Market Gaps on Access to Finance - Bank of Valletta

similar to the current Maltese MicroCredit JEREMIE scheme. Based on a leverage of 8.4x,
the aim is to facilitate access to finance for SMEs by offering them better terms and
conditions through a price reduction and reduced collateral requirements. The guarantee
rate is set at 80%, covering the first loss up to the cap rate. The loans can be used for both
capital investment and working capital.
Audits and evaluations carried out on existing innovative financial instruments are generally positive
on their output 124 . Some key lessons/ recommendations emanating from these external audits,
interim and ex post evaluations, and other studies on the existing financial instruments are outlined
below:
o Overlap and duplication of instruments – the possible overlap in terms of areas and
beneficiaries targeted by the different instruments developed by individual member
states could create confusion among stakeholders and beneficiaries. In addition, due
to the ad-hoc manner in which some instruments have been set up in the 2007-
2013 framework, there are cases of duplication of instruments supported by the EU
budget 125 .
o Visibility – findings point to low stakeholder and final recipient awareness of the
EU’s contribution to financial instruments. This could occur since financing through
these instruments is generally delivered through intermediation.
o New risk-sharing arrangements – incentives may be needed to stimulate private
investment in important policy areas. As highlighted in the mid-term evaluation of
the RSFF, there is a need to further develop a portfolio approach to risk sharing, i.e.
losses are covered for a portfolio of loans provided to specific target groups to allow
for a distribution of risk and thus increase the volume of finance which can be
generated with a certain amount of budgetary funds set aside to cover provisions
and capital allocations 126 . Specifically, in the area of debt finance, the EU
contribution would be used to cover potential first losses up to a defined percentage
as a way to attract sufficient private involvement in financing higher risk operations.
This is the approach adopted in the local MicroCredit JEREMIE scheme. In terms of
equity finance, the EC proposes the EU contribution to be used to provide adequate
incentives to private investors, notably in the form of preferential returns or priority
returns not exceeding a fair rate of return and ensuring commercial viability of their
investments. Beyond that fair rate of return, profits would have to be shared
proportionally between public and private investors in order to avoid
overcompensation 127 .
o Quantitative and qualitative ratings – given that quantitative rating models are
often too rigid for the evaluation of SME’s creditworthiness, the EC encourages the
use of qualitative rating schemes as a complementary tool to the standard
quantitative techniques 128 . In the case of banks, this approach would take into
124
European Commission (2011), A framework for the next generation of innovative financial instruments – the EU equity
and debt platforms.
125
The EIP final evaluation report comments about overlaps between the financial instruments under the CIP and the
Structural Funds, or between the CIP and the Progress Microfinance Facility (CSES (2011), Final evaluation of the
Entrepreneurship and Innovation Programme).
126
Group of Independent Experts (2010), Mid-Term Evaluation of the Risk-Sharing Financial Facility
127
European Commission (2011), A framework for the next generation of innovative financial instruments – the EU equity
and debt platforms, pg. 11
128
European Commission (2011), An action plan to improve access to finance for SMEs, pg. 12; European Economic and
Social Committee (2012), Opinion – An action plan to improve access to finance for SMEs, pg. 8
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