SME insolvency in Turkiye exposes a gap in the country’s business support system.** Companies need help to grow and recover. However, viable firms also need accessible restructuring. When recovery is impossible, businesses need an orderly exit. Honest entrepreneurs should then have a route back.
The OECD’s SME Policy Index for Western Balkans and Türkiye 2026 examines this policy challenge. Its economy profile for Türkiye was published on 10 September 2026. The economic stakes extend beyond court procedures. Delays can affect lending, employment and the productive use of assets. A support system needs to distinguish temporary financial distress from an unviable business model.
Strong SME support, uneven productivity
Small and medium-sized enterprises (SMEs) underpin the Turkish business sector. According to the OECD assessment, they represented 99.6% of registered firms in 2024. The OECD’s regional SME sector overview reports a substantial productivity gap. SMEs accounted for 68.5% of employment but 41.2% of value added in 2024. These shares refer to the enterprise statistics covered by the report.
Labour productivity averaged EUR 13,458 per person employed in SMEs. At large enterprises, it reached EUR 41,776. Thus, SME productivity was approximately 32% of the large-enterprise level. These figures do not prove that small firms should close. Nor do they establish insolvency delays as the cause of the gap. They show why policy must look beyond business numbers and job counts.
Growth depends on how effectively firms use labour, capital, technology and management skills. Viable companies may need investment or temporary support. Others need restructuring. Where recovery is impossible, prolonged survival can keep resources from more productive uses.
For a related discussion, see business growth and firm size in Kazakhstan.
Business entry is easier than business exit
Turkiye has developed extensive business support institutions. Its e-Devlet portal provides digital government services. KOSGEB, the country’s SME development agency, supports entrepreneurship and business development.
The policy toolkit covers digitalisation, green investment, exports, start-ups and manufacturing. The National Entrepreneurship Strategy, launched in 2022, targets 100,000 start-ups by 2030. Yet business registration tests only one part of the system. The harder test arrives when sales fall, debts rise and assets lose value.
At that point, more credit may help a viable firm. However, additional borrowing cannot repair every business model. Policymakers need mechanisms that identify which response is appropriate. A mature entrepreneurial economy supports the full business lifecycle. That includes entry, growth, restructuring, exit and recovery after failure.
Where SME insolvency policy falls short
The OECD assessment identifies insolvency as a relative weakness. Turkiye scored 3.30 for bankruptcy and second-chance policies. The regional average was 2.97, placing Turkiye second among the assessed economies. The distinction matters. Turkiye performs relatively well against its regional peers. Nevertheless, insolvency remains weaker than several other parts of its own policy framework.
The assessment describes stalled progress since 2022 in strategic planning and procedural efficiency. It also identifies weaknesses in monitoring and evaluation. Prevention and second-chance policies need further development. Consequently, a respectable ranking should not end the policy discussion. The relevant question is whether distressed firms can access effective help in time.
Why early warning systems matter
Financial distress rarely begins in court. It often starts with declining sales, overdue invoices or mounting tax obligations.
Early diagnosis creates more options. Creditors can negotiate before losses become irreversible. Owners can reassess costs, restructure debt or preserve a viable part of the business. By contrast, late intervention narrows those choices. Suppliers may stop deliveries. Banks may seek protection, while employees look for more secure work.
The OECD findings describe the absence of a comprehensive SME early warning system. They also report no dedicated funding in the relevant 2024-2028 Strategic Plan. Existing KOSGEB programmes support financial health but are not specifically designed to prevent insolvency.
Business support becomes less effective when distress is recognised too late. A functioning warning system should connect diagnosis with accessible advice and restructuring options. Related reading: financial distress among businesses in Kazakhstan.
Restructuring must be accessible to smaller firms
The assessment reports 42 small-scale preventive restructuring cases between 2019 and 2023. Over the same period, it reports 357 large-scale cases.
These categories require careful interpretation. The scale of a restructuring case does not necessarily identify the size of the enterprise. The figures alone therefore cannot establish how many SMEs accessed the mechanism.
Nevertheless, they raise a useful policy question: how widely are preventive restructuring tools used? Better data should identify firm size, procedure type, duration and outcomes. Access also depends on practical capacity. Larger firms often have dedicated financial teams and legal advisers. Small businesses may have fewer resources to navigate complex procedures.
An effective framework must therefore be usable by firms with limited administrative capacity. Procedures that exist on paper may still be difficult to access in practice.
Lengthy proceedings can carry economic costs
The OECD assessment describes concordat as a court-based procedure averaging around five years. That figure should be understood narrowly. It should not be read as a statutory deadline for all insolvency proceedings. Moreover, restructuring through concordat is distinct from liquidation. A lengthy case does not mean all business activity stops throughout the proceedings.
Even so, prolonged uncertainty can carry economic costs. Assets may deteriorate, investment may be postponed and relationships with customers may weaken. Creditors may also wait longer for clarity about recoveries. The policy challenge is therefore broader than accelerating closure. Viable firms need timely restructuring. Non-viable firms need an orderly resolution that protects legitimate creditor interests.
Monitoring should show where delays occur and how they affect different businesses. Without that information, procedural reform risks addressing symptoms rather than causes.
Entrepreneurs need a route back
Business failure and fraud are different problems. A credible insolvency framework must recognise that distinction. The assessment reports a second-chance score of 2.20, up from 2.00 in 2022. It also describes continuing administrative and judicial barriers to entrepreneurial recovery.
The legal framework distinguishes honest insolvency from fraudulent conduct. However, that distinction needs practical consequences. Entrepreneurs should understand which restrictions apply, when they end and how recovery becomes possible. According to the OECD findings, SME policies do not explicitly include second-chance programmes. Crisis assistance after the 2023 earthquakes provided emergency help. Yet emergency recovery and permanent support after business failure serve different purposes.
A second chance should be an established policy function. Markets generate failures even without a major disaster. Demand changes, technologies become obsolete and management decisions sometimes prove wrong.
If honest failure creates disproportionate barriers to returning, entrepreneurship becomes more risky. The economy may lose accumulated experience as well as the original company.
Credit guarantees cannot solve every problem
Turkiye uses the Credit Guarantee Fund, known as KGF, to support access to finance. Dedicated facilities also assisted businesses affected by the February 2023 earthquakes. The assessment reports support for 10,107 companies in 2024. Guarantees totalled TRY 27.272 billion, approximately EUR 543.9 million. In 2022, the corresponding figures were 39,314 companies and TRY 69.604 billion.
These nominal amounts do not establish a real-terms change in support. Exchange rates, inflation and programme coverage also matter. Nevertheless, the reported beneficiary count was lower in 2024.
The assessment also states that no KGF impact evaluation has occurred since 2021. Without regular evaluation, policymakers have less evidence about additional lending, investment and business outcomes. Another comparison puts 2024 guarantees at 0.06% of GDP. Outstanding SME loans stood at 9.7% of GDP.
These measures should not be treated as directly equivalent. Annual guarantees and an outstanding loan stock capture different things. Their comparison cannot, by itself, quantify the financing gap. The broader argument remains valid: guarantees cannot replace effective diagnosis. A temporary liquidity shortage and an unviable business require different responses.
Support must cover the full business lifecycle
The Turkish policy toolkit extends well beyond credit guarantees. The assessment reports 866 SME beneficiaries of the Green Industry Programme in 2024. That number increased to 1,743 in 2025. It also describes a green innovation mentoring programme. TUBITAK, the Scientific and Technological Research Council of Türkiye, covers 90% of mentoring costs.
In May 2025, a further KGF mechanism was launched with a TRY 150 billion guarantee envelope. Its priorities included green transformation, digitalisation, women-led businesses and exporters. This envelope represents programme capacity, rather than proof that all guarantees were issued.
These initiatives demonstrate policy activity. The issue is whether support connects with effective mechanisms for distress and recovery. Digital and green transitions can create opportunities while disrupting existing business models. Supply-chain shocks and changing demand add further pressure.
As a result, policy needs to help firms anticipate problems and adapt. It also needs to resolve failure when adaptation is no longer realistic.
What better insolvency policy requires
Support without effective resolution can prolong weak performance. Conversely, rapid closure without a second chance can discourage entrepreneurial risk-taking.
A more complete framework needs several connected elements:
- Early diagnosis of financial distress.
- Affordable advice and accessible preventive restructuring.
- Timely procedures with appropriate creditor protections.
- Reliable data on firm size, duration and outcomes.
- A clear distinction between honest failure and fraud.
- Proportionate restrictions and clear conditions for their removal.
- Practical support for entrepreneurs returning to business.
Self-assessment tools can help owners recognise emerging problems. However, diagnosis must lead somewhere useful. Advice, creditor negotiations and restructuring options need to be available before distress becomes irreversible.
Better monitoring would also help separate programme activity from programme impact. Beneficiary counts show reach. They do not automatically show productivity gains, additional investment or lasting recovery. For further analysis of productivity policy, see productivity in labour-intensive services.
Making room for recovery and renewal
A narrow policy approach measures success through business creation and support programmes. A more complete approach also supports restructuring, orderly exit and entrepreneurial recovery. This does not mean treating closure as an achievement in itself. It means recognising that preserving every firm is not always the best economic outcome.
Some companies need time and finance to recover. Others need an orderly way to release assets and settle obligations. Entrepreneurs who acted honestly should have a realistic opportunity to return.
The objective is productive renewal, not business failure. An economy benefits when people, capital and ideas can move towards more viable activities.
Turkiye’s experience illustrates why SME policy must extend beyond the next loan or guarantee. Mature support includes a response to bad news. It helps viable businesses survive and prevents unviable ones from remaining unresolved indefinitely. Business support may begin with money. It becomes more complete when recovery, exit and a second chance are possible.
Sultan Valikhanov, EconomyKZ Research Group, exclusively for EconomyKZ.org
