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The Impact of the Global Crisis on SME and Entrepreneurship
Financing
Pier Carlo PadoanOECD Deputy-Secretary General
Urbino, 21 April 2009
1
The impact of the crisis
• The demand shock
• Increased payment delays• Increase in enterprise
insolvencies and bankruptcies
2
Long term consequences
• Innovation and risk taking will be scaled back
• Long term growth will be curtailed
• Recovery will be delayed and weaker
3
Finance as the most significant obstacle to SME development and
entrepreneurship: the case of Finland
Source: Hyytinen and Pajarinen (2003).4
Bank spreads on small and large loans to non-financial corporations
0
50
100
150
200
250
Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08
small loan, short maturity
small loan, long maturity
large loan, short maturity
large loan, long maturity
Increase in spreads for small loans
Source: European Central BankMonthly data, August 2007-January 2009, basis points5
Recent trends in VC investment in the United States
Source: PricewaterhouseCoopers and National Venture Capital Association.
6
Global Venture Capital Investment 2000-2008 (in US$)
0.00
1,000,000.00
2,000,000.00
3,000,000.00
4,000,000.00
5,000,000.00
6,000,000.00
7,000,000.00
8,000,000.00
2000 2001 2002 2003 2004 2005 2006 2007 2008
Mill
ion
U
S$
Source: VentureXpert, Thomson Financial, 20097
Alleviating working capital shortage in the economy
Canada, France, Italy, Netherlands, Chile
Easing tax payments Australia, Belgium, Canada, Denmark, France, Italy, Mexico, Netherlands, New Zealand, Brazil
Export facilitation Austria, Canada, Czech Republic, Denmark, Germany, Italy, Luxembourg, Mexico, Netherlands, New Zealand, Spain, Switzerland, Brazil, Chile, Slovenia
Easing procurement payment procedures
Australia, France, Netherlands, New Zealand, United Kingdom
Creation and extension of loan and guarantee schemes
Austria, Belgium, Canada, Czech Republic, Finland, France, Germany, Greece, Hungary, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, Spain,UK, USA, EC, Brazil, Chile, Russia
Mediation (MD) and monitoring (MN)
Belgium (MD), France (MD), Italy (MN), United States (MN)
Strengthening pro-investment measures
Austria, Czech Republic, France, Germany, Hungary, Italy, Japan, Spain, Switzerland, USA, EC, EIB/EIF
Strengthening capital base and private equity and venture capital
Austria, Denmark, Finland, Hungary, Mexico, UK, Chile, Slovenia, EIF/EIB 8
Size of some of the measures for SME financing in the OECD area
Measure
EU €1 billion for the EIF for mezzanine financing€10 billion more for loans to SMEs (for a total of €30bn)
France €22 billion plan for financing SMEs: €17bn transferred to banks for SME lending.€5bn in loans and guarantees for OSEO
Germany €15 billion to enhance the supply of credit for the private sector
Italy €450 million for re-financing of the Central Guarantee Fund for SMEs.
Japan An Emergency Guarantee System of 20 trillion yen and a Safety Net Guarantee of 10 trillion yen. Total: 30 trillion yen, app. €224 billion
Spain Fiscal measures for €17 billion and financial instruments for €29 billion
USA Boost credit markets for SMEs by purchasing up to USD15 billion (€11.25bìllion) in securities backed by loans from the SBA.
9
The situation in Italy
- Intensity of experienced or expected demand shock
- Evidence on credit demand
- Evidence on credit conditions
- Policy measures supporting sales and preventing depletion of SMEs working capital
- Policy measures enhancing SMEs access to liquidity, specially to bank lending
10
Policy Implications - 1I. Resolving the problem of insufficient
working capital
• Making guarantees effective• Dealing with cash flow problemsII. Supporting innovative start-ups and
high-growth SMEs
• Provision of private risk capital through co-investment
• Reduction or elimination of taxes on capital gains for investment in SMEs by venture capital funds
11
III. Improving the SME and entrepreneurship financial environment in the long term•Balancing banks’ scoring methods for assessing SME credit-worthiness with adequate room for “relationship banking”•Financial institutions’ partnership with business service providers to help SMEs•SMEs’ improved transparency of their economic and financial conditions and improved quality of their credit demand•Assessment possible effects of Basel 2 future revision on SME lending
Policy Implications - 2
12
IV. Other policy responses to improve SME and entrepreneurship financing
• Improving SME and entrepreneurs’ information and competencies
• Facilitating dialogue and consultation between governments, SMEs and financial institutions
• Improving knowledge of the situation of SME and entrepreneurs’ financing:
- need for more timely and SME specific data on the supply of and demand for financing
Policy Implications -3
13