Improving the Bankability of Small Firms: Strategy Suggestions

If small firms are to fulfil their mandate as creators of jobs and wealth for the masses, government as well as multilateral institutions and stronger private sector institutions must adopt a coherent set of policies including managerial training and creative ways to provide collateral for loans. These will ensure increased lending to small firms while reducing risks to the banks.

 Both academic and practitioners’ literature is replete with empirical evidence which suggests that raising financing is one of the most pervasive problems faced by micro, small, and medium-sized enterprises--  MSME (for ease of reference, small firm will be used to refer to MSMEs) in almost all geographical locations. This is especially so in small cash-strapped economies like Jamaica where capital is generally scarce. The growth and survival of these firms depend significantly on their ability to raise financing to meet their working
capital needs, buy capital equipment and improve production capabilities among other things. Academic studies have shown that failure rate among small firms is very high, averaging about 90% although it varies significantly across sectors. Securing financing is strongly related to the sector in which a firm is established. While this is generally true, the situation in Jamaica shows that financing problems affects all sectors. Why do small firms find it so difficult to access financing and what can be done to reverse the situation?

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