Credit Guarantee Scheme and Small and Medium-Sized Enterprise Finance: The Case of Turkey
Chronic current account deficit, high inflation, and the bank-based financial system are major obstacles to small and medium-sized enterprise (SME) access to finance in Turkey.
We examine the newly revived credit guarantee fund (KGF) mechanism in Turkey from a comparative historical perspective and identify the structural features of the Turkish economy that complicate access to finance for SMEs. The banking-based financial system in Turkey, state banks, and the public sector, have been unable to resolve the access to finance problem of SMEs. Consequently, the public authorities revived the KGF in early 2017. The KGF was established in 1993 but stayed idle until recently. Despite these efforts, structural impediments to easing SMEs’ access to finance persist in the Turkish economy. Chronic current account deficit, high inflation, large size of the informal economy, and bank-based financial system are the major structural obstacles to easing SMEs’ access to finance. Moreover, the global financial crisis has exacerbated the problem of Turkish SMEs. For Turkey to resolve the SMEs’ financing problem, it is necessary to identify clearly the sustainability of the recently revived KGF and its impact on public and private debt. In addition, the KGF mechanism needs to prioritize SME financing in value-added tradeable goods so that it can contribute to long-term, sustainable economic growth in Turkey.