Credit for small businesses and microenterprises in developing countries

Martin de Jong | Nanno Kleiterp

This article deals with one specific intervention strategy to promote small businesses and microenterprises – the provision of credit to small entrepreneurs. The supply of credit as such is just one of many means of intervention possible under targeted programmes. Contrary to
the amount of attention given to the supply of credit, it is not the 'panacea', not the overriding solution to the question of how best to stimulate small-scale activity.Credit is very popular with the donors, largly because it depends on the availability of money, which donors have in
large quantities and are anxious to dispose of. By relying too heavily on credit extension, donor interventions can sometimes destroy more than they build up; it is therefore imperative that strict criteria are observed for any form of credit extension to small-scale enterprises.In this
article the role of credit with regard to commercial development will be briefly touched upon, especially where small enterprises are concerned. An outline will be given of what is available, both in the formal and in the informal sector, and several experiences of interventions in the financial
markets will be analysed. The article ends with policy recommendations.