Executive Summary
Financing SMEs and Entrepreneurs 2024: An OECD Scoreboard provides information on SME financing trends and policies for nearly 50 countries through the end of 2022, including indicators on debt, equity, and financing conditions, as well as enterprise distress data. Data for 2022 are complemented by information available for 2023, along with demand-side information and recent developments in public policy and private initiatives to support SME finance. Taken together, these indicators form a comprehensive framework for policymakers and other stakeholders to evaluate the financing needs of SMEs. The Scoreboard also constitutes a valuable tool to support the design and evaluation of policy measures and to monitor the implications of financial reforms on access to finance and financing conditions for SMEs over time.
Since 2022, SMEs have been greatly impacted by persistent inflationary pressures and the subsequent strong tightening of monetary policy. At the moment of writing, core inflation, which was persistently high in 2023, is projected to ease in most G20 economies. However, geopolitical tensions in the Middle East, their potential repercussions on energy markets, and rising price pressures due to disruptions in the Red Sea may contribute to rising inflation once again. Central Banks continue to have a restrictive monetary policy to ensure inflationary pressures are well-contained, and as a result, lending conditions remain tight and credit growth continues to be weak.
Findings from the Scoreboard show that in 2022, as a result of the steep increase in policy interest rates in most countries around the world, the cost of SME financing registered an increase unprecedented in the history of the exercise. Against this backdrop, both new lending and outstanding loans to SMEs declined, with some heterogeneity across countries. New SME lending fell, explained in part by a reduced supply of credit. The stock of SME loans also declined, driven by a surge in repayment rates, as many SMEs tried to avoid higher borrowing costs, and by an increase in SME bankruptcies. The persistent stringent credit environment is likely to result in a continued downward trend in SME lending.
Equity finance experienced strong volatility, declining sharply in 2022 after historically high growth in 2021. In the first half of 2022, interest rate hikes contributed to many large-scale investors’ decision to turn their investments towards fixed-return asset classes, resulting in a decline in start-up valuations, which put further downward pressure on VC fundraising. Women-led businesses and minority-led businesses, which typically find it more difficult to access VC financing, were disproportionately affected.
Asset-based finance continued to recover, although the strength of the rebound is heterogeneous across instruments. While factoring activities experienced marked growth, with tightening lending conditions incentivising many SMEs to opt for this alternative financing instrument, leasing and hire purchases continue to decline although at a slower pace than 2021. In digital financial services, the rise of open banking has led to more innovative offerings, fuelling the growth of digital banks and online alternative finance platforms. These platforms are gaining popularity among underserved SMEs, particularly in certain regions, such as Southeast Asia and Latin America.
Enterprise distress indicators showed mixed performance. Payment delays have not yet been significantly affected by the negative effects of inflation, sheltered by new measures implemented to streamline payment periods in some countries. On the other hand, bankruptcy rates increased across the board, in part due to the resumption of court activities and adjustments following the pandemic. The increase in bankruptcies is also indicative of a growing number of SMEs facing difficulties in maintaining operations amid elevated borrowing and input costs, although bankruptcy rates generally have not yet exceeded pre-COVID levels.
SME finance policies in 2022 and 2023 evolved rapidly to respond to the uncertain economic environment. Support measures ranged from immediate interventions, such as those aimed at buffering against the spike in energy and raw material costs, to more long-term initiatives like promoting gender equality in access to capital. There was also a growing emphasis on diversifying financial sources and instruments to help SMEs sustain their investments, in particular for the green and digital transitions.
Considering the crucial role of policy to increase the flow of financing for SMEs to take part in the green transition, the Thematic Chapter of this publication provides an overview of the sustainable finance landscape for SMEs. It offers information on financial institution strategies and approaches, government policies and policy recommendations in this area.
Access to finance is currently an important constraint for SMEs’ net-zero action and will likely represent an even bigger constraint going forward. Financing conditions are becoming increasingly dependent on sustainability considerations, and financial institutions (FIs) are facing non-financial reporting requirements, placing a reporting burden on SMEs.
The offer of sustainable finance is expanding, but SMEs may not be able to tap into this growing pool of finance. The supply of sustainable finance is increasing, driven by regulatory and stakeholder demand and management of net-zero transition risks. In a 2023 OECD survey, both public and private FIs stated that they are increasingly integrating climate considerations in their operations, including by offering tailored financing solutions for SMEs’ investments in net zero through several loan types, credit guarantees, and other financing instruments. However, SMEs may not be able to access sustainable finance due to their limited ability to provide sustainability performance data, which is increasingly sought out by FIs to manage risks, develop financing instruments and meet reporting requirements. Moreover, SMEs also risk losing access to finance if they cannot demonstrate credible transition plans in their advancements to net zero, a significant issue for SMEs in high-emitting and hard-to-abate sectors.
SMEs’ limited demand for sustainable finance, often due to lack of information, awareness, capacity constraints and market and regulatory uncertainty, poses additional challenges. In the absence of SME demand, FIs have limited incentives to develop tailored financing solutions for financing SMEs’ net-zero investment needs. SMEs need a stronger business case and external support to boost their investments in sustainability and seek related financing.
Public actors have an important role to play in establishing a stable and conducive regulatory and policy environment for sustainable finance and investment, offering both financial (loans, equity, grants or credit guarantees) and non-financial support (information, tools, and ways in which SMEs can measure and report on their sustainability performance). Private sector involvement is also essential to bridge the financing gap. Private financial institutions, Fintechs, ESG intermediaries, accountants and other relevant stakeholders all need to contribute toward creating a conducive ecosystem that provides the right information and conditions to drive SME investment in greening and uptake of sustainable finance.
In a context of continued economic volatility and important transitions, the Scoreboard will continue to monitor developments in the SME financing and policy landscape to support governments in developing policies that meet SME financing needs, strengthen their resilience and contribute to a sustainable and inclusive economy.