Abstract/Summary

It has been widely accepted that Small and Medium-Sized Enterprises (SMEs) make significant contributions to economic growth, creation of employment and innovation (e.g. Storey & Greene, 2010), in both developed and emerging economies. The social-economic environment in emerging economies in which SMEs operate differs significantly from that in developed economies in terms of institutional framework (Hussain, Farooq, & Akhtar, 2012), norms, resources and infrastructures (Hitt, Dacin, Levitas, Arregle, & Borza, 2000). Hence, SMEs in emerging economies possess unique characteristics in various ways such as the obstacles they face and access to finance. For example, in Asia-Pacific countries, SMEs have poor access to bank credit, 11.6% of GDP and 18.7% to total bank lending, given the established bank-centred financial system in such countries (Asian Development Bank [ADB], 2014). Indeed, the access to and the costs of finance for SMEs have been recognised as one of the most important determinants of small business start-up, survival and success (Mach & Wolken, 2012). The aim of this chapter is to document the important roles played by SMEs in emerging economies, their unique characteristics and how financial development in emerging economies influences SME finance, in terms of financing patterns, financial constraints and corporate innovation. The evidence provided in this chapter is mainly derived from existing literature and the information collected from World Bank Enterprise Survey (WBES). The remainder of this chapter is organised as follows. Section 2 provides background information on emerging economies and documents the key features of SMEs in emerging economies, especially the key obstacles which constrain the development and growth of SMEs. It also reviews relevant literature on the important roles played by SMEs in emerging economies. Section 3 focuses on SMEs finance in emerging countries in terms of the key financing patterns, financial market development and the importance of financing SMEs in emerging economies. Section 4 concludes and provides implications for policy makers and future research.