Explainer: For SMEs, Access to Finance Isn't the Problem. Lending Is.

This explainer details why small and medium enterprises (SMEs) struggle to get loans, not because capital is unavailable, but because regulations—especially Basel III capital requirements and Know Your Client (KYC) rules—make lending to SMEs unattractive to banks. High capital charges, compliance complexity, and risk-weighted returns push banks to prefer low-risk assets over SME credit, constraining growth in emerging markets. The authors advocate revisiting regulatory frameworks to avoid unintended consequences that starve SMEs of financing.