The effect of basel III implementation on SME access to financing in emerging markets and developing economies

Abstract

This paper studies the effect of Basel III implementation on the access to financing of small and medium-size enterprises (SMEs) in 32 emerging markets and developing economies by the initial level of SME financial inclusion. Analyzing a cross-country panel of SMEs in the difference-in-differences setting with a sample selection adjustment for possibly non-random implementation of Basel III, we find a short-term, moderately negative effect of Basel III on SME access to financing. The size of this effect depends on the degree of SME's initial financial inclusion. Interestingly, greater bank capitalization before Basel III implementation helped mitigate the negative effect.