development, PDP), and (v) _Programa Territorial Integrado_ (PTI, described above). To reduce the level of uncertainty, costs and processing times, the Government seeks to standardize and streamline the application processes for these programs and attract additional participant firms.<sup>32</sup> In addition to these programs, the National Training and Employment Service ( _Servicio Nacional de Capaciatción y Empleo_ , SENCE) provides tax incentives for training. Between 1988 and 2002, the number of enterprises that used this service grew from just over 17,000 to over 110,000. SENCE identified 116,000 businesses that used tax incentives for human resources training in 2002—an increase of 42 percent over the previous year’s total of 81,790 firms. This massive expansion of coverage resulted from the inclusion of formally registered micro businesses, mainly through training loans provided by banks. However, while the SENCE tax incentive can be used to lower the firm’s tax burden, it does not necessarily add to the skills of workers and managers—there appears to be no requirement to show that the person trained is employed by the firm.

Chile’s in-firm training culture is also strong. The country’s high educational level adds to this tendency—and the large number of government support programs, many targeting micro and small businesses, reinforce this culture. However, the effectiveness and acceptance of support can be limited by the ways in which the programs are promoted. In Chile, the outreach of available programs is weak. As a result, according to one study, few firms could actually identify at least one support program.<sup>33</sup>

# **ACCESS TO CREDIT AND OTHER FINANCIAL SERVICES**

The Chilean financial system is among the most developed in the region. The financial sector reforms of the 1970s lead to a significant increase in the rate of coverage by commercial banks. Many micro, small and medium businesses hold at least one kind of debt. In the process, microbusinesses have proven to be bankable clients and are more than a “boutique” market niche. However, Table 3.1 demonstrates that medium and large firms still enjoy greater access to finance than micro and small firms. Moreover, the absence of significant venture capital facilities and “angel capital” (both of which are discussed below) is evidence of the lack of innovation in financial markets.<sup>34</sup> In addition, smaller firms pay a higher interest rate for short-term bank credit than do large firms. Lenders justify this higher cost as a risk premium for high administrative costs and a low life expectancy. For example, the lack of audited financial statements increases a bank’s costs and risks of lending. A bank may also need to limit access to longer-term credit because of the lack of physical guarantees with verifiable value and clear title _._ The credit review process, therefore, may restrict credit to short-term maturities, which use consumer credit models to assess small firms.<sup>35</sup>

> 32 Cabrera et. al. (2002); Bravo et. al.(2002).

> 33 Fundes

> 34 By way of comparison, Berger, A. _et al._ (1998) report that—based on 1993 data—in the USA only 54.2% of small businesses have any type of credit with a financial institution. See Gallego, F. y Loayza, N. (2000); Financial analysis of Banco del Estado; interviews with senior management.

> 35 Government of Chile, Comité de Fomento de la Micro y Pequeña Empresa, _“La situación de la Micro y Pequeña Empresa en Chile”_ (2003), P. 36, Box 20; Foxley, J. (1999). The author found differentials of up to 6 percent in the spreads between loans of up to 200 UF and loans of more than 2.000 UF. Furthermore, there is no significant proof that SME are more likely to fail than larger firms.

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