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Financial Sector Analysis in Moldova: Challenges Faced by SMEs and Potential Solutions

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Moldova’s financial sector has faced significant challenges in recent years, particularly when it comes to Small and Medium-sized Enterprises (SMEs) accessing funding. In this analysis, we will explore the key issues affecting SMEs, the response of the financial sector, and potential recommendations for improvement.

Challenges Faced by SMEs

Difficulty Accessing Commercial Bank Loans

  • Cumbersome paperwork requirements
  • Time-consuming processes
  • High interest expenses and fees
  • Limited transparency among domestic SMEs, making it hard for banks to verify assets and financial reports

High Tax Burden and Low Return on Investments

  • Leads to a culture of “grey economy” where businesses hide profits and employees pay in cash
  • Pensions and healthcare systems are underdeveloped, resulting in low returns on investments

Financial Sector Response

Non-Bank Financial Institutions (NBFIs) Stepping In

  • NBFIs are developing relationships with SMEs to fill the financing gap left by commercial banks
  • By December 31, 2017, there were 181 non-bank lending agencies registered in Moldova, of which approximately 130 were operational

Remittances: A Key Source of Income for Many Households

High Levels of Out-Migration and Significant Remittance Inflows

  • Figure 3 highlights the significant remittance inflows into Moldova
  • Remittances often constitute the main source of income for many households

Potential Recommendations

Improving Transparency and Accountability Among SMEs

  • Encouraging SMEs to improve transparency and accountability could increase access to commercial bank loans

Expanding Services by NBFIs

  • Continuing to develop relationships with SMEs and expanding services could help meet the financing needs of Moldovan businesses

Reducing Tax Burden and Improving Pension and Healthcare Systems

  • Implementing policies to reduce the tax burden on businesses and improve pension and healthcare systems could increase returns on investments and promote a more transparent business environment

Addressing the Culture of “Grey Economy”

  • Developing strategies to address the culture of “grey economy” and promote a more transparent business environment is crucial for Moldova’s economic development.