Too big to care? : Financial contracts and the problem of transactional asymmetry

Although financial inclusion as a policy objective has multiple dimensions, the focus of the debate on financial inclusion for SMEs has largely been on the issue of enhancing SME access to finance. This article argues that more attention needs to be paid to the issue of reshaping lender practices to make the delivery of finance to SMEs more responsible and sustainable. The terms of SME financing agreements offer considerable scope for lenders to engage in opportunistic or predatory behaviour and, as this article shows, there is evidence to suggest both that this is a problem, and that it causes material financial distress to SMEs and beyond. Against that background, this article argues that the law needs to take a less neutral approach that is more favourable to relational lending practices. It suggests a range of techniques, grounded in the established models of negotiated economies and corporate pluralism, which can help achieve this end. Although the challenge of fostering responsible and sustainable lending practices is not a simple one, it is one that can be met with the right combination of approaches.