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

1. 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

2. 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
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3. 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
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4. 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
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European Union
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5. 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
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6. 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
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7. 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
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8. 1
What are the major policy challenges and guidelines on how
to improve access to finance in the Republic of Moldova?
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9. 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
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Belarus
Georgia
Moldova
Ukraine
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10. 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
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11. 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
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12. 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
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13. 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.
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14. 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
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15. 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
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16. 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.
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17. 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
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18. 2
What are the major policy challenges and guidelines on how
to improve business support services in the Republic of
Moldova?
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19. 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
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20. 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
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• Range of business services
• Quality of online portal
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• Advisory services support for start-ups
• Financial services support for start-ups
(vouchers, grants, etc.)
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21. 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
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22. 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
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23. 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
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24. 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.
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25. 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
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