SME Finance - Diagnostic Checklist

CHECKLIST FOR EVALUATION OF SME FINANCE
This checklist serves as a reference for USG program officers when considering SME finance options. It contains a
non-exhaustive series of questions relevant to three sources of SME finance. It is designed to help programmers
identify and compare opportunities for SME finance market development or a package of interventions to incorporate in
a unified SME finance project.
Key Questions
Capital Markets
1.
Do SMEs seek either equity or debt finance in the capital markets?
2.
If yes, does the country have a competent securities regulator who

can enforce rules concerning shareholder and bondholder rights?
3.
Are there credit-rating agencies and a credit-rating system

applicable to SMEs?
4.
Have local banks used the domestic bond market as a source of

liquidity to fund their SME portfolios?
5.
Are there domestic investors prepared to invest in shares or bonds

of individual SMEs or bonds issued by financial intermediaries that
lend to SMEs?
Traditional Banking
1.
Are banks well-capitalized, prudentially sound, and adequately

supervised (e.g., BASEL II compliant)?
2.
Do banks lend to SMEs on a significant scale? If not, what are the

major obstacles cited?
3.
Does the country have effective collateral laws and registries, an

efficient bankruptcy regime, and credit-recovery procedures that
protect lenders, supported by reliable commercial courts?
4.
Is reliable credit information on SMEs available from public credit

registries and/or private credit bureaus?
5.
Do banks have plans to increase activity in the SME sector through

expansion of branch networks, development of new SME finance
products, or other initiatives?
Asset-Based Finance
A/R Finance, Factoring & POF
1.
Do local SMEs have significant sales to clients with established

credit ratings?
2.
Does the legal system recognize SME assets underlying assetbased finance as separate from the other assets of the SME in case
of bankruptcy?
3.
Does the country have a collateral registry and lien system on which
asset-based finance providers can rely?
WHRs
1.
Does the country have a system of warehouses with adequate

regulation that is trusted by banks?
2.
Do SMEs/small-scale farmers have adequate access to market

information to make informed decisions on the optimal time to sell
their commodities?
3.
Is there a system in place that allows SMEs/small-scale farmers to

pool their commodities efficiently?
Yes
No
Comments/
Responses
Key Questions
Yes
No
Comments/
Responses
Leasing
1.
Do SMEs regularly use capital equipment that is suitable for

leasing? Are there a sufficient number of potential users of the
instrument to support an ongoing program?
2.
Are financial institutions prepared to consider the use of leasing?
3.
Does the country have an adequate leasing law? Can leased assets
be legally repossessed?
4.
In case of bankruptcy, does the legal system recognize leased

assets as separate from the borrowers other assets?
5.
Does the country have well-functioning collateral registry and lien

system?
DCA Guarantee Facilities

1.
Are there SME finance market imperfections and risks that could be
mitigated by a DCA guarantee? Which SME finance product(s) are
most likely to merit consideration?
2.
Is there a financial intermediary committed to expanding SME

finance that has the solvency, liquidity, and management
commitment to undertake a DCA guarantee agreement with
USAID?
3.
Is it reasonable to believe that the use of guarantees will provide

additionality (i.e., not simply replace unguaranteed financing that
would have occurred in any case)?
RESOURCES
There are numerous resources on SME finance that may be referenced to better understand the context, theory and
practice of the questions and issues covered in this checklist. Primary resources used in the development of this
checklist can be found in the bibliography section of FS Series #4: Enabling Small and Medium-Sized Enterprise
Access to Finance. In addition, select websites recommended as gateways to further resources on SME finance and
web accessible country-level data sources on SME finance are listed below:
Recommended Web Sites

CGAP Microfinance Gateway: http://www.microfinancegateway.org/p/site/m/template.rc/1.11.47398/
The International Finance Corporation: http://www.ifc.org/
The International Labour Organization: http://www.ilo.org/global/lang--en/index.htm
US Agency for International Development - Development Credit Authority:
http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html
US Agency for International Development: microLinks: Microenterprise Learning, Information and Knowledge Sharing:
http://www.microlinks.org/ev_en.php
The World Bank: http://www.worldbank.org/
Country-level Data Sources on SME Finance

International Monetary Fund 2007 database on micro, small, and medium sized enterprises:
http://www.ifc.org/ifcext/sme.nsf/AttachmentsByTitle/SMEDatabase.xls/$FILE/SMEDatabase.xls
World Bank Doing Business Project: http://www.doingbusiness.org/
SEPTEMBER 2009
This diagnostic tool appears in FS Series #4: Enabling Small and Medium-Sized Enterprise Access to
Finance, which was produced for review by the United States Agency for International Development. It was
prepared by Chemonics International, Inc. for the Financial Sector Knowledge Sharing Project, delivery order
number EEM-E-03-05-00006-00.

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CHECKLIST FOR EVALUATION OF SME FINANCE

Do SMEs seek either equity or debt finance in the capital markets?

If yes, does the country have a competent securities regulator who

Are there credit-rating agencies and a credit-rating system

Have local banks used the domestic bond market as a source of

Are there domestic investors prepared to invest in shares or bonds

Are banks well-capitalized, prudentially sound, and adequately

Do banks lend to SMEs on a significant scale? If not, what are the

Does the country have effective collateral laws and registries, an

Is reliable credit information on SMEs available from public credit

Do banks have plans to increase activity in the SME sector through

Do local SMEs have significant sales to clients with established

Does the country have a system of warehouses with adequate

Do SMEs/small-scale farmers have adequate access to market

Is there a system in place that allows SMEs/small-scale farmers to

Do SMEs regularly use capital equipment that is suitable for

Are financial institutions prepared to consider the use of leasing?

In case of bankruptcy, does the legal system recognize leased

Does the country have well-functioning collateral registry and lien

DCA Guarantee Facilities

Is there a financial intermediary committed to expanding SME

Is it reasonable to believe that the use of guarantees will provide

Recommended Web Sites

Country-level Data Sources on SME Finance

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