S udies Managemen and Finance Economics, o Jou nal
0504-2644 (online): ISSN 0490,-2644 (p in ): ISSN
5202 Augus 08 Issue 80 Volume
8.317 Fac o : Impac ,11-i8-10.47191/je ms/ 8 DOI: A icle
6951-6051 No: Page
JEFMS, Volume 08 Issue 08 Augus 2025 www.ije m.co.in Page 5160
Do In e es Ra e Changes E ec Small Business Lending in India and Sou h
A ica?
Panshul Gup a
ORCID: 0009-0007-5678-9919
Dei a In e na ional School, Dubai, Uni ed A ab Emi a es (U.A.E.)
ABSTRACT: In his pape , we in es iga e how small business (SME) lending esponds o luc ua ions in in e es a es in wo majo
BRICS+ economies, India and Sou h A ica, whe e we ocus speci ically on he mone a y ansmission mechanism o bank lending.
By u ilising a panel da ase om 2010 o 2022 o comme cial banks in bo h o he economies, we conduc a ixed e ec eg ession
in o de o e ec i ely iden i y he esponsi eness o lending o any changes in policy a es, and by inco po a ing di e en
mac oeconomic and bank-speci ic a iables in ou analysis, we a e also able o conduc an analysis on he in e ac ions wi h
mone a y policy – allowing us o unde s and he a ia ions in esponses o lending. Ou indings indica e ha he e exis se e al
di e ences in no only inancial ma ke sys ems, bu egula ions and c edibili y o cen al banks as well, gi en ha SME lending is
seen o be much mo e sensi i e/elas ic o in e es a e changes in Sou h A ica han in India. C ucially, we see how lending o
SMEs in India is less elas ic as a esul o go e nmen lending p og ams and he p e alence o public sec o banking sys ems.
O e all, ou esul s demons a e ha ha ing a wide unde s anding o he ins i u ional con ex is essen ial in obse ing he
e ec i eness o mone a y policy, and also highligh s he need o ailo ed policy implica ions ha can imp o e c edi access o
SMEs, especially since his gap could inc ease wi h he na u e o eme ging ma ke s.
KEYWORDS: Small Business Lending, Mone a y Policy, SME, India, Sou h A ica, Eme ging Ma ke s, Bank C edi Alloca ion
I. INTRODUCTION
As eme ging ma ke s g ow apidly, small and medium-sized en e p ises (SMEs) emain a he o e on o he economic g ow h
o an economy, gi en ha i cons i u es o a la ge sha e o he o al numbe o i ms and employmen o wo ke s (Wo ld Bank,
2019; Eu omoney, 2024). In his pape , we in es iga e wo o he la ges and as es g owing BRICS economies, India and Sou h
A ica, whe e SMEs accoun o a ound 30-40% o he o al GDP (o all o he egis e ed en e p ises p esen ) (Bha acha jee, 2022).
Howe e , i is impo an o no ha he e a e s ill signi ican inancial cons ain s (Wo ld Bank, 2019; Eu omoney, 2024), gi en ha
nea ly 40% o o mal economy MSMEs in de eloping coun ies a e pa o a c edi gap/de ici o USD 5 illion, wi h MSMEs in
sou h A ica accoun ing o a ound USD 30 billion (Eu omoney, 2024). As a esul , in o de o close his gap, mone a y policy can
be an e ec i e ool ha can in luence bank lending condi ions h ough changes in cen al bank in e es a e changes, bu he e
exis s a la ge gap on how his can impac small business lending di ec ly. Howe e , his becomes e en mo e impe a i e o
in es iga e gi en ha he e a e mul iple ac o s ha mean ha mone a y policies only ocus on policy a e shi s, and impac ing
lending a es h ough he banking sys em, as seen by Cha opadhyay and Mi a (2023). As a esul o his, we lea n abou how
cen al bank policies can ha e an impac on MSME lending, bu as seen by Ca alcan i e al. (2023), some eme ging ma ke s ha e
been shown o be less anspa en when i comes o p icing loans o bo owing and changing in e es a es.
Mo eo e , ecen da a and empi ical analysis om he cu en li e a u e has shown he SMEs a e sensi i e o any policy shi s,
whe e in India, o e 67% o MSME loans a e now pegged/ ied o he Rese e Bank o India (RBI) epo ( epu chase) a e, so i any
epo a es a e inc eased, i could lead o g ea e bo owing cos s o small businesses. This simila si ua ion in Sou h A ica, whe e
SMEs con ibu e o a ound 98% o he o al i ms in he o mal economy, and hey a e unable o e ec i ely o e come he high
bo owing cos s, meaning ha any cons ain s aced by SMEs mone a ily could lead o educed small business bo owing. Fo
ins ance, Msomi (2023) demons a es his ela ionship o how highe in e es a es could educe c edi access o SMEs, bu i is
also impo an o no e ha he e is a majo esea ch gap wi hin his opic, as a esul o he sca ci y o SME-speci ic quan i a i e
e idence-based li e a u e.
Do In e es Ra e Changes E ec Small Business Lending in India and Sou h A ica?
JEFMS, Volume 08 Issue 08 Augus 2025 www.ije m.co.in Page 5161
In addi ion o his, we also ind ha he cu en academic li e a u e lacks any c oss-coun y analysis speci ically in he con ex o
eme ging ma ke s; consequen ly, we aim. To ill his gap by compa ing India and Sou h A ica by compiling da a om da ase s
ocusing on cen al bank in e es a e changes and c edi da a o SMEs, which, in u n, helps us o c ea e a panel eg ession and
ime-se ies model o quan i y he e ec o policy a es on SME lending. F om ou indings, we belie e ha we can con ibu e
meaning ully o imp o ing he cu en RBI and SARB (Sou h A ican Rese e Bank) policy a es and MSME loan igu es, since we
disco e many ela ionships be ween di e en a iables in ou compa a i e and empi ical analysis, which helps us o isola e he
mos app op ia e a iables and sugges an e ec i e esul ing esponse.
II. THEORETICAL BACKGROUND AND OVERVIEW
I is impe a i e o no e ha policy a es by cen al banks can in luence an economy h ough he mone a y ansmission mechanism,
which means ha he s anda d in e es - a e mechanisms can lead o g ea e money a es in he ma ke alongside highe bank
lending a es, i a highe policy a e is p esen (Cha opadhyay & Mi a, 2023). As a esul o his, he cos o capi al o i ms will
inc ease, and gi en ha i ms aim o gain a e u n o ca y ou an in es men , inc easing bo owing cos s could lead o a lowe
o al in es men in newe p ojec s. In addi ion, his could also lead o educed bank lendings, since banks ha ace highe unding
cos s could educe he o al numbe o loans, especially o iskie bo owe s (in essence, MSMEs). Gi en ha small i ms ha e
limi ed colla e al and a highe isk o de aul ing han mo e es ablished la ge i ms, small business a e no only mo e ulne able o
mone a y policy luc ua ions bu would be a isk due o less oppo uni ies o loans (Ca alcan i e al., 2023). By looking a hese
e ec s, SME lending could be a a g ea isk i policy ayes a e aised, con ibu ing o signi ican ly smalle g ow h, especially since
SMEs a e known as he ‘backbone’ o ela i ely mo e ulne able eme ging economies.
Fu he mo e, he e a e some cha ac e is ics o India and Sou h A ica ha can be e help us unde s and he sensi i i y o SME
lending, whe e in India, small businesses can ins an ly eel RBI a e mo emen s as seen when a 2019 change (which linked many
MSME loans o epo a es) in egula ions had caused mo e han 70% o MSME loans o be linked wi h he epo a e. In addi ion o
his, a ecen 2022 Al Jazee a epo emphasised ha Indian SMEs sha ply cu he wo king capi al due o educed bo owing a e
he e we e epea ed epo a e hikes. I is also impo an o no e ha Indian MSMEs comp ise o a ound one 20 million wo ke s
and accoun o a ound 30% o he o al Indian GDP, hence making his speci ic sec o highly sensi i e o in e es a es
(Bha acha jee, 2022). Mi o ing his, in Sou h A ica, in he SARB simila ly aised i s epa a e signi ican ly a e he end o he
COVID-19 pandemic, whe e i was aised om 3.5% o o e 8% o e a pe iod o h ee yea s. F om many sou ces and u he
e idences, we lea n abou how SMEs in Sou h A ica a e no only al eady cons ained in e ms o c edi bu also accoun o a ound
33% o he o al GDP (Eu omoney, 2024). O e all, om he cu en s a is ics, we lea n abou how in e es a es a e a signi ican
ac o ha can in luence he g ow h o small businesses, ye his esea ch gap s ill exis s due o he limi ed academic e idence
p esen , especially when looking a s ong empi ical analysis which links policy a es o lending o SME in a mo e c oss coun y
con ex .
III. LITERATURE REVIEW
Cu en ly, mos o he exis ing li e a u e o en ocuses on how he e a e mul iple amewo ks and means h ough which mone a y
policy a es can a ec businesses, and he es ablished ex s on Mac economic policies by economis s such as Mil on ea men
desc ibe how he in e es a es and bank lending mechanisms can in luence each o he (Cha opadhyay & Mi a, 2023). Today,
mos mode n s udies ocused p ima ily on he impac o cen al bank ac ions h ough ma ke s whe e in e es a e inc eases could
lead o an inc eased bank unding cos , which leads o educed/ cons ained loans and lending amoun s by banks. In pa icula
when looking a ma ke s, p e ious li e a u e has also emphasised ha looking a he exchange a es a e also essen ial alongside
in e es a es, gi en ha hey can in luence impo cos s, ye in he con ex o India and Sou h A ica in e es a es emain a mo e
signi ican ac o since hese economies a e mo e banking cen ic. F om he cu en li e a u e, some s udies ocusing on India ha
analyse how a e changes by he RBI in luence he bank a es in he long e m ins ead o a sho e m one- o-one leading a e
adjus men s, we also see how di e en benchma ks can be used ha a e in luenced by many ac o s (Ca alcan i e al., 2023).
Howe e , when conside ing a mo e mic o economic pe spec i e, we lea n abou how small i ms a e usually ecognised as ones
who ha e limi ed capi al, and as a esul o being mo e ulne able wi h limi ed colla e al, hey ha e a weake access o inance
om o mal banks and lending ins i u ions. By no being able o secu e as many loans as la ge i ms, as men ioned p e iously,
some li e a u e has also emphasised ha his impac may be e en g ea e , whe e he IFC es ima es ha a ound 40% o o mal
SMEs in de eloping economies do no ha e hei equi ed inancing needs, accoun ing o a ound 5.2 illion USD pe yea when
looking a all economies (Wo ld Bank, 2019). As a esul o his, coupled wi h an e en highe in e es a e caused by policy a e
Do In e es Ra e Changes E ec Small Business Lending in India and Sou h A ica?
JEFMS, Volume 08 Issue 08 Augus 2025 www.ije m.co.in Page 5162
hikes, we lea n abou how SMEs may su e disp opo iona ely, whe e banks may s op lending o he mos isk based SME i s ,
which becomes e en mo e common as epo a es a e pegged wi h SME lending.
Mo e speci ically, when looking a empi ical s udies ha ha e es ima ed he impac o how in e es a es can impac small business
landing in eme ging and de eloping ma ke s (EMDEs), s udies such as Msomi (2023) in es iga es his in Sou h A ica using da a
sou ces om su eys, and, indeed, as men ioned be o e, he e a e many signi ican nega i e e ec s on in e es a es when looking
a SME c edi access. By u ilising bo h eg ession and co ela ion analysis, Msomi ound ha high in e es a es we e he abili y o
SMEs o be able o ob ain a o dable loans, and his is mi o ed in India, whe e despi e ou sca ce numbe o s udies p esen , we
s ill lea n ha based on he cu en news analysis and cen al bank epo s, MSMEs ha e become mo e sensi i e o he policy a es
a e 2019. Howe e , i is Impo an o know ha due o unobse able and con ounding a iables, such suppo s do no es ima e
a di ec cause e ec , hence p esen ing a majo esea ch gap.
In addi ion o his, in o de o s eng hen ou model, we also closely look a ela ed s udies o mone a y ansmission o small
bo owe s, whe e J-PAL s udies help us unde s and how he a e changes can impac loan demand o mic o inance needs, and
how lending can espond o shi s in ag icul u e o indus y. Howe e , due o he b oad conside a ion o ca ego ies a he han
being speci ic on SMEs, we also look a o he esea ch s udies such as IMF epo s ha p o ide essen ial da a h ough c oss coun y
wo k. In addi ion o his, we also lea ned ha in o de o e ec i ely impac lending, s ong ins i u ions a e needed ha can
implemen e ec i e mone a y policy (Ma ques e al., 2020), alongside he need o an imp o ed amewo k in de eloping
economies, whe e al e na i es o gaining capi al a e limi ed o SMEs, making hem hea ily elian on bank c edi sys ems (Wo ld
Bank, 2019). O e all, we lea n abou how majo i y o he li e a u e highligh s on he nega i e ela ionship be ween c edi access
and he policy a e in an economy, bu ou s udy ocuses on he c oss coun y e idenced based esea ch o SMEs in bo h India
and Sou h A ica, gi en ha mos o he esea ch in es iga ed heo e ical concep s ha do no employ an e ec i e and de ailed
empi ical app oach. Using p e ious li e a u e, we o m he basis o ou hypo heses, bu we would like o in es iga e his u he
using ou e idence based empi ical analysis.
IV. DATA AND METHODOLOGY
As pa o ou me hodology, we i s c ea e a la ge panel da ase spanning bo h, India and Sou h A ica, whe e we eco d ou
e idence a a qua e ly-basis ( om Q1 2010 o Q1/Q2 2025), and he key a iables we use as pa o ou me hodology include he
policy in e es a e (also known as he cen al bank’s epo a e o each coun y), om RBI epo a e se ies o India, and SARB epo
a e epo s o Sou h A ica. In addi ion o his, we ha e also u ilised he SME lending igu es, which a e eco ded as he
amoun /p opo ion o g ow h a e o he bank c edi ha is gi en o SMEs. To ge hese igu es, we ha e used he RBI da a o
MSMEs in India, and we use also use he FinScope MSME su ey o Sou h A ica. Howe e , due o he limi ed p esence o de ailed
b eakdowns o Sou h A ica, we also use a p oxy o “c edi o he p i a e sec o ”, which supplemen s he da a said ha we al eady
ake om he FinScope MSME su ey. In addi ion o his, we ha e also included con ol a iables ha include he CPI annual
pe cen age change, alongside he GDP g ow h a e o each coun y, om he IMF Wo ld Economic Ou look (WEO/Wo ld Bank).
Be o e conduc ing a ull empi ical analysis, we will i s examine he basic co ela ion ma ix, whe e we a e able o lea n abou
how India’s epo a e was sha ply educed o 4.0% by Augus 2020, and hen was hiked o 6.5% by Feb ua y 2023 (MoSPI, 2025),
and gi en his hike o e he same pe iod, we also lea n abou how MSME c edi g ow h signi ican ly slowed a e 2022. Likewise,
i is impo an o no e ha when looking a Sou h A ica, he epo a e has consis en ly s ayed low be ween 3.5 o 4.25% in iscal
yea 2020-21, bu his hen ose o 7.75% by he la e 2023. The in e se ela ionship ha was shown in India is now ein o ced
when SARB epo s show how p i a e c edi g ow h is declining when such changes in he Sou h A ican policy a es ook place.
Howe e , as men ioned p e iously, a mo e o mal le el o empi ical analysis is s ill equi ed, and, as a esul o his, we c ea e a
panel eg ession equa ion ha is able o link SME lending o he changes in he policy a es, alongside adding con ols. The simple
model ha we c ea e is shown below, whe e:
𝛥𝑙𝑛(𝐶𝑟𝑒𝑑𝑖𝑡) =𝛼𝑖+𝜆𝑡+𝛽 𝛥𝑅𝑒𝑝𝑜𝑅𝑎𝑡𝑒𝑖𝑡 +𝛾 𝜋𝑖𝑡 +𝛿 𝛥𝑙𝑛(𝑌)+𝜀
This equa ion illus a es he QoQ (Qua e on qua e ) g ow h a e o he c edi gi en o he p i a e sec o SMEs, whe e 𝑖 = India
and S. A ica and 𝑡indexes he qua e s. F om he equa ion, we see how 𝛥𝑅𝑒𝑝𝑜𝑅𝑎𝑡𝑒𝑖𝑡 is he change in he policy a e ha is
measu ed in pe cen age poin s, om he p e ious qua e . This means ha we a e able o ake in o accoun he mone a y policy
shocks, also gi en ha we include he ixed e ec s o 𝛼𝑖, which allows us o also accoun o he non- ime dependen di e ences
(such as he legal en i onmen s), and he use o 𝜆𝑡, which helps o educe he global shock impac s (such as oil p ice luc ua ions)
by conside ing he ime ixed e ec s. In addi ion o his, we ha e also added o he con ols such as o in la ion ( ep esen ed by
Do In e es Ra e Changes E ec Small Business Lending in India and Sou h A ica?
JEFMS, Volume 08 Issue 08 Augus 2025 www.ije m.co.in Page 5163
𝜋𝑖𝑡) by looking a he annual CPI change, alongside he o e all GDP g ow h using he a iable o 𝛿 𝛥𝑙𝑛(𝑌), gi en ha he po en ial
demand o loans could also depend on he business cycle and he p ice le el. I is also impo an o no e ha we ha e he
coe icien o in e es , equal o 𝛽, whe e a nega i e (−𝛽) alue would mean ha a highe in e es a e (con ac iona y mone a y
policy) would slow he c edi g ow h o SME, and ice e sa.
In addi ion o his, we also ha e an o dina y leas squa es (OLS) eg ession model which akes in o accoun a lo o s anda d e o s.
Howe e , gi en ha he e a e only wo coun ies, he complex panel s uc u es canno be eliably es ima ed, bu ins ead, we can
u ilise he ime-based a ia ion and c oss-coun y di e ences. In addi ion o his, we ha e also aken in o accoun each coun y’s
ime sepa a ely, using VAR, and ou model o his is shown below:
Δln(C edi 𝑡)=μ+∑ 𝜌𝑘Δln(C edi 𝑡−𝑘)
𝑝
𝑘=1 +∑ 𝑞𝑘Δ(RepoRa e𝑡−𝑘)+∑ ∅𝑗(𝑋𝑡−𝑗)
∅
𝑗
𝑞
𝑘=0
Whe e 𝑋𝑡 a e he con ols like in la ion, and 𝑝,𝑞 lags a e chosen by in o ma ion c i e ia, and he combina ion wi h he
au o eg essi e dis ibu i e lag (ARDL) model/app oach can help us o see he long- un equilib ium ela ionships i c edi and a es
a e pu side-by-side, alongside he sho - e m pa e ns.
In his equa ion/model, he e exis many o he a iables, whe e he SME c edi a iable o C edi 𝑡, is, o India, o al bank lending
o mic o, small, and medium en e p ises (which is he p io i y-sec o ), while o Sou h A ica, his a iable ep esen s he o al
bank lending o p i a e sec o , no ing ha all o hese a iables a e in la ion adjus ed ( eal). When looking a he policy a es,
𝛥𝑅𝑒𝑝𝑜𝑅𝑎𝑡𝑒𝑖𝑡 is he epo a es o bo h India and Sou h A ica, based on wha he o al a e age a e is pe qua e . In addi ion o
his, he use o del a means ha we use he di e ences in o de o be e imp o e ou c oss-coun y analysis. Alongside his, we
ha e also used he same ep esen a ions o he a iables o In la ion (based on he YoY CPI changes) and eal GDP (which is based
on he qua e ly g ow h measu es).
Adding on o his, we will also un Hausman es s in o de o e ec i ely decide be ween using ixed e ec s o andom e ec s (whe e
we usually p e e ixed e ec s o accoun o any unobse ed/con ounding ac o s, despi e us only u ilising wo coun ies in ou
c oss-coun y analysis). I is impo an o no e ha gi en he p ope ies o he da a ha we use, he panel ixed-e ec s OLS
eg ession model wi h 𝛥𝑙𝑛(𝐶𝑟𝑒𝑑𝑖𝑡) on 𝛥𝑅𝑒𝑝𝑜 is po en ially he mos p e e able model and he i s one, and his can also help us
o es ima e a long un ela ionship h ough o he es s (such as panel coin eg a ion es s). O e all, we will include summa y ables
o he key s a is ics ha we used. Below, we ha e a ached TABLE one which shows he signi icance o he p e alence o SMEs and
ecen in e es a es alongside desc ip i e s a is ics.
Table 1: Desc ip i e S a is ics
Coun y
SMEs (app ox. i ms)
SMEs as % o GDP
Repo Ra e (mid-2025)
India
~99% o o mal i ms (MSMEs)
~30%
~5.50% (June 2025)
Sou h A ica
~98% o o mal i m
>33%
~7.25% (May 2025)
Fu he on in he s udy, We will hen a ach eg ession esul s ables which display he es ima es o each a iable wi h a coe icien
alongside he signi icance le el. O e all., we belie e ha ou me hodology can c ea e a combina ion o no only desc ip i e c oss
coun y compa ison wi h econome ic equa ions, bu also help o iden i y whe he a coal impac exis s be ween cen al bank
changes on small business lending, and wha he di ec ion o his co ela ion/causal e ec is. We will also use p e ious s udies in
o de o complemen ou quan i a i e analysis (Msomi, 2023; Ma songoni & Mu amba a, 2018).
Do In e es Ra e Changes E ec Small Business Lending in India and Sou h A ica?
JEFMS, Volume 08 Issue 08 Augus 2025 www.ije m.co.in Page 5164
V. EMPIRICAL RESULTS
As pa o ou empi ical analysis, we ha e p esen ed below ou eg ession es ima es o he c edi g ow h o SMEs based on a
posi i e and nega i e mone a y policy shock, while con olling o o he a iables such as he GDP g ow h a e and in la ion. F om
Table 2 (a ach below), we see how in column one, he policy shock coe icien o India is -0.15 wi h he s anda d e o o 0.06
which is a s a is ically signi ican le el, while o Sou h A ica in column wo, he magni ude is -0.28, wi h a g ea es s anda d e o
o 0.08. As a esul o his, we see how a con ac iona y mone a y policy employed could lowe he c edi g ow h a e in bo h
coun ies, bu he e ec o his is signi ican ly la ge in Sou h A ica han in India, hence implying ha a one pe cen hike in he
in e es a e would slow down he lending o SME businesses by a ound 0.15%poin s o India, and nea ly double he amoun o
Sou h A ica. These esul s a e consis en wi h he p io s udies ha highligh how such inc eases in epo a es could lead o a
mo e discou aged o m o SME landing (Mish a e al., 2016). In addi ion o his, Msomi (2023) also ind ha he e exis s a signi ican
in e se ela ionship.
Table 2: SME C edi G ow h on Policy Ra e Shock (annual eg essions)
Va iable
India (1)
Sou h A ica (2)
Policy Ra e Shock (100bp)
–0.15 ** (0.06)
–0.28 *** (0.08)
GDP G ow h (%)
0.10 * (0.05)
0.12 * (0.06)
In la ion (%)
–0.05 (0.07)
–0.08 (0.09)
Cons an
0.50 (0.20)
0.60 (0.25)
Obse a ions
80
80
R-squa ed
0.24
0.30
*S anda d e o s a e he e in pa en heses.
*p<0.10,
**p<0.05,
***p<0.01.
Addi ionally, Table 2 also illus a es how GDP g ows is posi i e in bo h eg essions, which ollows an expec ed end, and he ac
ha he adjus ed co ela ion squa ed alues a ypical o such a eg ession se , we lea n how he nega i e shock a ec is a s ong
and alid conclusion ha we can o m om he da a se analysis abo e.
Expanding on o his, we ha e also plo ed he implied esponses o when he g ow h in loans o SMEs issued alls immedia ely
a e a shock, bu hen g adually eco e s, as seen in igu e 1. F om he igu e we see how he sha pe , and ye as e decline in
Sou h A ica is expec ed gi en ha some key s uc u al di e ences exis , whe e Msomi (2023) ind ha Sou h A ican SMEs ypically
ace e y high bo owing cos s, whe e in e es a es could each up o 30%, while also elying hea ily on banks ha educe lending
signi ican ly when con ac iona y mone a y policy is u ilised. These esul s also mi o s he esul s by Mohan and Pa a (2009),
who no e ha small banks and businesses could be mo e impac ed by con ac iona y mone a y policy, and, as a esul , educe
hei lending signi ican ly mo e sha ply han la ge and mo e es ablished banks. Hence, since Sou h A ican SMEs o en ely on
smalle banks, his could be he po en ial eason why he e is a la ge magni ude o he coe icien in Sou h A ica.
Do In e es Ra e Changes E ec Small Business Lending in India and Sou h A ica?
JEFMS, Volume 08 Issue 08 Augus 2025 www.ije m.co.in Page 5165
igu e 1: Impulse Response Func ion (IRF) o SME C edi G ow h (which demons a es ha Indian SME c edi is less sensi i e
o changes in he epo a e, possibly due o mo e obus /s onge RBI policies, while Sou h A ican SMEs su e om an e en
mo e declining c edi con ac ion)
VI. POLICY IMPLICATIONS
When looking a he e idence and empi ical analysis o he da a o India and Sou h A ica, alongside he in e na ional li e a u e
p esen , ou analysis illus a es ha con en ional mone a y policy is esponsible o impac ing c edi a ailable o SMEs, bu since
his is p esen a di e en le els, some impo an a ge ed measu es mus be implemen ed. As a esul o his, we ecommend
ha some key ac ions should be aken, whe e, i s ly, SME c edi should be enhanced and suppo ed alongside any changes o
mone a y policy shocks. This is whe e go e nmen s and ins i u ions should in es in expanding he c edi -gua an ee p og ams,
alongside subsidising loan p og ams, in o de o e ec i ely o se he nega i e impac s on SME lending due o con ac iona y
mone a y policy. This could ollow he example o Indonesia’s success ul KUR (K edi Usaha Rakya ) p og am, which is esponsible
o p o iding loans o g ow MSME businesses a a a e ha is below he ma ke a e age, and his has helped o expand and
p io i ise p og essing smalle en e p ises in o ones ha can con ibu e much mo e meaning ully o he economy. By inc easing
hese p og ams, KUR was success ul in eaching a ound 57 million SME owne s, acco ding o Supa i (2025), and his has also led
o a much la ge g ow h in employmen and o al business u no e . Simila o his, India could in es in g owing i ’s c edi -
gua an ee schemes o he CGFMU in o de o ha e a su ge in MSME lending, and his could be success ul, gi en ha cu en da a
has shown ha bank c edi o Indian MSMEs has g own by 14% in FY 24-25 (Shukla, 2025). By using hese examples, we can see
how such p og ams should no only be scaled up bu publicised u he as well, whe e in Sou h A ica, o example, he p e-exis ing
SEFA c edi -gua an ee p og am could be u he inc eased in publici y, in o de o encou age he numbe o lende s and businesses
ha pa icipa e in hese schemes (Access o Finance Repo , 2018; Access o Finance Repo , 2025). Simul aneously, i is also
impo an o ensu e ha a he same ime, mone a y and iscal sus ainabili y, and s abili y is ensu ed by ensu ing ha hey a e
clea guidelines and c i e ion o e ec i ely sc een di e en o ms and en ep eneu s o ensu e ha c edi lows o o ms ha a e
expec ed o g ow he mos and a e iable o he long- e m economic g ow h o he economy. Fo ins ance, as a esul o B azil’s
ecen in oduc ion o he “Ac edi a” p og am and he ac ha some esou ces we e o e exhaus ed (Reu e s S a , 2024), leading
o ma ke ine iciencies/ ailu es, i is, he e o e, ex emely impo an o be cau ious while implemen ing hese policies.
Secondly, SME lending should also be con olled o when managing isk, bu also balanced by egula ions and inancial policies
ha should acili a e he g ow h o SME business owne s and employees, and his can be done h ough mechanisms whe e cen al
banks and egula o s can change amewo k o ce ain policies o encou age banks o se e smalle i ms a he o e on . Fo
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
Qua e s
a e he
shock
0 1 2 3 4 5 6 7
India IRF Sou hA ica IRF
Do In e es Ra e Changes E ec Small Business Lending in India and Sou h A ica?
JEFMS, Volume 08 Issue 08 Augus 2025 www.ije m.co.in Page 5166
ins ance, he SARB and RBI could elimina e some colla e al equi emen s o MSME loans up o a ce ain amoun , and his has
been success ul o a ce ain ex en when a newly in oduced policy o he emo al o he equi emen o a colla e al o up o INR
10 lakhs e ec i ely lowe ed pa o he inancing de ici o SMEs. A he same ime, i is impe a i e o ensu e ha u he
inno a ions in bo h c edi policies and echnology should con inue, whe e new da a pla o ms could be enhanced o e ec i ely
p omo e SME c edi gua an ee schemes and p og ams, and educe po en ial a eas o ma ke ailu es h ough asymme ies in
in o ma ion (Swamina han, 2024). In addi ion o he policy, we also belie e ha a hi d policy o adjus ing he cu en mone a y
policy mechanisms can help o e ec i ely a oid any unin en ional educed c edi / unding de ici s o SMEs, since e y
la ge/signi ican inc eases in epo a es could no only cons ain small i m landing bu could also ha m he o e all economy due
o cen al banks educing he o e all numbe o loans a ailable. As a esul , du ing imes o in la ion su ges, o example, some
ese es could be main ained o he p io i y sec o s o SMEs e en as a es ise, and his can be complimen ed by he i s and
second policy p oposals. This can also help o p e en a c edi ca d o SMEs, since ecen esea ch has also ound ha la ge banks
esponded o a e hikes by eloca ing capi al esou ces owa ds co po a e loans o la ge En e p ises, ye smalle banks had o
educe business lending (Viegi & Loa e, 2021). Mo e speci ically, in Sou h A ica, he ac ha hese pa e ns ha e been obse ed
sugges s ha policy make s should be e moni o bank lending pa e ns, while in India, he new digi al lending amewo k could
lead o an inc eased in e es a e on many SME loans (ET BFSI, 2025), bu could also lead o posi i e impac s on SMEs when
pu suing hese mic o economic goals.
Nex , we belie e ha coo dina ion be ween banks and go e nmen s, alongside e ec i e ma ke esea ch is c ucial, gi en ha bank
lending beha iou changes a e in luenced by cen al bank luc ua ions in policy a es. Since banks ypically pe cei e SMEs as high
isk, hey usually cha ge a abo e he no mal ma ke a es (Bha & Nayak, 2025), bu e ec i e coo dina ion whe e go e nmen
leade s could publicly u ge banks o u he simpli y he SME c edi lending p ocess, as seen by he example o Mexico (Reu e s
S a , 2025; Amé icaEconomía, 2025), sugges s ha an inc eased le el o ad ocacy and connec ion be ween banks and
go e nmen s can ac as e ec i e ools. This is also emphasised h ough he example o B azil, by he new adminis a ion (as pa
o he go e nmen ) issued an execu i e o de o enego ia e he in e es on mic o loans o MSMEs (Reu e s S a , 2024), and hese
si ua ions/scena ios could also be implemen ed e ec i ely wi hin he economies o India and Sou h A ica h ough simila
p og ams, in conjunc ion wi h he p e-exis ing widesp ead use o mone a y policy. Finally, we also belie e ha de eloping he
inancial ma ke u he and inclusion o indi iduals wi hin hese ma ke s should be expanded u he , gi en ha elying solely on
banks is o en conside ed ine icien . This can be done h ough mechanisms such as p omo ing al e na i e channels o inancing
o SMEs, h ough o he p i a e ins i u ions/o ganisa ions, and online Fin ech pla o ms. In addi ion o his, he O ganisa ion o
Economic Coope a ion and De elopmen (OECD) also exclaimed ha by inc easing he ange o di e en inancial ins umen s o
und SME needs is one o he mos e ec i e and e icien manne o closing he c edi gap (OECD, 2024).
Ne e heless, i is s ill impo an o no e ha despi e hese in e en ions, i is essen ial o be able o balance social enclosu e wi h
economic s abili y, and ha he bene i s o using con ac iona y mone a y policy o balance he ma ke economic objec i es should
no be less han he bene i s gained om implemen ing he in e en ions abo e o boos SME g ow h and u he s imula e he
economy. By ollowing hese policy in e en ions and balancing hem wi h o he mic o economic objec i es/goals speci ic o he
economies we belie e ha ou analysis sugges s ha hese e o ms canno only boos c edi quali y, bu help o ease he p e-
exis ing c edi de ici s. Howe e , he e ec i eness o hese policy ecommenda ions depends s ongly on each o he coun ies
egula ing bodies, whe e he u u e implemen a ion o hese policies could be complica ed due o he as p esence o nume ous
public sec o banks and complica ed egula ions ac oss di e en egions in each coun y, especially in India, alongside he po en ial
o a highly concen a ed oligopolis ic banking sec o wi h conse a i e lending aims, as in he case o Sou h A ica, whe e
comme cial banks ha e been eluc an o lend o small En e p ises unless hey a e well colla e alised.
VII. CONCLUSION
To ecapi ula e, ou indings ha e ein o ced he o e a ching message ha mone a y policy and inancing o SME businesses a e
ex emely well in e connec ed, especially in he case o eme ging economies. By ca ying ou ou empi ical analysis and ex ensi e
li e a u e e iew, we ha e examined ha he e exis s an in e se ela ionship be ween epo a es and he amoun o capi al money
spen on lending. In he case o India and Sou h A ica, ou c oss coun y and compa a i e analysis has exclaimed ha in e es a e
shocks a e esponsible o impac s and luc ua ions in small business c edi , as a esul implying ha cen al banks in hese
espec i e economies should no ea SME c edi /lending has a sepa a e ac o when conside ing iscal and mone a y policy
adjus men s. In addi ion o his, he la ge c edi ca d o SME inancing makes i essen ial o ca e ully adjus he epo a e and also
conside he possible he e ogeneous impac , whe e each app oach o se ing he a e mus conside how di e en small and la ge
i ms can espond di e en ly (BIS Mone a y and Economic Depa men , 2025). Collec i ely ou esul s and li e a u e implies ha
igno ing SMEs can ha e a ious consequences on he ue e ec i eness o mone a y policy, gi en ha igno ing such a la ge
Do In e es Ra e Changes E ec Small Business Lending in India and Sou h A ica?
JEFMS, Volume 08 Issue 08 Augus 2025 www.ije m.co.in Page 5167
p opo ion o he o al numbe o i ms could be he esponsi eness o economic agen s. In u n, his could lead o a signi ican ly
educed inclusi i y (economically), since his unde mines he aim o inclusi e g ow h goals when p io i ising economic g ow h.
Mo e b oadly, i is impo an o ecognise ha expanding access o mo e a o dable c edi o such En e p ises can also lead o a
g ow h in he eal GDP and economic di idends as mul iple s udies by he IMF and Blanche e al. (2019) ha e shown. Mo eo e ,
helping o acili a e bo owing can also ha e ipple e ec s in boos ing employmen and o e all p oduc i i y, since bo owing can
allow i ms o expand, in es in new echnology, unemployed mo e wo ke s, which could po en ially lead o an inc eased
p oduc i e po en ial, no ing ha SMEs a e esponsible o almos hal o he jobs in bo h India and Sou h A ica, as men ioned
p e iously. Howe e , a inal cau ion o conside is necessa y, o whe e excessi e c edi easing/lending can back i e, while p o iding
ex emely cheap inances can isk c ea ing u u e long- e m ma ke ailu es and misalloca ion o capi al esou ces, since public
unds could be d ained i SMEs may ake unding o g an ed ins ead o g ow h.
Looking o wa d, hough, he e a e some a eas o u u e esea ch, gi en ha ou s udy had some limi a ions o no being able o
co e i m le el and egional da a, which could allow o gaining e en mo e deepe insigh s, especially h ough e en mo e models
o enhance empi ical analysis and econome ic me hods. Addi ionally, u u e s udies could also explici ly model he ela ionship
be ween demand side ac o s, such as he willingness o i ms o bo ow unde pe iods o economic unce ain y/low con idence,
wi h supply side ac o s, such as he c edi policies by bank, and how hey ela e o impac ing he o e all SME c edi gap (P Fouejieu
e al., 2020). Howe e , o e all, we belie e ha ou analysis was no only su icien bu expanded he sugges ions and policies ha
cen al banks in India, Sou h A ica, and ela i ely simila economies should implemen and no igno e in o de o p io i ise he
SME sec o . By s ill complimen ing iscal, s uc u al, and mone a y policies wi h ou policy ecommenda ions, we belie e ha he
SME segmen can no only e ec i ely g ow, bu also achie e ma ke e iciency and inancial s abili y, hence leading o a g ea e ,
mo e sus ainable long- e m economic g ow h o eme ging economies.
ACKNOWLEDGEMENTS
I would like o since ely hank Miss Bea ice Maule, a esea che a he Uni e si y o Chicago, o he aluable eedback and
guidance in e ining his pape as a men o and ad iso . Miss Maule holds a Mas e ’s Deg ee in Public Policy om he Uni e si y
o Chicago, USA, and a Bachelo ’s Deg ee in Ag icul u al Business and Economics, om he Iowa S a e Uni e si y. He ex ensi e
esea ch in he ield o Economics and aluable insigh s we e ins umen al in imp o ing he analysis and policy aspec s o his
wo k.
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