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Latin SMBs Still Informal

Many Latin American companies are still not part of the formal market, a new survey shows.


Only about half of all small and medium-sized companies in Latin America are registered as legal entities, according to a new survey.

"This reveals a very unique characteristic of this segment: the lack of separation between the owner of the business and the business itself, and there is a tendency to resolve business matters in the same manner as personal ones," said a statement last week from Visa, which sponsored the survey.

The seperation of business and personal finances is further weakened by the fact that as many as 44 percent of the SMB owners say they use their personal products for business purposes.

The survey of 1,200 SMBs in Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru and the Dominican Republic was conducted by Nielsen Company from January to March 2007.

Meanwhile, an overwhelming  part - 81 percent - of Latin American MSBs still use cash and  checks for their day-to-day expenses, the survey shows. Only 5.0 percent use personal or business debit or credit cards.

Last, but not least, SMBs in Latin America generally complain about access to capital. Only 24 percent say credit options can be easily accessed. Approximately one fifth of the SMBs indicate that they have some sort of formal credit available, mainly from banks, but raw material and inventory vendors act as alternative sources of financing, the survey shows.

The survey confirms the Capital Access Index from the Milken Institute, which shows low access to capital for entrepreneurs in Latin America.

"Access to capital is essential to reducing poverty," U.S. Treasury Secretary Henry Paulson said at the annual meeting of the Inter-American Development Bank in Guatemala City, Guatemala in March. "Whether it’s a loan to start a business, grow a business, or buy a house, access to capital helps people acquire assets that give them a foothold in the economy – personal wealth they can leverage into greater prosperity and economic security."

Meanwhile, another study - from the Inter-American Development Bank - estimates that 92 percent of Latin American businesses operate without full legal permits or without limited liability.


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