In the past two decades, economic analysts and policy makers have increasingly recognised that the financial system can make a significant contribution to economic growth, productivity and employment creation.
So, the importance of SMEs for job creation and growth is globally recognized, as well as the key role of the financial sector in ensuring optimal match between financial resources and financing needs.
However, despite the recent banking theory has demonstrated that banks have a comparative advantage in providing loans to companies, in many countries, banks as well as Government Ownership of Banks did not participate activity in financing SME's, due to their belief that such enterprises face banks with considerable risk, realize very limited returns, and are generally not feasible.
Before the reforms, Algerian commercial banks lacked the institutional framework and the experience to promote efficient financial intermediation. They were burdened by a legacy of compulsory lending to public enterprises, sectoral credit specialisation, and inadequate prudential regulations, which weakened the quality of their portfolios considerably. The solvency of the banking sector deteriorated greatly over the years, to the extent that, by 1990, 65 percent of banks' assets were nonperforming, and recourse to central bank refinancing were increasing at an alarming rate. To address these problems, a major financial reform package was adopted to restructure the banking and public enterprise sectors.
The main question is does government ownership of banks promote subsequent financial development as well as financing SMEs.
The paper focuses is a study of the experience of Algerian banks in SMEs financing including an analysis of financial and monetary policies, role of banks in SMEs financing. We list the constraints and obstacles inherent in SMEs, and identify the various measures of assistance and support of the contractor of medium and small enterprise, and report on possible strategies to enhance this sector.