SME Finance Policy Guide

G-20 SME FINANCE POLICY GUIDE
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poor financial infrastructure, and limited supervisory
capacity. Well-designed and targeted policy
interventions may be well justified in these cases.
Moreover, credit guarantee schemes may be one of
the most effective mechanisms to address market failures
and expand SME lending, as they rely primarily
on private banks for screening and monitoring potential
SME borrowers.
At the same time, the low institutional development
and human resource constraints of LDCs imply a
limited capacity to run these schemes effectively. In
addition, private banks may have better incentives
than state banks to screen and monitor potential
borrowers, but may lack the human resources and
technologies to conduct these activities effectively.
These limitations have important implications for
the formulation of the objectives of guarantee
schemes in LDCs, as well as the design of their rules
and procedures. More specifically, capacity building
should be one of the key objectives of PCGs in LDCs.
Also, the low institutional capacity of LDCs implies
the need for simpler scheme designs. Finally,
introducing effective guarantee schemes in LDCs
requires substantial technical assistance from
donors, especially in the early stages of implementation.
Afghanistan and Palestine provide relevant
examples of PCGs that have performed well in challenging
environments.
SMEs’ Access to Public Procurement in
the EU
A recent European Commission study estimates the
total value of contracts awarded in the EU for the period
2006-2008 at about 876 billion euro. From this total,
the estimated total value of contracts awarded to SMEs
is 34 percent. The differences among countries are
large. Countries with high SME shares are Bulgaria,
Latvia, Malta, Luxembourg, and Greece, ranging from
79 percent in Bulgaria to 52 percent in Greece. Countries
with low SME participation are Czech Republic, Spain,
Portugal, and the United Kingdom, all with less than 25
percent. As a general trend, SMEs are more dominant in
smaller countries.
The share of SMEs in public procurement is 18 percentage
points lower that their overall share in the EU economy,
calculated on the basis of their combined turnover
(52%). But performance differs according to SME size.
While the medium-sized enterprises’ share of public
procurement (17%) is close to their share in the economy
(19%), the micro and small enterprises lag considerably
behind their role in the economy. Micro- enterprises
account for about 6 percent of the contract value in
public procurement versus a 17 percent of total turnover,
while small enterprises trail behind by 5 percentage
points. This indicates that micro and small firms
face more barriers to accessing public contracts than
do medium-sized firms.
Source: Evaluation of SMEs’ access to public procurement markets
in the EU, 2010
C.3.4 GOVERNMENT PROCUREMENT FROM
SMEs
The public sector is a significant buyer of services
and goods from SMEs, with common examples
being repair and maintenance contracts, office supplies,
catering supplies, transport services, and so
on. Governments also provide indirect payments in
the form of benefits, salaries, or pensions, to households
of SME entrepreneurs. SMEs have potential to
use invoices and supply contracts with the public
sector, as with the private sector, to secure access to
financing, for example through factoring, or through
use of the contract as collateral for a loan. The
government can introduce mechanisms to facilitate
this access to finance, as outlined in this section.
Governments can also adopt a critical lesson learned
from the recent global financial crisis, which is that
by paying SMEs promptly, and expanding the proportion
of goods and services procured from SMEs,
governments can contribute directly to SME creditworthiness
and viability. For example, as a result of
the global financial crisis, SMEs in OECD countries
were confronted with a decrease in demand for goods
and services, and an increase in payment delays on
receivables. This resulted in a shortage of working