Important institutional and policy constraints to SME lending remain but are not yet binding. Interviewed credit institutions highlighted several obstacles to further expanding lending: inherent SME characteristics (informality, availability/reliability of financial statements, management skills, family-owned structures), regulations (especially the interest rate ceiling on loans), the legal and contractual environment (particularly with respect to secured credit), as well as recent policy measures to cool the economy that provide conflicting signals to financial markets as to the government’s intentions. These constraints are not yet binding because of Colombia’s strong macroeconomic performance (which has led to relatively low NPL levels for SME exposures) and the lack of SME market saturation. In addition, banks have developed coping mechanisms by structuring their SME financing products – in terms of maturities, rates and use of collateral – to deal with some of these obstacles. However, unless relevant policy measures are taken, these constraints will increasingly ‘begin to bite’. In order to address them, a proposed policy agenda (see Table below) by main area and relevant stakeholder is identified below and discussed in detail in the paper.

|**Policy Area**|**Relevant Stakeholders***|**Policy Action**|
|---|---|---|
|Macroeconomic<br>Policy|� BdlR<br>� MHCP,SF|▪Ensure positive macroeconomic environment, as well as a<br>stable and consistent financial sectorpolicyregime|
|Legal &<br>Contractual<br>Framework|� MHCP<br>� Private sector (Chambers of<br>Commerce, Asobancaria etc.)|� Review and reform the legal framework for secured lending by<br>consolidating diverse and overlapping legislation to enhance the<br>ability of SMEs to pledge moveable property as collateral<br>� Continue to improve the general framework for creditor rights<br>and insolvency proceedings by strengthening enforcement<br>procedures and registrysystems|
|Financial<br>Sector<br>Regulations|� MHCP, SF<br>� BdlR<br>� Asobancaria|� Assess the effects of the interest rate ceiling (_tasa de usura_) on<br>access to credit by SMEs and as a source of legal and regulatory<br>uncertaintyfor credit institutions|
|Government<br>Support<br>Programs for<br>SMEs|� MCIT, MHCP, DNP<br>� FNG, Bancóldex<br>� SENA<br>� Private sector (Chambers of<br>Commerce, Asobancaria etc.)|� Evaluate government support programs, especially those of<br>FNG and Bancóldex, to determine their additionality and to<br>fine-tune them in order to better attain their intended objectives<br>� Assess how such programs could support capacity-building<br>activities for SMEs (i.e. financial literacy, business skill training<br>etc.) and promote the development of new SME financing<br>instruments (i.e. factoring, risk capital etc.)<br>� Design incentives for SMEs to formalize (e.g. simplification of<br>tax policy/administration, relevant labor and social security<br>regulations, procedures/cost of inscription in commercial<br>registries etc.)<br>� Analyze and further streamline existing inter-institutional<br>coordination ofpoliciesgeared towards the SME market|
|Statistics &<br>Data Collection<br>on SMEs|� MCIT, MHCP, DNP<br>� DANE<br>� Private sector (Chambers of<br>Commerce, Asobancaria etc.)|� Unbundle SMEs from micro enterprises in official statistics<br>� Improve periodic data collection on SMEs in order to identify<br>their characteristics (size, economic sector, region, financial<br>performance, contribution to employment and GDP, informality<br>etc.) and to better understand the demand-side perspective<br>� Expand SME definition to include annual turnover as a criterion|

_* The list of relevant stakeholders is not exhaustive, and other agencies would likely need to be involved for specific policy actions._ 6