DEVELOPMENT OF FINANCIAL INCLUSION OF SMALL AND MEDIUM-SIZED ENTERPRISES IN UKRAINE: CONCEPTUAL ISSUES AND WAYS TO ADDRESS THEM

Abstract

Financial inclusion of small and medium-sized enterprises (SMEs) is a prerequisite for Ukraine’s economic recovery amid wartime risks, inflation and structural change. Despite banking-sector adaptation and expanded support programs, access to formal finance remains uneven: sole proprietors and microenterprises face the highest barriers due to weak reporting, limited collateral, short credit histories and the high unit cost of bank due diligence. The article assesses the current state of SME financial inclusion and substantiates priority directions for its strengthening. Using recent surveys, regulator statistics and reviews of support instruments, it compares access to bank lending by firm size and sector, outlines the SME credit product mix, identifies factors behind financial-institution choice, and evaluates the role of digital channels, open banking and alternative finance in reducing barriers. Results show that conditions improve mainly for larger SMEs: both the propensity to apply and the likelihood of approval rise with scale, while microbusinesses more often avoid applying, are rejected, or face delays that nullify time-sensitive borrowing. Credit penetration is higher in asset-backed, fast-turnover activities and lower in sectors dominated by intangible assets or elevated wartime risk. Demand is concentrated in short-term working-capital instruments; investment lending is visible mostly among higher-turnover firms, indicating constrained investment capacity in the micro segment. A marker of insufficient inclusion is the widespread use of personal credit products for business needs, suggesting a weak fit of existing SME products and creating statistical blind spots. Digitalization lowers transaction costs and supports resilience; open banking can enable consent-based data aggregation and alternative scoring from transactional behavior, provided interoperability, data protection and risk management are ensured. The paper concludes that strengthening inclusion requires targeted subsidies and guarantee schemes for smaller borrowers, end-to-end digitalization with automated decisions for small-ticket loans, and scaling non-bank channels (credit unions, factoring, leasing) including embedded-finance partnerships; SMEs should raise digital and financial transparency and cooperate through associations and clusters.