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Published: Fri, 02 Feb 2018

Entrepreneurial spirit and innovation in a country

Micro, small and medium sized enterprises (SMEs) are the engine of the any economy. There are an essential; source of job, create entrepreneurial spirit and innovation in a country and are thus critical for fostering competiveness and employment. Efforts targeted at the SME sector are based on the premises that SME’s are the engine o economic development. The solution of this problem however did not move substantially in the last years. Regarding the business size and thus resulting capital requirement of SMEs a direct entrance to the capital market s mostly mot possible-indirect entrances over the financing forms and their financing companies are necessary cause of this. Leasing as a form of SME financing can result n such an indirect entrance to the capital market.

Various agencies, particularly government, have given a lot of emphasis on the development of small and medium enterprises (SMEs).Various programs and facilities are provided to increase the competitiveness of the sectors. However, it has to be recognized that depending on these alone will not guarantee the success of the SMEs. Many factors must be considered. These factors may be divided into two types’ external factors and internal factors. External factors include aids by other agencies, a firm’s location and marketing scope. Internal factors include financial status, ownership status, and management style and employees characteristics. These two factors have been extensively discussed by many agencies, public as well as private.

Increase where necessary in some low income countries, measures at increasing the productivity of small scale informal and self employment activities such as targeted micro-credit schemes. Micro-finance institutions have proven resilient in previous economic downturns

Appoint, where need “credit mediators who at regional and central levels may intervene to ease difficulties and help enterprises obtain bank funding

Providing prefunded agreements directly to SMEs, which can be taken to the banks to obtain guaranteed loans?

The crises have illustrated both the importance of SME sector as a driver of the real economy and the fragility of this sector in dealing with external shocks.

He global common affects business conditions as never before- particularly as we have seen for SMEs. At any given moment decision by governments can be affected by the events on the other side of the world as much as by events around the corner

These challenges carry both risk and opportunity for employer organizations. Regulations and compliance are increasing, as in competition. Mistakes in business management carry heavier risk.

Background Information:

Regarding the business size and thus the resulting capital requirement of SMEs a direct entrance to the capital market is mostly not possible ——indirect entrance over financing forms and their financing companies are necessary cause of this.

Leasing as a form of SME financing can result in an indirect entrance to the capital market. This especially because

1 the increase of the leasing business is driven by SMEs and

2 the securitization of leasing portfolio increase

The SMEs are already today one of the most important factors of the growth for the leasing market. The strategic adjustment 1) of the ban owned leasing companies 2 of the captive leasing companies concerning the financing of SMEs

The crucial role in the whole process is owned by the individual leasing company. This company must perfectly combine the capital market –orientation and the customer focus. For the SMEs a fast decision making process and high quality service are of greatest importance

SMEs are currently faced with a myriad of difficult issues. : accessing finance: keeping cash flowing: maintaining market share: keeping skilled workers. They are looking for ways to help them solvent: to reduce compliance costs reduce the cost of importing vital raw materials or exporting final products making noise about unnecessary bureaucracy that makes their life hard. They want legislation reviewed that similarly hinders threw growth

It is important to stress that SMEs are generally more vulnerable in times of cress for many reasons among which are

It is more difficult for them to down size as they are already small

They are initially less diverse n their economics activities

They have a weaker financial structure

They have a lower or no credit rating

They are heavily dependent on credit and

They have fewer financing points

Related Definitions:

The term leasing is not uniformly defined and used in literature. A lease is an agreement whereby the lesser conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. The relationship between the tenant and the land lord is called a tenancy and can be fixed or an indefinite period of time. The consideration of the lease is called a rent. Under normal circumstances, an owner of properties at liberty to do what they want with their property to a tenant .an owner can allow another the use of vehicle or a computer either for a fixed period of time or at will. This can be a simple leasing transaction or it can be a transaction intended to allow the user the right to buy the item at some future time.

If we go by the most basic of definition by Wikipedia small and medium enterprises are companies whose headcount or turnover falls below certain limits.

Problem Development:

The financial crises has caught SMEs n a viscous circle of poor credit availability impaired liquidity ,rapidly changing export conditions and clasping business confidence. The crises has hit SMEs and enterers primarily in the following ways

Drastic drop in demand for goods and services (large firms are internalizing production and reducing the amount of subcontracting to SMEs: drop in the consumer demand

Tightening in credit terms, which s severely affecting cash flows

Increased payment delays on receivable which –added to an increase in inventories –result in an endemic shortage of working capital and a decrease in liquidity

Increase in reported defaults, insolvencies and bankruptcies

Perhaps what the crises has most clearly done is highlight a number of continuing factor that affect SME sector .most notably credit ad access to finance for SMEs have been exposed as deep issues across most economics. As most SMEs would be characterized by weak financial structures (lower capitalization) and have a low or no credit rating, when the crises hit they were left very vulnerable

Us small business is having financing problems. Smaller banks, on which they rely, are reluctant to lend and are tightening lending standards, as they grapple with exposure to commercial real estate. And small business’s own collateral .typically real estate, has fallen in value. And what’s more, many small US banks are still going bankrupt

According to a survey by the European central bank, access to finance is a major problem for European SMEs

And the concern is that as demand picks up more, credit constraints will begin to bite more tightly. The recovery could be stillborn.

Concern about this is so great that just the other day, President Barrack Obama told bankers to increase loans to SMEs.

Let’s come back to the beginning. Why do SMEs matter? There are several reasons why SMEs matter to us, the participants in this conference. First SMEs account for a large share of manufacturing employment. The shares in the agriculture and services sectors are even higher.ad within that, micro and small enterprises are particularly in countries like India Philippines and Indonesia .many microenterprises operate of course in the informal sector that means that they are not formally registered

Second, evidence from OECD countries and some developing Asia economics suggests that SMEs, especially news ones, can be among the most innovative and dynamic .for example, Microsoft may be software giant today, but it has started off in typical SME fashion, as a dream developed by a young student with the help of family and friends.

Third, with the increasing fragmentation of production and trade, many SMEs can be caught in a supply chain trap. Again, the Economist newspaper reports 90% of the motor –motors used to adjust the rear –view mirror in every car are made by Mabuchi, a Japanese SME

Fourth, SMEs suffer many constraint that larger enterprises do not suffer-constraints like infrastructure (they cannot afford their own electricity generator), access to technology, regulatory environment and above all, access to finance.

Financing is necessary helping them set up and expand their operations, develop new products, and invest in new staff or production facilities. Many small business start out as a idea from one or two people, who invest their own money and probably turn to family and friends for financial help in return for a share in the business. But if they are successful, there comes a time for all developing SMEs when they need new investment tax pad or innovate further. That is where they often run into problems, because they find it much harder than larger businesses to obtain financing from banks. And when crises stifle, SMEs are the first to see their financing chopped.

And regrettably, the financing problem is the most important for innovative for SMEs. They tend to b newcomers and to the market. They may be seeking financing for a new type o product or service. Initially, they may have negative cash flows and untried business models. They represent a higher risk to banks and cannot be assessed in the same manner as traditional SMEs or large firms. Credit constraints can stop SMEs growing not larger firms.

There are many reasons why access to finance is difficult in developing Asia:

1. Large numbers of SMEs are in the informal sector. They are too registered; they do not have all the necessary documentation. It can be difficult for potential lenders to distinguish the financial situation of the company from that of its owners, they are less able to provide collateral

2. Financial markets are underdeveloped n many Asia countries. They donor offer a complete range of financial products and services. They may also suffer from regulatory rigidities

3. The fixed costs of all the paperwork mean that it is easier for banks to make bigger loans to larger enterprises

4 in many countries, large enterprises enjoy privileged access to finance from banks. Many of these banks are state owned or have close links with the government which uses bank lending as an instrument of industrial policy to develop specific sectors. Banks may also have ownership and other ties to industrials interests and will tend to favor affiliated companies. This means that it is difficult for SMEs to obtain Finance

So, even in normal economics conditions governments have recognized that, to survive and grow, SMEs need specific policies and programs especially to facilitate their access to finance.

Let’s move on to the crisis, SME’s and third financing have been especially hard hit by the global crises leading to massive job losses. For example, lm reports that over 100000 factories in southern china alone have closed.

This has occurred as revenues have fallen, and the credit crunch has reduced access to finance for SMEs, which are perceived as riskier, more than for large enterprises

Literature Review:

I have consulted all scholarly articles which make my research a secondary data .Lease Accounting Research by Robert cp, describe the fundamental characters of leasing its terms and conditions, the flexibility and how much benefit it is for a business. The article is a release of American accounting research. Employee Organizational Commitment In SME’s by Mohan Asri Abdullah*, Munir Shuib tells about how the owners of these SMEs tend to work their way to establish the business and how much serious they are with their effort. Issues in SME Development in Ghana and South Africa by Joshua About explains the country specific problems related to SME’s .this article again explain about the issue sourcing SME’s.

This paper discusses the characteristics, contributions of SMEs to economic development and the constraints to SME development in developing countries with particular reference to Ghana and South Africa in focus. Crafts, Trades and SMEs need better access to finance by UEAPME discusses about the changes in the finance sector influence the behavior of credit institutes towards Crafts, Trades and SMEs. LEASING: A FINANCING ALTERNATIVE FOR SMEs? By Peter Scholz, argues leasing as the best source of finance for the SME’s, describes leasing as the cheapest source to get SME’s indirect entry to the capital markets. SMEs AND THE CRISIS: IMPLICATIONS FOR EMPLOYERS’ ORGANISATION by Paul brooks. In this article it discusses about the financial crises that has caught SMEs in a vicious circle of poor credit availability impaired liquidity, rapidly changing export conditions and collapsing business confidence. SME financing and the crisis by John West who argues that access to finance is one of the most significant challenges for the creation, survival and growth of SMEs, especially the innovative ones

Problem Definition:

Leasing————— as a source of SME Financing.

Statement of Study Objectives:

Null hypothesis

Leasing is a source for SME financing

Alternative Hypothesis

Leasing as a inexpensive source of SME financing

Elements of Research Design :

Type of Research


Study Setting


Nature of Data

Cross sectional

Variable titles, their definitions and sources of data.


is putting money into something with the hope of profit. More specifically, investment is the commitment of money or capital to the purchase of financial instruments or other assets so as to gain profitable returns in the form of interest, income (dividends), or appreciation (capital gains) of the value of the instrument.(Wikipedia)

Source of data: secondary data (articles and research papers)


Risk, the variability in possible outcomes, usually in reference to the possibility of negative results

The variability in possible outcomes, usually in references to the possibility of negative results

Source of data: secondary data (articles and research papers)


Number of individuals involved in both leasing and SME’s establishments

Source of data: secondary data (articles and research papers)

Number of SME’s

Numerical figure of small and medium size enterprises

Source of data: secondary data (articles and research papers)

Leasing portfolios

A collection of leasing investments held by an institution or private individuals

Source of data: secondary data (articles and research papers)


Expenditures creating future benefits specially capital expenditures

Source of data: secondary data (articles and research papers)

Growth rate of SME’S

The rate at which the SME’s is growing with and without the finance problem

Source of data: secondary data (articles and research papers)

Purchase costs

Te cost because of actual purchase. Giving the money one time and owning the asset

Source of data: secondary data (articles and research papers)

Leasing costs

The cost through leasing given in installments

Source of data: secondary data (articles and research papers)

Security life of the leased asset

This includes deprecation insurance of the asset bought either by leasing or by actual purchase

Source of data: secondary data (articles and research papers)

Regulations of leasing bodies

Policies and rules by the leasing organization how strict and flexible they are as compared to the actual buy

Source of data: secondary data (articles and research papers)

% of capital an average SME wants

The % of capital needed for an average SME’s to perform its operations. The trend with me from time series wise

Unit of Analysis

Artifacts (articles)

Geographical units (Europe and Asia)

Reference Period


Survey Research:

As my research is solely based on secondary data by survey will also be based on those articles. I am going to present a general point of view derived from those articles.

Comments on Data reliability and sources of potential biases.

All are scholarly articles written by distinguish graduates, faculty, auditors and their work has been published in J store reputed for scholarly articles

Statement of Analytical Approach (Descriptive Statistics/ Inferential Statistics/

This form of the refinancing of leasing companies will facilitate indirect access to the capital markets for SME’s in last consequence via leasing. The large liquidity of the capital markets will provide also the SME’s therefore via leasing with liquid and allows making investments. This also by securitization of leasing portfolios the economic cycle in the sense of Schumpeter should be closed, since financing and innovation make possible a growth of the economy.

Expected Nature of findings:

Seek supports mechanism targeted to SMEs such as advisory services and programmers to assist them in preparing bank loan repeals

Promote competition in the banking sector o improve to finance at an affordable cost

Seek the establishment , where necessary and appreciate , of mechanism to monitor SME lending by banks

Promote , where necessary and appreciate , the establishment of codes of conduct for SME lending by banks

Establish SME credit bureaus to compile the credit ratings of SMEs and provide financial institutions and other lenders with easy access to timely , accurate and reliable credit information on SMEs

Promote ways in which SMEs could use their positive credit history as “collateral” to access loans at better rates and seek moor competitive terms from different lending institutions.

Ensure that there are sufficient policy and regulatory incentives to encourage financial institutions to lend to SMs

Promote financial products a dated to the needs of SMEs and that financial instruments are accessible to develop innovative enterprises

Ensure that information about financial services is well designed to SMEs

The product leasing changed also very much. In the beginning it was characterized by a bad image and was often sold exclusively over tax benefits. Now leasing develops over more apart from a financing to a product with a high component of additional series. A multiplicity of manufactures and supplier recognized leasing as product for the increase of the sales.

Here in particular the tic of the balance sheet treatment leasing agreement has to be mentioned. Te accounting standards for leasing will surely change in the next years. The trend her goes clearly in the director=on that all measurable tangible and intangible assists o a company have to be shown in the balance sheet

By increasing number of leasing contacts however also the leasing industry must abject itself to changes. During the last years here the trend to more professionalism is to be observed. The question of the evaluation and utilization of the leased assets is crucial point n=in the risk managements and in addition for the competition of the leasing company. Information is for a leasing company just like for a bank on e of the keys to success

This form of the refinancing of leasing companies will facilitate indirect access to the capital markets for SME’s in last consequence via leasing. The large liquidity of the capital markets will provide also the SME’s therefore via leasing with liquid and allows making investments. This also by securitization of leasing portfolios the economic cycle in the sense of Schumpeter should be closed, since financing and innovation make possible a growth of the economy.

Expected Limitations & Delimitations:

Due to tm constraint I can’t analyze the structure of SMEs locally and analyze what department here in Pakistan needs the most finance. That is why this is a going to b a general thesis assessing the overall trend of SME’s and their financial constraint world wide. Also the date that is the secondary data is mostly of European authors. So the conditions that they have selected for their analysis o, on which my research work s based upon, can be the basis of analysis only in the Euro region. Still I have collected some date, scholarly articles from Asian authors to present a balance point of view.

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