Paper 2 · November 2019 · Costs and Revenue
The main reason banks lend small and medium enterprises far less than those firms want to borrow is that
Abanks are required to lend only to companies that produce goods for export
Bsmall firms are barred by law from borrowing from commercial banks at all
Cmany small firms lack collateral security and are not formally registered
Dsmall firms pay a lower rate of interest on loans than large companies do
Explanation
A lender wants security it can fall back on and accounts it can assess. Small firms often have neither, and an unregistered firm cannot even be assessed for cheap credit, so banks prefer large borrowers with a track record. That is what leaves a credit gap between what small firms want and what they obtain.
Derived from ZIMSEC Economics 6073/2 Paper 2, November 2019, Q1