Stable access to appropriate funding sources is an important factor for the survival and growth of potential SMEs. However, most SMEs face poor access to finance in the region`s bank-dominant system. This implies that further policy support for bank loans for SME finance is needed. However, such policy support alone is not sufficient to provide long-term financing to growth-oriented SMEs because of the nature of the banking sector`s short term credit in the region and rigid banking regulations. Furthermore, the bank-dominant system makes SMEs more vulnerable to financial shocks because these firms do not have an opportunity to diversify their funding during crises. The diversification of financing modalities beyond conventional bank lending can provide an alternative platform for the financing needs of SMEs and expand their financial access. In this context, this paper analyzes the SME financing landscape by examining the banking sector, nonbank financial institutions and capital market financing for SMEs and provides policy considerations for improving access of SMEs to finance.
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