Microfinance Focus, November 26, 2011: A large majority of banks in Latin America and the Caribbean consider small and medium-sized enterprise (SMEs) as a strategic part of their business and plan to increase their credit portfolio for this sector in the next two years, according to survey conducted by the IDB Group and the Latin American Banking Federation (FELABAN).

The survey reveals an increase in confidence in SMEs as a strategic business sector for banks in the region: 89 percent of participants have an active lending policy toward this sector, 13 percent higher than in a survey conducted in 2008 and 20 percent higher compared with a 2004 survey.

Out of 190 banks surveyed in the region, 73 percent expect an increase in their SME portfolio, and 83 percent expects the economic situation of these businesses to improve in the next two years. The main motivation behind extending credit to SMEs are higher profits and risk diversification in a segment that is experiencing an economic upturn. Other important factors are an interest in the development of the country and a tendency toward greater bank specialization in the sector.

The main objective of the survey was to learn about the perspectives for bank lending to SMEs in the region, and compare the results to previous surveys. Fifty-eight banks from South America, 46 banks from Central America and the Caribbean, and five Mexican banks were surveyed this time.

The new survey shows that banks primarily provide loans to SMEs to finance their working capital. In relative terms, it is interesting to note that larger banks have a larger offering of leasing products than smaller banks, while factoring accounts for a larger percentage of credit to SMEs at smaller banks when compared with larger financial institutions.

The survey also reveals that most banks, when approving or denying credit, take into account a business’ financial statements and the business owner’s management and capital, but not the industry to which their client belongs.

Generally, banks use an average of two different mechanisms to promote credit for SMEs, with direct contact with the client still being the most important action for this purpose.

The survey was conducted by Argentine consulting firm D’Alessio, with contributions from the following IDB Group’s private sector windows: the Multilateral Investment Fund, the Inter-American Investment Corporation (IIC) and the beyondBanking program of the IDB’s Structured and Corporate Finance Department.