Why is it so difficult to develop and sustain financial institutions that reach deep into society? This project analyzes the changing finance options open to small and medium-sized businesses (SMEs) in the Netherlands 1750-1970 to understand what determines the form and reach of various financial institutions developed over time.
We construct a new dataset covering the period 1750-1920 to show finance options actually used by SMEs and regional variations in supply patterns over time. We investigate why various financial facilities offered by town councils during the early modern period disappeared. Private institutions designed to fill part of the gap succeeded only partially in doing so, but SMEs proved resilient in the face of the accelerating economic growth from about 1870. We analyze that resilience for both SMEs and for some of the fast-growing start-ups which appeared.
We also analyze the reasons why new finance initiatives, some of them government-backed, achieved more in some sectors than in others. Small farmers came to rely on rural credit cooperatives for this, but similar urban institutions faltered. Commercial banks appeared, but it took them several decades before, during the 1950s, they developed some interest in SMEs. We ask what kept banks from doing that earlier by comparing product innovation at the commercial banks with what the rural cooperatives and the government-backed bank for SMEs did.