104 PERSPECTIVES ON BUSINESS AND ECONOMICS | VOL 44 | 2026 of ~€116M, driven largely by disparities between the incomes and balance sheets of small businesses and the cash-flow and collateral requirements of commercial banks (Fi-compass, 2020). As a result, Croatia lags peers in digitalization and R&D (Croatia’s Industry Lags…, n.d.), leaving many high-potential SMEs and rural enterprises operating below their productive capacity not because they are fundamentally weak businesses but because the banking model has not fully aligned with their financing needs. With SMEs representing over 99% of all of Croatia’s businesses, this situation, together with Croatia’s skilled labor shortage, has left Croatian labor productivity the second lowest in Europe (World Bank Group, 2026). These constraints are reinforced by broader urban–rural disparities. Financial literacy levels are uneven, and individuals and businesses in smaller communities face barriers to accessing credit. According to the OECD (2020), Croatian adults averaged 12.3 on a 21-point scale, below the EU average of 13.2, showing gaps in financial knowledge and behavior. The HNB similarly reports that, although literacy levels have improved modestly since 2015, urban respondents consistently outperform rural ones by roughly 1.5 points, reflecting lower familiarity outside major cities with savings, credit, and investment products. This trend is not uncommon in Europe, but considering the baseline in Croatia is already below the EU’s, rural Croatians are particularly vulnerable to financial exclusion as they face not only underdeveloped credit availability but also less knowledge of how disadvantages associated with it might be overcome. The missing layers Croatia’s domestic capital markets are another area that remains underdeveloped, with limited trading, corporate bond issuance, and private equity financing. Compared to a turnover ratio of ~58% in stock exchanges across the EU, Croatia’s rate sits at just 1.5% (OECD, 2023). Its proportion of the EU’s total corporate bond issuance is 3.45 times smaller than its GDP weight would predict, while its share of EU private equity is 3.8 times smaller than that same benchmark. These factors combine to reduce the capacity of the financial system to support inclusive, holistic growth. In systems with specialized SME lenders, microfinance institutions (MFIs), or active equity markets and venture capital ecosystems, firms that fail bank underwriting can still access alternative pathways to finance and gradually build bankability. In Croatia, specialized private SME lenders and MFIs are largely absent, and the Global Innovation Index reports relatively low levels of venture capital investors and recipients, indicating that it exists but does not circulate widely or consistently (Dutta et al., 2024). This pattern is consistent with the broader European “scale-up gap” (Ambrosio et al., 2021) noted by the EIB, where firms that clear the startup phase struggle to find sufficient growth-stage financing and often stagnate or look for capital abroad. These pathways historically have been limited, amplifying the exclusionary effects of conservative bank lending models. Encouraging domestic capital formation and expanding nonbank financial institutions could help diversify the system. Developing a deeper bond market, further supporting venture capital, and fostering fintech innovation could create new channels for financing businesses outside the traditional credit risk profile favored by large banks. Evidence from the EIB Investment Surveys (European Investment Bank, 2016–2024) illustrates how these obstacles, along with Croatia’s broader economic ecosystem, manifest over time. As the EIB data in Table 1 show, from 2016 to 2024, Croatia consistently recorded a high proportion of financially constrained firms. For reference, the EU average steadily remained around 5%–6% for that period, even experiencing minimal disruption during the pandemic. Constraints were driven less by lack of demand for credit and more by loan rejections, discouragement, and dissatisfaction with nonprice conditions, discussed previously, such as collateral requirements and interest rates. Notably, the proportion of Croatian firms not applying for external finance because they preferred to rely on internal funds remained well below that of the EU. Although other financing sources could explain part of this discrepancy, Croatia’s low levels of venture capital investment and corporate bond issuance suggest that these constraints primarily reflect access barriers rather than simply preferences (Fi-compass, 2020). EU development instruments and public credit The clearest evidence that inherited caution, rather than weak demand, is the primary constraint, comes from what happens when supply-side barriers loosen. When collateral requirements fall and rates drop, Croatian SMEs are quick to respond. Due largely to their lack of an institutional alternative, the EUbacked instruments outlined below make this responsiveness possible. In fact, the absence of formal, spe-
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