Financial Sector Assessment a handbook, Chapter 4 Assessing Financial Structure and Financial Development, imf and World Bank, August 2005

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cially for small firms. Trade credit can be both a substitute to and a complement for other 
external financing sources. Trade credit might vary systematically across size groups, with 
one group being a net creditor or debtor relative to others. For example, if the small firm 
group is a net debtor in trade credit, this debtor position might indicate a trickle-down 
effect, with large firms effectively passing on bank credit to small firms through the trade 
credit channel. Moreover, many developing countries and emerging markets rely on 
bank-financed trade credits to support exports at preshipment and postshipment stages, as 
well as imports. Such financing provided by international banks tend to be channeled to 
local borrowers through domestic banks and to constitute an important source of working 
capital.
Development, directed credit, or both might be another important source for certain 
enterprise groups in many developing countries. While it is typically beyond the scope of a 
financial sector assessment to produce a detailed cost-benefit analysis of the effectiveness 
of such programs, an indication of whether those programs reach the target groups and 
whether they have complementary or crowding-out effects might be interesting. 
If appropriate data are available, testing for financing constraints among firms can be 
an interesting complement (see box 4.5). A further step would be to link firm character-
istics, such as size, sector, and profitability, to financing constraints so one can compare 
access to finance across different firm groups and can test for potential segmentation in 
the market.