An Empirical Analysis of SME Finance in Turkey: Identifying the Macroeconomic and Firm Specific Factors Affecting SMEs’ Access to Finance

This thesis provides an empirical analysis of SMEs‘ access to financial services and credit in Turkey. It identifies the macroeconomic factors that affect banks‘ credit supply decisions to SMEs, and the firm-specific factors that determine SMEs‘ demand for bank credit and financial services. The macroeconomic, i.e. the supply-side analysis confirmed the conceptual hypothesis that banks‘ lending to SMEs is fuelled by economic growth and stability, financial market efficiency and banking competition, but hampered by the extent of government borrowing from domestic creditors. The firm-level analysis provided evidence that in recent years, SMEs in Turkey found it easier to access bank loans. Evidently, according to the 2015 WBES survey in Turkey, the rejection rate for bank credit was as low as 7% and only 16% of SMEs had cited access to credit as a major obstacle. Although these statistics are valid for the whole Turkish economy, this research discovered that there are significant regional discrepancies in the usage of credit and non-credit financial services in Turkey. In less developed regions, only a small percentage of SMEs have bank accounts, and use bank credit for financing working capital. Yet, it is also found that in these regions, SMEs mostly rely on bank loans for financing their fixed assets. Regarding to firm specific factors it is found that SMEs‘ size, operating performance as well as business ownership type and managerial competency (e.g. education level, business experience) are significant determinants for the demand for formal financial services in Turkey. Keywords: SME finance, credit supply, credit demand, macroeconomic factors, firm‘s specific factors, OLS & GLMs regression.