SME Finance Policy Guide

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48 GLOBAL PARTNERSHIP FOR FINANCIAL INCLUSION for SMEs. Capacity building and development is needed, including for oversight institutions. While the IFRS for SMEs are less burdensome than the full IFRS, they may still be excessive for smaller and capacity-constrained enterprises. Exemptions from IFRS and other requirements for smaller firms may be merited, or the development and implementation of simplified versions. C.3 Public Sector Interventions Many governments seek to encourage SME finance through direct and indirect interventions, in order to address deficiencies in the enabling environment and residual market failures. Well-designed policy interventions can be useful as transitional measures in periods where the government is trying to strengthen financial infrastructure and the legal and regulatory framework. They may also be valid in cases where some groups remain difficult to reach, even when efficient financial infrastructure and regulations are in place. Interventions can also be important in periods of instability and crisis, where there is an actual or potential collapse of financial intermediation by private agents. The worldwide financial crisis dented confidence in the belief that reliance could be placed solely on market solutions for access to financial services, and has triggered a range of public initiatives designed to protect or re-launch the flow of credit to various purposes and sectors. 54 Government policy interventions have included partial credit guarantee schemes, direct lending facilities (sometimes entailing credit subsidies), and lending by state-owned financial institutions. These interventions provide different combinations of liquidity and risk mitigation strategies and can be priced at or below market rates. The choice of instrument/intervention typically depends on the binding constraint in the respective environment. The government support initiatives with the greatest representation in the G-20 stocktaking exercise include: funded financing facilities extended via state banks and/or private financial institutions; credit guarantees extended via state banks and/or private financial institutions; and, state bank initiatives. Government support mechanisms can expand significantly the SME finance space, although it is always important in these cases to minimize their potential market distorting consequences, and to not lose sight of the fact that financial services for SMEs are best served by strong banking and non-banking institutions that can develop business models to achieve the optimal balance between risk, reward, and cost. The more supportive the overall enabling environment is in a given country, the larger the size of the bankable SME space, which provides incentives for financial players to engage in this space and increases odds of success and demonstration effects. The following table estimates the amount of financing per SME in examples of public sector interventions that are profiled in this section. While this is a rather superficial and incomplete assessment, and the ratios are influenced by the age of the interventions (the Turkey and Korea models are more recent, for example, and may still be growing), this is still useful in providing insights regarding the cost-effectiveness of each example. The three partial credit guarantee facilities come out relatively well on this measure. As is clear from the 2010 GPFI stocktaking exercise, government-supported interventions in the SME finance space are commonplace. The “perfect” enabling environment for finance being a long term/tentative objective, government support is always likely to be needed to provide incentives, catalyze a market, or create a demonstration effect, if not for purely political reasons. In all cases, government intervention (state banks, lending facilities, credit guarantees, risk-sharing, 54 Center for Global Development. 2009. “Policy Principles for Expanding Financial Access.” Report of the CGD Task Force on Access to Financial Services. Washington DC.
G-20 SME FINANCE POLICY GUIDE 49 table 3. Financing per SME: Comparison Table Country Name of Program Starting year Financing Amount (USD m) Number of SMEs outreached Financing per SME (USD) Afghanistan DEG - SME Credit-Guarantee-Facility 2005 37 1,256 29,459 Brazil Programa INOVAR I-II 2001 1,000 3,250 307,692 Canada Canada Chile EU Korea Turkey WB&G Business Development Bank of Canada Canada Small Business Financing Program FOGAPE (SME lending guarantee fund) EU/EBRD SME Finance Facility The Korea Venture Capital Investment Corp European Investment Bank SME APEX Facility European-Palestinian Credit Guarantee Fund 1944 15,008 28,000 536,000 1999 8,000 113,850 70,268 1980 9,636 362,753 26,564 1999 3,168 101,000 31,366 2005 1,100 930 1,182,796 2005 216 343 629,738 2005 43.2 1,200 36,000 Source: Scaling-up SME access to financial services in the developing world, 2010 capacity-building, etc.) should be carefully designed and better evaluated with a view to accurately measure their achievements in terms of outreach, additionality, and leverage. Subsidies should be only reserved to address actual market failures, and carefully designed to avoid any disincentive for private sector providers of financial services to serve the SME segment. Public procurement also represents a huge opportunity for SMEs, and can be used to improve SME access to financial services, including supply chain finance. The value of public contracts awarded to SMEs in a number of European countries during the recent global financial sector crisis was much larger than the value of guarantees provided to SMEs. C.3.1: STATE BANKS State-owned banks have played an important role in SME finance in many developed and emerging countries as shown by two World Bank surveys, one conducted globally and the other focused on the MENA region. 55 Both surveys show that the share of SME loans in total loans is not significantly related to bank ownership, even after controlling for other factors. The survey conducted for the MENA region shows that 55 Beck, Demirgüç-Kunt, and Martinez Peria. 2008. “Bank Financing for SMEs around the World: Drivers, Obstacles, Business Models, and Lending Practices.” World Bank Policy Research Working Paper 4785. The World Bank, Washington DC. Rocha. Farazi. Khouri, and Pearce. 2011. “Bank Financing for SMEs in the MENA Region: Evidence from a Joint Survey of the World Bank and the Union of Arab Banks.” Policy Research Working Paper 5607.March. The World Bank. Washington, DC.
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