The role of Capital Markets in supporting SMEs funding in the LAC region

Wiserfunding’s most recent blog post discusses our founders most recent study, sponsored by the Inter-American Development Bank, on how capital markets can address some of the funding needs of SMEs in the Latin American and Caribbean regions (LAC).

SMEs have been the focus of Dr. Gabriele Sabato and Prof Edward Altman’s academic research for many years. In 2016, they decided to use their knowledge and expertise to form Wiserfunding, a business supporting lenders and investors in assessing the credit profile of SMEs more confidently. 

In 2022, Wiserfunding’s founders were asked by the Inter-American Development Bank (IDB) to lead a study on how capital markets can address some of the funding needs of SMEs in the Latin American and Caribbean regions (LAC). With approximately 27.5 million SMEs in the region, these businesses are vital to the economy. However, a staggering funding gap of $1.8 trillion hinders their growth and development.

A feeble and fragmented business-to-bank relationship, excessive weakness in corporate capital, and a lack of diversification in financing sources are problems that can no longer be postponed, according to Gabriele Sabato and Edward Altman. 

In this context, their study seeks to explore innovative initiatives that can help bridge the financial gap for SMEs, taking inspiration from global jurisdictions that are successfully implementing such initiatives.  

It also recognizes the significant financial innovation occurring in the LAC region in recent years, indicating a ripe environment for transformative solutions. Ultimately, the study’s motivation lies in driving positive change, fostering financial inclusion, and bolstering the region’s economic resilience by unlocking the potential of its vibrant SME sector. 

The study involved extensive research and engagement with various key stakeholders in the financial industry. Here’s a summary of the activities that were conducted:

• Interviews: The study included interviews with 15 prominent exchanges and regulators in the Latin American and Caribbean (LAC) region. These interviews provided valuable insights into the perspectives and practices of these institutions. 
• Surveys: A total of 39 surveys were conducted as part of the research. These surveys comprised responses from 22 exchanges*, accounting for an impressive 93% of the members of the Fiab (Federación Iberoamericana de Bolsas) and 17 regulatory authorities. The surveys covered a wide range of topics related to the financial industry. 
• International Engagement: In addition to focusing on the LAC region, the study also extended its reach to international financial hubs. Interviews were conducted with notable institutions such as Borsa Italiana, the London Stock Exchange, German exchanges, and Bolsas y Mercados Espanoles. These interviews provided a global perspective on the subject matter, adding depth to the study’s findings. 

Over the course of six months, over 300 hours were dedicated to this study. Access and download the study here.