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October 2017

Addressing the SME finance problem

Sergio Schmukler's picture

Small and medium enterprises (SMEs) are the backbone of the economy, being the main contributors to employment in developing and developed countries. Despite their importance, access to finance is relatively limited when comparing to large firms and is a major operating constraint for SMEs. The International Finance Corporation (IFC) estimates that to satisfy the demand by formal SMEs around the world credit had to increase between 900 and 1,100 billion U.S. dollars in 2011.

In a new policy brief (Abraham and Schmukler, 2017), we explore the obstacles to SME finance and some of the solutions that have been put in practice to try overcome them.

Can key facts statements outperform financial education?

Xavier Gine's picture

Now that the Nobel Committee has decided to award the prize once again for work in behavioral economics, it is a good time to study the role of disclosure formats for effective consumer protection.

We partnered with CONDUSEF, the financial consumer protection agency in Mexico, and the Superintendent of Banks in Peru to test which types of product disclosures work best for savings and credit products by low-income consumers in Peru and Mexico.

In a lab experiment, low-income consumers were assigned a financial needs profile—such as having to make two withdrawals per month from a savings accounts and two balance inquiries—and then incentivized to choose the product that best fit their needs. In each round of the experiment, we tested different methods for providing summary product information. In Mexico, we tested comparative tables; in Peru, we tested a key facts statement (KFS) designed by the financial institutions; and in both countries we tested.