The New Paradigm in Small and Medium-sized Enterprise Finance: Evidence from Turkish Banks

Abstract

Over many decades, numerous cross-country studies and policy papers have argued that banks are not interested in lending to small and medium-sized enterprises (SMEs). In recent years, the visible transformation in the way that many banks are conducting business with SMEs suggests that a paradigm shift is taking place in SME finance. This country study contributes to the newly emerging literature on the subject by providing evidence on how this transformation is taking place in the Turkish banking sector. The findings of this research reveal that in Turkey, the large banks are not only allocating a bigger share of their loan portfolio to SMEs but are also reaching down to the smaller businesses more than the small banks are doing. These findings underline the importance of the large commercial banks for increasing SMEs' access to finance in the Turkish economy.