Access to Finance by Chilean Corporations

This paper assesses the extent to which Chilean firms have access to sufficient and adequate sources of funds. The paper argues that:

• Small and medium enterprises (SMEs) complain that their lack of access to adequate sources of financing is an obstacle to their growth;
• Chile has great potential for using products suited to the needs and risk characteristics of small and medium-sized enterprises.

The paper discusses:

• The Chilean corporate sector and its financial performance;
• The access of firms to the capital market and bank financing.

The paper concludes that:

• Only very large firms have access to the whole range of financial instruments available in Chile;
• All firms of smaller sizes face financing constraints;
• Medium and small firms have no access to capital market funding.

The paper lists the following obstacles to downsizing access to capital markets and enabling more SMEs to access bank finance:

• Institutional investors are not interested in smaller, less liquid or riskier issues;
• The private equity and venture capital industry are under-developed;
• There are tax distortions;
• Financial statements of SMEs are of low quality;
• It is difficult to legally execute movable pledges.

The paper makes the following policy recommendations to increase access:

• Lowering the firm size threshold to access capital market financing;
• Increasing the penetration of banks in smaller firm segments;
• Introducing reforms in the area of tax, accounting and auditing and corporate governance reforms;
• Fostering grass root actions to foment entrepreneurship.