The relationship between banks and SMBs: credit rationing

Abstract

The importance of small and medium business (SMBs) isn’t worth justification, they reduce unemployment through creating jobs, they contribute into the dynamization of the national economy and their emergence maybe interpreted by a healthy businesses’ ecosystem of the country. Optimization their financing decisions takes a core role in this emergence. Although their development is tribute of many factors which in between the funding.

Contempt their numerical dominance of the Moroccan economic fabric, the contribution of SMBs to the country's real growth remains below expectations, presenting low indicators despite the numerous measures taken by the consecutive governments through the last decades. No significant evolution had been witnessed. The current statistical system is unable to provide a clear picture of the behavior of SMBs, but it is possible to identify the main guidelines for detecting weaknesses in these companies, which form the core of our economy. SMBs lack technical and financial resources, and their human capital often lacks management, training and skills. This often translates into underperformance and a lack of competitiveness in cut-throat competition with large companies. SMBs' weaknesses may also be due to red tape, late payments in public procurement and unfavorable taxation. Financing issues are also very important, and are often cited as one of the main challenges facing SMB development in Morocco. These challenges make it very difficult for SMBs to develop and evolve, pushing them to focus on survival rather than innovation, unlike in developed countries.

Banks are the first interlocutor in many cases when a financial need is expressed either for domestic finance or companies funding. Especially for SMBs that in many cases address banks due to the lack of opportunities or the non-sufficient information got on the multiple funding options. This makes banks by far the main funding option for SMBs when seeking for external funds. Nonetheless, the banks don’t answer to all the funding requests they get from SMBs and for the most they always tend to ration the credits or loans they are asked for. Within this work we try to explain bank credit rationing and the forms and interaction of this rationing.