Market Gaps on Access to Finance - Bank of Valletta

consideration the importance of “relationship banking” when dealing with SMEs,
which is already being done in the local market 129 .
BOX 6.3.3 Greater role for local banks in an intermediary role
Bank lending is the main source of SME financing in Malta and will remain crucial. It needs to
be made more accessible and facilitated, and the role of banks within the whole spectrum of
SME financing needs to be strengthened. However, this does not rule out supporting
alternatives for bank lending.
Survey results and discussions with key stakeholders indicate that loan finance is and will remain
one of the most widely used instruments for local SME development. Regulatory and financial
measures should therefore be aimed at reinforcing debt finance for local SME growth. Credit
guarantee instruments are one such example (discussed in Box 6.3.2.1). Additionally, greater
involvement by banks in the whole funding process is often advocated – given their specialist
knowledge, banks have a significant role to play in various aspects, including information and
education campaigns, proposal evaluation and selection, and monitoring. Any financing of the
additional administrative burden where this is considered unfair would also need to be taken into
consideration.
The majority of Member States have decided to manage EU funds directly or through state agencies.
As advocated through the Vienna Initiative 130 , however, commercial banks can play a crucial role in
further increasing national absorption of EU funds. Banks and other private financial actors could
contribute to leverage EU grant funds through their knowledge of local sectors and ongoing search
for innovative entrepreneurial concepts and financial instruments. Banks can also provide prefinancing
(in anticipation of the disbursement of the EU grants) and co-financing (especially where
not all expenditure related to a project is eligible), thereby leveraging grants available. Banks are
also in a position to assist in project selection/ evaluation and eventual monitoring. Best practice
examples in channelling funds to SMEs include the intermediary role adopted by Italian commercial
banks, the setting up of profit-oriented companies in Hungary 131 , and the involvement of banks in
the design of new EU co-financed programmes in Latvia and Poland. At the same time, issues
related to the potential discrepancy between bankable projects and public-interest projects need to
be taken into consideration 132 .
Locally, feedback obtained on both the Micro Guarantee and MicroCredit schemes show the
involvement of banks at an early stage of the process. In the former scheme, some SMEs expressed
their disappointment at their bank application being rejected despite having a letter of intent from
ME. On the other hand, in the latter scheme, the bank was the first recipient of applications and any
decisions were based on the bank’s creditworthiness assessment.
The KBIC is another local example of the important support role of banks. The centre provided
financial consultancy to start-ups in collaboration with a local bank, through three full-time advisors
and a part-time advisor appointed by the bank. This was in addition to the assistance provided by ME
129
BOX This is 6.3.4 also linked Investor to the readiness
lack of credit bureaus in Malta – the local banking market is dominated by two large players that
have their own credit rating systems, thus reducing any scope for the setting up of such bureaus.
130
European Bank Coordination (“Vienna”) Initiative (2011), The role of commercial banks in the absorption of EU funds
131 The needs of local entrepreneurs might be met through bank financing, and this could be the
Ibid, pg. 11. The Hungarian Managing Authority has an intermediary body as well as a financial body acting as profit-
main reason why alternatives are not sought. However, lack of awareness on available
alternative sources, and their respective application and advantages, might be another reason.
Entrepreneurs require further investor readiness training programmes.
oriented companies.
132
Ibid
Page | 76