This report maps some of the key and alternative types of financing instruments supporting SMEs’ access to finance and access to financial services. It also provides some evidence on the implications of firm size (i.e. SMEs versus large firms). In addition, it provides examples from different countries to offer lessons. As such, it aims to highlight the financing options available to SMEs in different circumstances. Unfortunately, the evidence about the use of these various financing tools by SMEs, and how they respond to their needs, remains sparse (especially in developing countries) – despite their increasing significance both for SMEs and investors. This rapid evidence review looks at reports issued by different international financial institutions, development agencies, and some academic publications – regarding different types of financing instruments (especially those linked to capital markets) that help to improve access to finance by businesses in developing countries. The report particularly focuses on the evidence from lower-middle-income countries (LMICs) and low-income countries (LICs). However, the very limited evidence on those countries has been a major constraint. The literature on the topic mainly details the experiences of advanced economies and emerging economies (i.e. upper-middle-income countries (UMICs)). This is because most of the financing instruments under discussion (i.e. those linked to capital markets) are better suited to advanced/emerging economies – which have a reasonably developed financial sector – unlike most LICs and LMICs.
K4D helpdesk reports provide summaries of current research, evidence and lessons learned. This report was commissioned by the UK Department for International Development
Megersa, K. (2020). Improving SMEs’ Access to Finance Through Capital Markets and Innovative Financing Instruments: Some Evidence from Developing Countries. K4D Helpdesk Report 733. Brighton, UK: Institute of Development Studies.
Published 17 January 2020