At the beginning of the weekend we examined why people saying "I actually am quite content with the current crisis" believed so. As we know, there is a group of businessmen feeling the same way in Turkey. What were their distinctive characteristics? Their either had a wide base of working capital or the potential to expand the base of the existing working capital. Bestowing God would have favored the enterprises which do not have sufficient cash to run the business or those who have limited access to liquidity. Then, today's question should be: how can the access of the corporate sector to working capital be improved? From this point onwards, there are many rumors. It is evident that the easiest way to access working capital is to have easy access to the banking sector. But, how can the banking sector fund in the coming period the financial sector, which was impaired in the access to financial markets until today? What should be done to this end?

I first want to say that I believe administrators of Turkey are aware of the importance of this issue. But being aware of something does not translate in solving that issue. Even if you made a correct identification at the beginning, you may not be able to follow the correct path once you diverge from it. So let this be the first point to touch upon today. Then, what is the first impediment to funding the working capital needs of financial market-impaired firms? The first impediment is evidently the firm itself. If the concerned is a firm which does not know how to prepare business plan and project or financial tables and which seems quite weak on paper due to intense informality, you are condemned to remain financial market impaired. Therefore, small and medium size enterprises (SMEs) complaining about their inability to receive finance from banks should first reconsider themselves. This is the second point to state.

But does the fact that the firm is loan impaired give the bank manager the right to say "Turkish firms cannot easily receive bank loans until they institutionalize"? No, it does not give such right at all. In traditional banking system, the job of the bank manager is to help the firm in growing and improving its condition step by step. If Turkish SMEs encounter growth problems and fail to grow as much as their counterparts in neighboring countries, banks should definitely be there when the responsibility for this is shared. If the private sector is not sufficiently institutionalized, if a part of Turkish firms do not know how to prepare business plan, project, balance sheet, or income statement, some if not significant part of the fault is banks'. This fact should be accepted. So, the statement "Turkish firms cannot easily receive bank loans until they institutionalize" frequently heard from bank managers is wrong. Duty of banks is to facilitate the institutionalization of firms. And this is the third point to state.

When assessed with this lens, it appears that the main reason for firms' inability to become institutionalized is that banks are not directly concerned much in funding firms and do not see this as their main duty. The fact that the firms which are cared have grown is an important point to keep in mind. Maybe we can separately discuss this later. So, why do not banks consider funding firms other than those in their company group as a main duty? Can their close relationship with the firms of their own company group be the first reason? Yes it can be. Second reason is that Turkey has been dealing with public borrowing disasters since 1980s. The period where Turkey's private sector advanced also was at the same time the period where banks generated significant profits out of Treasury transactions. Turkey has begun the year 2002 with banks that do not have any personnel to extend credits. So, under such circumstances, banks would give SMEs the cold shoulder, would not they? And this is actually what we are facing now.

And the fifth point of the day: in the coming period, a way to assist financial market impaired firms in accessing working capital is to ensure that banks will care SMEs. SME finance should be encouraged among banks. It is bank officials that will reduce informality among and bring to heel SMEs. But banks should be separately supported so that they provide such services for SMEs. Let this be the fifth point to keep in mind.

But, do the current law on the postponement of bankruptcy and the debt enforcement and bankruptcy law not have a responsibility in SMEs inability to access finance? They surely do; but we shall discuss this later.

Today we did not have the chance to initiate the "Turkey is governed poorly" discussion so let me at least add the statement: "Turkey is governed poorly"

This commentary was published in Referans daily on 04.03.2010