Credit to Small Enterprise: The Silent Crisis
Saturday, 11 August 2012 12:09
By Jayati Ghosh, TripleCrisis | News Analysis
A new BIS working paper by Cecchetti and Kharroubi
makes a point that is becoming more widely known, especially after the
continuing financial crises experienced globally since 2008. This is
that the level of financial development is good only up to a point,
after which it becomes a drag on growth. In fact, the authors argue that
when the focus is on advanced economies, a fast-growing financial
sector is actually detrimental to aggregate productivity growth. This is
explained by the authors on the grounds that, because the financial
sector competes with the rest of the economy for scarce resources,
financial booms are not, in general, growth-enhancing.
The recent experience of the United States and now particularly
Europe, certainly confirms this – and even established doyens of the
world of private finance are now more willing to concede this. But one
critical aspect of the failure of financial intermediation is still
inadequately recognised and discussed: the inability of the currently
constituted private financial system to deliver funds to small and
medium enterprises (SMEs), which still account for the bulk of
employment not just in developing countries but also in advanced
economies.
Sunday, August 12, 2012
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