirements of formal financing - Increasing SME Access to Finance: A Four Pronged Approach
Apart from the need to boost SME capacities, some financial
instruments can help provide missing information or reduce
the risk stemming from some SMEs’ lack of transparency.
Franchising, which is very popular in Southern and East
Africa with the encouragement of South Africa, allows use
of a brand name or know-how that reduces the risk of
failure. Warehouse-receipt financing (in South Africa, Kenya
and Zambia) guarantees loans with agricultural stocks.
Other financial instruments, such as leasing and factoring,
can reduce risk effectively for credit institutions but are
still little used in Africa.
Credit associations that reduce risk by sharing it are more
common. They help financial institutions choose to whom
to lend, by guaranteeing the technical viability of projects,
and sometimes providing guarantees. But growth of these
bodies is limited by the lack of organisation among SMEs
in Africa and by their focus on certain sectors and
geographical areas.
Governments and donor sources have thus preferred creation
of guarantee funds to ensure repayment in case of default.
In several countries, especially in Central Africa, this has
not worked since provision of a guarantee has meant less
rigorous choice of investment projects and a lower rate of
debt recovery. Elsewhere, notably in Mozambique, borrowers
and financial institutions have worked together to maintain
a good rate of recovery and to reduce interest rates.
Financing SMEs in Africa
by Céline Kauffmann
Policy Insights No. 7 is derived from the African Economic Outlook 2004/2005, a joint publication
of the African Development Bank and the OECD Development Centre
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About the Author: OECD Development Centre RSS for OECD's articles - Visit OECD's website Created in 1962 by the Organisation for Economic Co-operation and Development (OECD) in Paris, the Development Centre is an interface between OECD Member countries and the emerging and developing economies. The Development Centre occupies a unique place within the OECD and in the international community. It is a forum where countries come to share their experience of economic and social development policies. The Centre contributes expert analysis to the development policy debate. The objective is to help decision makers find policy solutions to stimulate growth and improve living conditions in developing and emerging economies. Click here to visit OECD's website IIIb ECommerce and Primary Commodity Markets ECOMMERCE AND SMALL ENTREPRENEURS Technology Transfer through Training Spillovers Policies to Facilitate a Virtuous Circle Proper Regulation Is Crucial to Ensure Welfare Gains HRD Policies to Promote Training and Spillovers |
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