Major stumbles in economic growth have had something to do with banking system problems. This was true of the Great Depression, true with the Asian financial crisis, and now again with the current global financial crisis.
The illiquidity in the global financial market has affected the world, halting more than a decade of exuberant economic growth. It has particularly impinged on trade through reduced provision and high cost of trade finance. Problems in finance impact business operations, and usually especially affect the small- and medium-sized enterprises (SMEs) more. Thus, there is a need to focus research on SMEs and their performance during this time of crisis.
This paper surveys studies of the importance of Central Asian small- and medium-sized enterprises (SME) in the economy and their experience during the Russian financial crisis. It also uses survey data from the World Bank and the European Bank for Reconstruction and Development’s Business Environment and Enterprise Performance Surveys to infer noteworthy characteristics, features, and dependencies on financing of Central Asian SMEs and, consequently, derive the potential impact of the crisis on the sector. The paper also assesses government support for SMEs and the necessary market reforms that will give a boost to the sector’s development in the region.
The paper first provides a broad–brush discussion of how a financial crisis affects the real economy, the central role of banks in the lubrication of trade transactions, and why SMEs have difficulties accessing bank financing in general and trade finance in particular. Section 3 provides an overview of the Central Asian economy and discusses SMEs importance and discernible characteristics and features. Section 4 and Section 5 put forward a few pieces of evidence on the impact of the 1998 Russian and the current global financial crises on SMEs, drawing heavily from inferences based on firm surveys conducted in 1999 and 2005.