Market Gaps on Access to Finance - Bank of Valletta

Malta Business Bureau – <strong>Market</strong> gaps in access to finance
April 2013
consideration further recycling of funds). This guarantee thus enables loans to be offered at
favourable interest rates and lower collateral requirements.
The main JEREMIE benefits for Malta and its SMEs relate to 79 :
Sustainability of funding: SMEs are supplied with sustainable funding on market-friendly
terms
Recycling of funds: The Holding fund is of a revolving nature, receiving payments for
further investments in the SME sector. This ensures sustainability of SME support by rolling
over recycled funds over the longer term.
Leverage: JEREMIE has a potential ability to engage the financial sector either at the
Holding Fund level with additional capital from financial institutions, or at the level of
financial instruments through co-financing. In the case of Malta, a guarantee of €8.8 million
generated a loans portfolio of €51 million, which is a sizeable pot for the local market.
Benefits of a portfolio approach: The umbrella fund approach will allow a diversification of
risks and expected returns due to the pooling of different default rates, as well as active
cash flow management to allow for a swift response to changing market requirements.
Expertise: Apart from external funding, SMEs very often also require additional professional
assistance to be able to utilise funding in the most efficient and effective way. The
involvement of a financial institution allows for the leverage of the bank’s expertise – the
bank has an incentive to get involved in understanding the business because it retains the
sole direct client credit relationship. In the case of BOV (and other commercial banks in
Malta), a large part of its existing customers would already be SMEs – in this regard, banks
have a competitive advantage for projects involving SMEs 80 .
Requirements: JEREMIE also allows for lower collateral requirements and favourable
interest rates for SMEs, making bank financing more affordable.
Institution building: since there is no guarantee society in Malta, a European counterguarantee
scheme is thus important to provide the possibility for local financial institutions
to boost their volumes in the early stage, and facilitate the creation of such schemes.
Cash flow: this scheme provides finance to final recipients before actual project
expenditure. This is an added benefit compared to the reimbursement process applicable in
most grant schemes
The Holding Fund is also able to re-allocate the resources to one or more financial products in a
flexible way, depending on the actual demand over time. This benefit is however not applicable to
the initial local JEREMIE initiative as it is based on one financial product only.
The following table provides further information on the Malta JEREMIE scheme.
Table 2: JEREMIE Parameters
JEREMIE Parameters
Eligible SMEs Micro, Small or Medium sized enterprises as per EU Definition
Excluded Industries Industries related to Fishing, Agriculture, Construction, Real Estate,
Transport (specific)
Type of Facility Only loans - overdrafts are not eligible
Purpose of Loan Capital expenditure purposes (i.e. investments which enhance the
company’s value)
Repayment Structure Amortising or bullet type
Maturity Period Minimum: 1 year/ Maximum: 10 years
79 Bank of Valletta (2012), JEREMIE presentation for Accountants; European Investment Fund (2012), JEREMIE
80 European Bank Coordination (“Vienna”) Initiative (2011), The role of commercial banks in the absorption of EU funds, pg.
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