Market Gaps on Access to Finance - Bank of Valletta

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Malta Business Bureau – <strong>Market</strong> gaps in access to finance April 2013 Additionally, although Maltese data for a number of indicators is not available, the 2012 EC SBA fact sheet for Malta (based on 2011 data and forming part of the EC’s annual Member State SBA fact sheets 11 ), shows an improvement in the available “access to finance” indicators from the 2010/2011 edition, with Malta scoring above the EU average in all the indicators below, namely: Access to public financial support including guarantees (% of respondents that indicated a deterioration): Malta: 15%; EU-average: 22% Willingness of banks to provide a loan (% of respondents that indicated a deterioration) Malta: 19%; EU-average: 27% Relative difference in interest rate levels between loans up to EUR 1 million and loans above Eur 1 million: Malta: +11%; EU-average: +19% This data shows that far fewer SMEs in Malta are reporting deterioration in access to public financial support or in the banks’ willingness to provide loans. Also, the differential between small loans of less than EUR 1 million and larger ones above that threshold is smaller in Malta (11%) than in the EU on average (19%). According to the SME fact sheet, this latter indicator suggests that the mark-up which the SMEs have to pay for bank loans is smaller in Malta than in most other EU Member States, but this is probably a reflection of the small absolute size of Maltese firms. 2.3 SME policy in the European Union The EC aims to promote successful entrepreneurship and improve the business environment for SMEs, to allow them to realise their full potential in today's global economy. The EC works on broad policy issues affecting entrepreneurship and SMEs across Europe, and assists SMEs through networks and business support measures. It also helps existing and potential entrepreneurs to grow their businesses, giving special attention to women entrepreneurs, crafts and social economy enterprises. The EC’s Small Business Act for Europe (EC SBA), launched in 2008, embodies the EU's commitment to SMEs and entrepreneurship. Member States have committed to implementing the SBA alongside the EC in an effort to make the EU a better place to do business. The EC SBA encompasses a host of policy areas targeted at SMEs which could be undertaken at an EU-wide level as well as Member State level. It aims to improve the overall approach to entrepreneurship, permanently adopting the ‘Think Small First’ principle in policy making, from regulation to public service, and to promote SMEs’ growth by helping them tackle the remaining problems which hinder their development. The ‘Think Small First’ principle requires that legislators take SMEs’ interests into account at the very early stages of policy making in order to make legislation more SME friendly 12 . Since SMEs have to be supported at the local level, the EC also helps Member States and the regions to develop policies aimed at promoting entrepreneurship, assisting SMEs at all stages of development, and helping them to access global markets. The identification and exchange of good practices are key elements of this policy. One of the key priorities set out in Europe 2020, as well as in the Commission's Single <strong>Market</strong> Act and the SBA, is to facilitate access to finance for SMEs. The EC acknowledges that SMEs are to a very large extent dependent on bank loans for their external financing 13 , and therefore suitable alternatives should be put at their disposal. The EC aims to counteract this reality by putting into place a number of “access to finance” initiatives, including financial instruments to benefit enterprises 14 . The EC acknowledges that challenges remain in this regard, particularly given that 11 European Commission (2011), Review of the “Small Business Act” for Europe 12 European Commission (2008), “Think Small First” – A “Small Business Act” for Europe 13 European Commission (2011), An action plan to improve access to finance for SMEs 14 European Commission (2011), Review of the “Small Business Act” for Europe. Other initiatives relate to the Temporary State Aid Framework (in place until 2011), which helped in unblocking bank lending to companies and encouraging companies to continue investing in the future, in the wake of the financial and economic crisis; and the SME Finance Forum, Page | 12
Malta Business Bureau – <strong>Market</strong> gaps in access to finance April 2013 access to finance is largely in the hands of the individual Member States. Hence it suggests that additional initiatives be undertaken, including the exploitation of capital markets and encouraging investment through fiscal policies, investing revenue in equity, boosting public SME finance schemes and devoting particular attention to financing the first growth phase of firms 15 . 2.4 SME initiatives in Malta In Malta, the main sources of finance available to SMEs relate primarily to traditional sources such as bank overdrafts and bank loans, apart from personal savings and financing obtained from family or friends. Most companies are also eligible for assistance through national/ EU funds. It is only the larger/ more advanced companies that are able to deviate from the traditional sources of finance and tap the bond and equity markets, investor funds and informal venture capital/ private equity funds. The following sub-section provides further detail on incentives related to SMEs in Malta. 2.4.1 The Small Business Malta Act Malta’s SME policy is largely based on EU SME policy, primarily through the adoption of the Small Business (Malta) Act (2011), which includes various specific SME measures such as: Ensuring that all new proposed legislation has been adequately vetted to identify potential impact on enterprise and suitable measures taken to mitigate or remove any identified negative impacts especially on the smaller firms, as far as possible through an SME test or impact assessment. Ensuring a more user friendly legislation particularly where this requires compliance from businesses through various measures such as a standstill period between publication and coming into force of such legislation focused information campaigns, and the preparation of User Guidelines. Setting up a dedicated consultative body, the Enterprise Consultative Council, to assist government in the formulation and implementation of enterprise policy and to discuss and propose measures addressing problem areas effecting businesses. The Council, set up in 2010, is made up of both Government agencies and employers representative bodies. Setting up of a Regulators Forum (College of Regulators) to advise government on formulation and review and implementation of regulatory policy. Requiring public sector entities whose services are primarily intended for businesses to undertake regular independent surveys of customer satisfaction in order to constantly improve their service delivery. Centralising online business information to provide a central repository of all information required by businesses on government provided services and government imposed requirements. The Maltese SBA also makes reference to the SME Envoy, tasked to oversee the implementation of the initiatives of the SBA. set up in 2010 as a permanent forum to bring together several players within the SME field, monitoring the market situation, bringing about policy initiatives that address practical obstacles faced by SMEs in obtaining credit. 15 European Commission (2012), SBA Fact Sheet - Malta 2012 Page | 13
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