Local Financial Development, Access to Credit and SMES' Performance: Evidence from Bangladesh
Hossain, Monzur; Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad | December 2018
Abstract
This paper tests whether local financial development matters for SMEs’ growth performance. We develop a theoretical model framework based on banks’ and firms’ profit-maximizing behavior that critically hinges upon credit default risk ratio. We argue that an expansion of branch network would increase competition among banks to find good borrowers, which will likely to reduce credit default risk of banks. Our empirical analysis based on the theoretical framework confirms that decreasing credit default risk would decrease interest rates and therefore increases the demand for loans. Thus, bank branch growth has positive and significant impact on firms output growth and productivity. For the empirical analysis, we have used 3 groups of data of Bangladesh including i. firm level data; ii. financial development data; and iii. subdistrict level geographical data. The main policy implication of this paper is that local financial development, particularly bank branch network expansion at subdistrict level could ease access to finance and thereby improve performances of SMEs in developing countries.
Citation
Hossain, Monzur; Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad. 2018. Local Financial Development, Access to Credit and SMES' Performance: Evidence from Bangladesh. © Asian Development Bank Institute. http://hdl.handle.net/11540/9478.Keywords
Development
Finance
Development Challenges
Development Issues
Development Problems
Microenterprises Finance
Commercial Finance Companies
Enterprise Financing
Financial Analysis
Banking Finance And Investment
SMEs
Small Business Finance
ADB
Project finance
Development plans
Strategic planning
Business Financing
Investment Requirements
Insurance Companies
International Monetary Relations
International Financial Market
Exchange Rate
Insurers
Insurance stocks
Insurance holding companies
Insurance carriers
Insurance agencies
Business subsidies
Investment companies
Foreign investment
Equity Finance
International banks and banking
Stock exchanges
Grants
Loans
Communication in rural development
Communication in community development
Economic development projects
Development banks
Economic forecasting
Environmental auditing
Cumulative effects assessment
Human rights and globalization
Small business
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