# **Table of Contents**

|Exec|utive Summary................................................................................................................4|
|---|---|
|1.|Introduction....................................................................................................................7|
|2.|SMEs and Their Financing in Colombia .......................................................................9|
|2.1|What Is an SME? .....................................................................................................9|
|2.2|SME Financing Patterns ........................................................................................10|
|2.3|Public Policy Regarding Financing to SMEs.........................................................11|
|3.|Stylized Facts on Banks’ Involvement with SMEs......................................................14|
|3.1|Banks’ Definition of SMEs....................................................................................14|
|3.2|Extent of SME Lending .........................................................................................14|
|4.|What Is behind These Stylized Facts? .........................................................................19|
|4.1|Drivers....................................................................................................................19|
|4.2|Market Environment..............................................................................................19|
|4.3|Government Programs ...........................................................................................20|
|4.4|Obstacles................................................................................................................21|
|5.|How Do Banks Engage in Lending to SMEs?.............................................................28|
|5.1|Business Model......................................................................................................28|
|_5.1.1_|_Structure_....................................................................................................................28|
|_5.1.2_|_Products_....................................................................................................................31|
|5.2|Risk Management ..................................................................................................33|
|_5.2.1_|<br> _Risk analysis_..............................................................................................................33|
|_5.2.2_|<br> _Monitoring and risk exposure analysis_.....................................................................35|
|_5.2.3_|_Management of NPLs_................................................................................................36|
|6.|Conclusions and Policy Implications...........................................................................38|
|Refe|rences<br>42|

## **List of Tables**

|Table 3.1: SME Definition Used by Credit Institutions ................................................... 14|
|---|
|Table 4.1: Main Obstacles Cited by Banks for SME Financing (February 2007)............ 22|
|Table 6.1: Policy Agenda to Promote Bank Financing to SMEs...................................... 39|

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