The SME Finance Gap Abatement Curve
A significant amount of research has gone into quantifying small and medium enterprises' (SMEs) credit gap and identifying barriers such as reliable data with which to assess the credit quality of borrowers, incomplete property registration, or banks cumbersome processes.Jointly with the International Finance Corporation (IFC), in late 2010, Oliver Wyman developed the SME Finance Gap Abatement Curve methodology, aimed to establish a quantitative link between credit market reform initiatives (and implied investment) and the benefits of reducing barriers to SMEs' access to credit. This therefore creates an objective framework for policy makers to decide where to focus limited resources to generate the greatest return on investment (e.g. employment, tax revenues). The methodology was applied to a sample of six countries: France, Kenya, Morocco, the Philippines, Turkey and the United Kingdom.
A key conclusion of relevance to policymakers is that the payback of any reform varies between countries; that is to say, each country has its own abatement curve. A common conclusion is that financial contribution to lending schemes (e.g. credit guarantees) is considerably less effective that addressing improvements in the underlying credit infrastructure (e.g. asset register, availability of financial information).
An overview of Oliver Wyman's SME Finance Gap Abatement Curve can be found in the IFC report entitled Scaling-Up SME Access to Financial Services in the Developing World. To learn more, please see pages 40-42, box 3.8 of the IFC report by clicking on the link below.