The Impact of the Seed Capital Program of SERCOTEC in Chile, IADB, 2011
| Implementing agency(ies) | SERCOTEC | |
|---|---|---|
| Funding agency(ies) | Inter-American Development Bank (IADB) | |
| Date completed | October 2011 | |
| Issues/challenges | In recent years, several Latin American countries have established public programs to support small and medium enterprises (SMEs)to overcome high interest rates and a rationing of credit that hinders the launching of these enterprises and relegates them to a permanent status of small businesses. There is extensive theoretical literature on the problem of credit rationing due to moral hazard . On the other hand, seed capital policies can generate an adverse election problem if they are poorly designed, since they can attract necessity entrepreneurs rather than opportunity entrepreneurs. | |
| Country(ies) | Chile |
- Description
The government of Chile, through SERCOTEC, has developed a Seed Capital Program (SCP), which since 2005 has attempted to overcome, in part, the problems that SMEs face in finding financing.The SCP represents a nonrefundable financial subsidy aimed at supporting SMEs in their early stages.
This paper analyzes the behavior and initial results of businesses that have been financed by SERCOTEC’s SCP, particularly its line of support to ongoing concerns. The analysis uses information gathered in a field survey of beneficiaries and additional information provided by SERCOTEC
Summary of results
The results of the evaluation are mixed. On one hand, it shows a positive impact on the sales of beneficiary firms, but the statistical significance depends on the model used. On the other hand, when the number of employees is considered, the program reveals a positive and statistically significant impact, regardless of the specification used.
This is partially explained as SCP has, in practice, become a social program rather than a productive development program for business. Firms supported are very small, and it is highly likely that a significant part of the program’s funding is used to hire people to take charge of daily management or for production. By contrast, other programs such as those discussed in the review of the literature, aim at somewhat larger businesses that often use resources for technological improvements or development of strategic plans.
The Impact of the Seed Capital Program of SERCOTEC in Chile (0.6MB)