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Republic of Moldova - Competitiveness recommendations
 

Republic of Moldova - Competitiveness recommendations

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OECD Eurasia Competitiveness Roundtable - 4 December 2013, OECD headquarters, Paris, France

OECD Eurasia Competitiveness Roundtable - 4 December 2013, OECD headquarters, Paris, France

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  • Background note on the recommendation:Enhance the regulation of microfinance institutions and leasing entities: Microfinance institutions are regulated by the Law on Microfinance Organisations (2004) and leasing companies by the Law on Leasing (2005). Both laws provide only a very general framework and do not foresee any prudential norms for the activity of microfinance institutions/leasing companies.Expand the coverage of the Credit Bureau: A private credit bureau was established in 2011 and credit history data has been available since October 2012. Currently only commercial banks share the credit history of clients with the Credit Bureau. Including credit information from non-banking financial institutions such as Microfinance institutions, Saving and Credit Associations and leasing companieswill help SMEs establish a complete credit history from the start and ease access to credit from commercial banks when they start growing. Credit histories can be further enhanced by information from telecommunication companies on enterprises and individuals that are not debtors at any of the financial entities.Extend the variety of collateral: The Law on Collateral (Republic of Moldova, 2001) defines the guarantees (bank guarantees, deposits, assignment of claims or state guarantees) and collateral (such as pledges, mortgages or bank deposits) that banks can use to reduce risk and cover losses. Legalisation the extension of the collateral (e.g. secondary guarantees, future goods and the assignment of claims) would meet the current market requirements, asseveral banks in Moldova already use these types of collateral/guarantees.Support SMEs in business planning and financial management and (5) Improve SMEs’ capabilities in accessing finance: Financial literacy of Moldovan SMEs is rather low which affects their ability to submit compelling loan application forms as well as sound business plans. Capacity building initiatives for SMEs are needed to combat the deficiencies.

Republic of Moldova - Competitiveness recommendations Republic of Moldova - Competitiveness recommendations Presentation Transcript

  • EASTERN EUROPE AND SOUTH CAUCASIS INITIATIVE SUPPORTING SME COMPETITIVENESS IN THE EASTERN PARTNER COUNTRIES Focus on the Republic of Moldova Peer Review at OECD Eurasia Competitiveness Roundtable Paris, 4 December 2013 With the financial assistance of the European Union
  • OECD Eurasia Ministerial conference in Warsaw, June 28 R. of Moldova volunteered to be reviewed by OECD and Eurasia peers High-level representatives from Eurasia countries endorse the concept of peer review and establish the OECD Eurasia Competitiveness Roundtable CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 2
  • What is peer review and why is it effective? An examination of one state’s performance or practices in a particular and welldefined area by other states  Peer review relies on mutual trust among the states involved, as well as their confidence in the process  Peer review is a discussion among equals with no enforcing mechanisms  Peer reviews encourage open dialogue and knowledge-sharing on policies under review  Peer reviews are highly effective due to peer advice and pressure Peer review mechanisms are the main discussion platform among OECD members CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 3
  • Assessment results of the SME Policy Index 2012 for Moldova SME policy assessment based on 92 indicators across 10 policy dimensions SME Policy Index 2012 Monitors the implementation of the Small Business Act for Europe in the six Eastern Partner Countries in 10 policy dimensions  Developed in collaboration with the European Commission, European Training Foundation and EBRD under the SME Panel of the EU Eastern Partnership 10. Internationalisation of SMEs 1. Entrepreneurial learning and women's entrepreneurship 5 4 3 9. SMEs in a green economy 2 2. Bankruptcy and second chance for SMEs 3. Regulatory framework for SME policy making 1 8B. Innovation 0 4. Operational environment for SMEs 5A. Support services for SMEs and start-ups 8A. Enterprise Skills 7. Standards and technical regulations 5B. Public procurement 6. Access to finance for SMEs Access to finance for SMEs and Support services for SMEs and start-ups were selected as priority areas for additional research and peer review CONFIDENTIAL – NOT FOR DISTRIBUTION With the financial assistance of the European Union OECD GRS Private Sector Development 4
  • Fostering SME policy in the Republic of Moldova since 2010 Overview of main project phases Phase I: • Prioritisation and formulation of SME policy Implementation of SME policy and peer review (10/2010-06/2011) • Phase III: SME policy assessment • Phase II: (07/2011-10/2012) (11/2012-12/2013) In-depth SME policy review of the status of implementation of the ten principles of the EU Small Business Act; • • Publication “Fostering SME Development in the Republic of Moldova”; Resulting in a number of policy recommendations and strategic priorities for SME policy reform. • • Elaboration of the national SME Development Strategy 2012-2020 and Action Plan 2012-2014; Priorities of the SME strategy resulted from the policy recommendations of the SME policy report and an updated assessment of the SME Policy Index: Eastern Partner Countries 2012; Further inputs collected from the local SME community through public-private consultation meetings. Endorsement of the SME Strategy by the DPM Lazar on 15 October 2012 in Chisinau. • • • • Following the launch of the SME Strategy two priority areas were jointly identified by the OECD, the MoE and ODIMM to provide targeted support in the implementation of the strategy; Priority area 1 – Improving access to finance for SMEs; Priority 2 – Enhancing business support services; Two action plans for reforms have been developed through a number of surveys, focus group discussions and public-private working group meetings which are submitted for peer review OECD GRS Private Sector Development 5
  • The Republic of Moldova in the peer review process Roundtable participants to comment on current practices and guidelines January – October 2013 Country work on 1. 2. Access to Finance Business support services 3-4 December 2013, OECD Headquarters in Paris Presentation of the country work to peers Turkey / Netherlands Germany OECD reviewer OECD reviewer on Access on Business Support to Finance Services Eurasia Competitiveness Roundtable Peer review workshop with lead reviewers held on 10-11 October in Chisinau Republic of Moldova The peer review process is expected to stimulate policy reform implementation in the Republic of Moldova OECD GRS Private Sector Development 6
  • Project results to be peer reviewed include a policy assessment and action plans for reform in access to finance and business support services A Assessment of 2 SBA policy areas for SME competitiveness 1 2 Access to Finance for SMEs Business support services B Action plans for targeted reforms  How to enhance the legal and regulatory framework?  How to expand and diversify sources of external finance?  How to enhance financial literacy?  How to stimulate the development of a private business service support infrastructure? Guidelines and recommendations developed based on consultative processes with in-depth involvement of civil society and business associations OECD GRS Private Sector Development 7
  • 1 What are the major policy challenges and guidelines on how to improve access to finance in the Republic of Moldova? OECD GRS Private Sector Development 8
  • Key characteristics of the financial sector in the Eastern Partner Countries Bank financing is limited across the region The banking sector in the Eastern Partner Countries differ in terms of development and sophistication, but all countries share common challenges: • • • • • Domestic credit provided by banking sector, 2012 (% of GDP) 250 OECD average, 206.1 % 200 Low bank lending: 26.7% of GDP on average in 2012 150 Low ratio of banking sector assets to GDP: 74% on average in 2011 50 100 42.2% 0 Armenia High interest rates varying between 13.4% and 22% Azerbaijan Belarus Georgia Moldova Ukraine Lending interest rate, 2012 (%) High collateral requirements: on average 129.6% in 2008-2009 25 High concentration in the banking sector: asset concentration of top 3 banks was 45.5% on average in 2011 15 20 13.4% 10 OECD average*, 4. 9% 5 * For the OECD average data for following countries was used: Australia, Canada, Chile, Czech Republic, Estonia, Hungary, Iceland, Israel, Italy, Japan, Mexico, Netherland s, New Zealand, Switzerland, United kingdom, United States Source: World Bank, 2013, World Development Indicators 0 Armenia Azerbaijan CONFIDENTIAL – NOT FOR DISTRIBUTION Belarus Georgia Moldova Ukraine OECD GRS Private Sector Development 9
  • Assessment framework for Access to finance for SMEs Access to finance for SMEs Legal and regulatory framework Sources of external finance for SMEs • Cadastre • Credit guarantee schemes • Credit information services • Public start-up funds • Registration system for moveable assets • Business angels framework • Collateral and provisioning requirements • Microfinance facilities • Creditor rights • Leasing •Availability of risk credit (e.g. venture capital, private equity funds) • Availability of risk credit (e.g. venture capital, private equity funds) • Access to stock market • Access to stock market Other factors that affect demand and supply of finance • Financial literacy CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 10
  • Results of the SME Policy Index 2012: Access to Finance remains one of the main challenges to address across the region The average score for the Eastern Partnership countries in access to finance was 2.83. Progress in the development of the legal and regulatory framework is mixed across the region: • Collateral and provisioning requirements are relatively restrictive in all EaP countries 5 • Cadastre and credit information systems are developed in Armenia and Georgia and a unified collateral registry is in place in Georgia and the Republic of Moldova. 4 • Enforcement of creditor rights remains weak in all EaP countries. Other sources of external finance remain limited: • • Instruments such as leasing, business angels, microfinance facilities, credit guarantee schemes and risk capital are generally undercapitalised and underused Public support for SMEs is relatively small and limited by fiscal constraints in most countries (apart from Azerbaijan) 3.52 3.00 3 2.74 2.50 2.65 2.59 2 1 0 Armenia Azerbaijan Belarus Georgia Republic of Ukraine Moldova Source: EU, ETF, EBRD, OECD, SME Policy Index: SME Policy Index 2012, EBRD and World Bank, 2008-2009, BEEPS Financial literacy remains low across the region CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 11
  • Republic of Moldova: Need to further enhance the legal and regulatory framework and improve financial literacy • Land fully registered in the Republic of Moldova, the cadastre is available and accessible online • A private credit bureau has been established in the Republic of Moldova. Access to credit information is provided subject to a fee, if requested more than once per year, however coverage is limited • A central collateral registry is in place and under the control of the Ministry of Justice, however, movable assets cannot be registered or used as collateral 5 4 3 2 1 0 • Law on insolvency defines creditor rights, however improvements in the judicial system are required to ensure effective enforcement • Financial literacy initiatives have been developed by ODIMM and some commercial banks (Victoriabank, FinComBank). However, a national policy and institutional framework is not yet clearly defined and established. Cadastre Credit information services Registration Collateral and Creditor rights systems for provisioning moveable requirements assets Legal and regulatory framework Republic of Moldova Financial literacy Other factors Average in the region Source: EU, ETF, EBRD, OECD, SME Policy Index: SME Policy Index 2012 CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 12
  • Key constraints limiting access to bank finance – legal, regulatory and financial literacy issues Collateral •High collateral requirements are a major impediment for SMEs Lack of basic infrastructure, inputs, managerial efficiency and comprehensive guidelines •Most SMEs do not have basic or well-planned infrastructure, especially if they are recently founded The excessive centralisation of the banking system •About 70% of the assets from the entire banking system are concentrated in the municipality of Chişinău Lack of information on loan application requirement among the SME loan seekers Absence of an appropriate and clear-cut legal framework for enforcing quick recovery Limited information concerning the credit history •Credit application requires availability of adequate information •The lending process becomes laborious when all required documents are not presented fully and on time •Low standard of creditor rights enforcement limits bank control over the serving of loans – limited legal guarantees that the disbursed loans will be recovered •Credit history data is available since October 2012 •Only commercial banks share clients’ credit history •Participation needs to be extended to non-banking financial institutions as well as to leasing companies. CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 13
  • Guidelines to enhance the legal and regulatory framework for the financial infrastructure and improve financial literacy for SMEs 1 2 3 4 5 Enhance the regulation of microfinance institutions and leasing entities Expand the coverage of the Credit Bureau Extend the variety of collateral • Improve information and transparency requirements (e.g. ownership and price transparency), capital requirements, financial reporting (e.g. auditing requirements), credit evaluations standards and risk management • Incorporate information from non-banking financial institutions to achieve comprehensive coverage of credit history information • Introduce new types of collateral, namely guarantees, accounts receivables and warehouse receipts secondary Support SMEs in business planning and financial management • • • • Improve SMEs’ capabilities in accessing finance • Develop SMEs capacities in promoting their business ideas • Increase their communication skills when negotiating the loan • Launch credit education campaigns on building credit knowledge and positive skills and behaviours Enable financial coaching Provide credit counselling on dealing with debt situation Provide information on how to access these services and training Link enterprises to available donor and government programmes CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 14
  • Republic of Moldova: Need to expand and diversify sources of external finance for SMEs • The banking sector in the Republic of Moldova is small: total assets account to 66% of GDP (2012). There are 14 commercial banks. Most of them are privately owned, some have foreign participation. Banking sector is highly concentrated with five largest banks that account for about two-thirds of total assets • There are 73 micro-finance institutions in the Republic of Moldova with assets worth 1.6 billion lei (~920 mil. EUR). Top 10 MFI concentrate about 80% of the total assets. Current regulation for microfinance institutions is only very general, prudential norms for microfinance institutions are not established • Two credit guarantee schemes exist in the Republic of Moldova but they are underused and the rate of coverage is too low (50% of the loan amount, 70% for rural start-ups) • Top ten leasing companies hold 90% of the total assets, and the four largest hold 70%. Their activities are barely regulated • No national venture capital fund exists; some foreign funds are operating in the country • Access of SMEs to the stock market, public financial support and private equity are limited • Business angels associations are non-existent 5 4 3 2 1 0 Credit guarantee schemes Business angels network (including credit unions) venture capital,stock marke Public start-up funding Microfinance facilities Availability of risk capital (e.g. Leasing Access to private equ Republic of Moldova Average in the region Source: EU, ETF, EBRD, OECD, SME Policy Index: SME Policy Index 2012 CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 15
  • SME constraints in accessing bank finance Access to loan •Banks are reluctant to provide loans to SMEs due to high processing and monitoring costs. Extremely short grace period •SMEs have to start the repayment of credit within a very short time after disbursement of the credit. Insufficient loan amounts •The amounts of money offered to SMEs as loans are too small for their business projects. Cost of loan •The cost of loans due to high interest rates was a major constraint before and during the crises period in 2008-9. The running period of loans •SMEs are mainly granted only short-term loans. Lack of basic infrastructure, inputs, managerial efficiency and comprehensive guidelines The excessive centralisation of the banking system •Most SMEs do not have basic or infrastructure, especially if they are recently founded. well-planned •About 70% of the assets from the entire banking system are concentrated in the municipality of Chişinău. CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 16
  • Guidelines for the Republic of Moldova on how to expand and diversify sources of external finance 1 2 3 4 5 Encourage special credit products to SMEs • • • • Diversify the range of products and services offered exclusively to SMEs Banks need to define SMEs as a separate target market Banks need to create a separate product division designed for SMEs Consider creating SME products associated with special services Promote products, consultations and training for SME financing • Decentralise banking services to rural areas • Provide information and consultancy directly to potential clients • Banks should focus on an improved customer service Bring improvements to the grace period for SMEs • External sources offered to commercial banks by international organisations could bring improvements to the grace period for SMEs Improve banks’ credit risk management • • • • Increase the usage of the public Credit Guarantee Fund • Increase the coverage rate • Extend co-operation with commercial banks • Promote the fund and raise awareness Understand the SME market Develop products and services Acquire and screen SME clients Manage information, staff and knowledge CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 17
  • 2 What are the major policy challenges and guidelines on how to improve business support services in the Republic of Moldova? CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 18
  • The role of Business Development Services for SMEs BDS add value to goods and services, allowing businesses to compete more effectively, access new markets, operate more efficiently, and be more profitable. BDS address fundamental institutional constraints and develop markets quicker and more effectively THE BDS ECOSYSTEM SMEs BDS Providers BDS Facilitators •These represent the actual or potential clients of BDS providers •They provide services directly to SMEs •They support BDS providers, by promoting good practice, building provider capacity, etc. Donors •They provide funding for BDS projects and programmes Governments •Like donors, they may provide funding for BDS projects and programmes CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 19
  • Assessment framework for Support services for SMEs and start-ups Support services for SMEs and start-ups SME support services Business information for SMEs Support-services for start-ups • Business incubators • Government action plan on business services • Business information jdshfkjhdjkfhdgjhgjsdsdkghskdjgh • Range of business services • Quality of online portal CONFIDENTIAL – NOT FOR DISTRIBUTION • Advisory services support for start-ups • Financial services support for start-ups (vouchers, grants, etc.) OECD GRS Private Sector Development 20
  • Results of the SME Policy Index 2012: Business support services are developing across the region The average score for the Eastern Partner Countries in business support services was 2.71. • The market of private business service providers is developing in all EaP countries, however, it is mostly dominated by international consultancy firms that target large firms and not SMEs • Business services for SMEs are often limited to public support schemes and sustained through donor-funded programmes • Business information for SMEs is available all over the region through websites providing basic information 5 4 3.79 3.28 2.92 3 2.41 2.12 2 • Among EaP countries, several business incubators have been set up recently through donor-funded programmes • In comparison with other EaP countries, Moldova’s performance on business support service delivery is above average on all indicators measured. A wide range of start-up services are provided by the government and the private sector, mostly based on donor support, however the development of private business service providers remains limited 1.77 1 0 Armenia Azerbaijan Belarus Georgia Republic of Moldova Ukraine Source: EU, ETF, EBRD, OECD, SME Policy Index: SME Policy Index 2012 CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 21
  • Results of the SME Policy Index 2012: Business support services in Moldova • A network of seven business incubators is developing to facilitate company start-up in the Republic of Moldova. Additional incubators are maintained by AITT as well as academic and private-sector institutions • Most BDS providers offer information, training and consultancy services for standard BDS activities such as start-up, financial reporting and legal and regulatory issues 5 4 3 • Information, training and consultancy services are typically free of charge and supported by the government or through donor initiatives 2 • For consulting services, a higher percentage of services are either co-financed through public support or paid by the beneficiary 1 0 • BDS providers are almost exclusively located in Government action plan on business services information onlineBusiness incubators support for start-ups (v Range of business services Quality Business portal Advisory services support for start-ups Financial services urban areas, they are mainly NGO in form and they remain small SME support services Business information for Support services for start-ups • The percentage of complex BDS paid for is very low. This suggests underutilisation and potential to enhance the range, quality and take-up of such services in the future SMEs Republic of Moldova Average in the region Source: EU, ETF, EBRD, OECD, SME Policy Index: SME Policy Index 2012 CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 22
  • Main challenges of business support services to address from a demand-side perspective Mismatch between demand and supply for business support services •30% of companies reported that they do not require any of the available service Lack of awareness •20% of companies reported either that they could not identify or are not aware of the benefits of the available services Capacity or willingness to pay •17% of companies considered available services as too expensive Lack of expertise •Most firms indicated that better quality would increase their willingness to pay for services Geographic coverage •Existing BDS rarely cover SMEs situated in rural areas Source: OECD Survey, 2013 CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 23
  • Guidelines to improve business development services in the Republic of Moldova 1 Strengthen policy coordination 2 Fill-in the rural gaps in BDS provision 3 Strengthen NGOs and business associations to provide BDS 4 5 Deepen the emerging BDS market Raise the awareness, quality and trust of BDS provision • Establish a coordination forum: quarterly meetings of key stakeholders • Evaluate BSIs: assess whether public funds and development models are effective • Determine priority support programmes to strengthen BSIs and mobilise donor and state funds • Strengthen and make sustainable the AgroInform/ACSA services • Develop a stronger emphasis on non-agricultural economic development • Undertake capacity building to diversify training and consultation services • Review business associations capacities, services, funds and technical support for better quality BDS provision, diversification of services • Implement quality standards and certify business development services • Scale back free BDS provision • Scale back direct state BDS provision • Stimulate BDS market development through co-financing initiatives • Promote business development services through websites, databases, etc. • Establish an association of consultants • Raise the awareness among entrepreneurs of the potential benefits of BSI / BDS in terms of raising productivity, efficiency, market share, profitability, etc. CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 24
  • Next steps Peer review of project results in Paris on 3-4 December at OECD Eurasia Competitiveness Roundtable All Eurasia Partner Countries are invited to:  Read the reports and the recommendations  Provide comments on how to further improve the recommendations, taking into account their own country’s experience in strengthening access to finance and developing business support services  Prepare questions to the delegation of the Republic of Moldova with regards to their challenges and next steps in the reform agenda CONFIDENTIAL – NOT FOR DISTRIBUTION OECD GRS Private Sector Development 25