Credit constraints of Small and medium enterprises: An empirical study on ASEAN countries

Abstract

Small and medium-sized enterprises (SMEs) are company segments that contribute significantly to the economic growth and stability of many nations, including ASEAN countries. According to 2020 OECD figures, 98-99 percent of all firms in the ASEAN region will be small and medium-sized enterprises (SMEs), contributing to the creation of at least 50 percent of all jobs in all nations (OECD, 2020). Increasing the strength of and establishing development circumstances for the SME sector is the driving force for the economic sustainability and prosperity of the entire region. Hence, identifying and mitigating obstacles to credit access and facilitating funding for the manufacturing and business activities of SMEs are regarded as crucial components of the SME development strategy in the ASEAN region. The study uses a survey data set of 5,938 enterprises collected by the World Bank (WB) to understand the barriers to credit access of enterprises in seven ASEAN countries in 2016. The results indicate that factors such as short operating time, manufacturing industry, informal competition, lack of independent auditors, lack of international
certifications, lack of market research and development activities, and processing time for administrative procedures, credit history, economic growth, and institution quality heightened credit barriers. In contrast, variables such as the presence of female managers, headquarters outside of major cities, and the amount of the economy’s credit lessen financial barriers.