Croatian Financial Institutions Must Adopt Risk Management Strategies to Boost SME Access to Finance

The Importance of Small and Medium-Sized Enterprises (SMEs) in Croatia’s Economy

Small and medium-sized enterprises (SMEs) are a crucial part of Croatia’s economy, contributing significantly to employment, added value, knowledge generation, and innovation. However, their growth and survival are often hindered by difficulties in accessing external financing under acceptable terms and timing.

The State of SME Financing in Croatia

A recent study conducted by Riinvest Institute found that:

60% of Croatian SMEs rely on informal sources of finance, such as family and friends
Only 20% use formal financial institutions like banks
The remaining 20% resort to government support programs or their own savings

Challenges Faced by SMEs in Accessing Finance

The lack of access to finance is a major obstacle for SMEs in Croatia, with:

70% citing high interest rates as the main challenge
60% mentioning lack of collateral
50% reporting short repayment periods

The Role of Financial Institutions in Improving SME Access to Finance

In an effort to address this issue, Croatian financial institutions must adopt robust risk management strategies to increase their lending capacity. This includes:

Improving credit assessment processes
Enhancing collateral requirements
Developing tailored loan products for SMEs

A study by the Institute of Economics in Zagreb found that commercial banks in Croatia primarily base their decision to lend on collateral, rather than firm performance or profitability. This highlights the need for financial institutions to develop more sophisticated risk assessment tools and to provide training to their staff on project financing and business counseling.

The Role of Policymakers in Supporting SME Development

The Croatian government can also play a crucial role by implementing policies that support SME development, such as:

Providing guarantees and counter-guarantees
Simplifying lending processes
Reducing information asymmetries in the SME lending system

Conclusion

Improving access to finance for SMEs in Croatia requires a concerted effort from financial institutions, policymakers, and entrepreneurs. By adopting effective risk management strategies, developing tailored loan products, and implementing supportive policies, we can create a more favorable business environment that fosters growth, innovation, and job creation.