The Role of Bank Credits in Financing Investments of SMEs: Considerations Arising from Basel III

Supporting the development of small and medium enterprises (SMEs) is one of the main priorities in the economic development of most countries in the world. However, SMEs often face various difficulties in financing their investments. Those problems are related to their structures in case of small size and lack of collateral. Indeed, bank as an important financial institution plays a key role in providing financial services to SMEs, particularly based on the commitments of the Basel Committee on Banking Supervision. In this paper, we have evaluated the effect of bank financial facilities on SMEs financing through specifying an econometric investment model. We then estimate the model by the methods of panel data and GMM for 20 selected SMEs, which were active in Iran’s economy over the period 1995-2011. Overall, the empirical results indicated that bank credits have a significant and positive effect on the selected SMEs’ investment financing.