This year the Forum will focus on creativity, jobs and local development. We will examine how localities can support culture and creative industries as a source of knowledge and job creation and how the creative industry can act as a powerful driving force areas such as tourism, urban regeneration, and social inclusion.
1. FINANCING SMES AND
ENTREPRENEURS 2016: AN OECD
SCOREBOARD
12th OECD LEED Forum on Partnerships and Local
Development
18-19 April 2016, Venice
Miriam Koreen, Deputy Director
OECD Centre for Entrepreneurship, SMEs and Local Development
www.oecd.org/cfe/sme
2. 1. Overview of the SME finance Scoreboard
2. Emerging trends in SME financing
3. Recent policy developments
4. Medium-term outlook
www.oecd.org/cfe/sme 2
Overview
3. What is
Financing SMEs and Entrepreneurs 2016: An
OECD Scoreboard?
www.oecd.org/cfe/sme 3
4. Rationale:
• Need for comparable and timely statistical information on SME
access to finance
Objectives:
• Improve the understanding of business financing conditions,
trends and needs
• Assist policy makers in designing and evaluating policies and
programmes relevant to SME access to finance
• Monitor the implications of financial reforms on SME access to
finance
4
Rationale and objectives
5. Current Scoreboard indicators
DEBT
1. SME loans / business loans
7. SME loans used/SME loans
authorized
2. SME short term loans/SME loans
8. SME non-performing loans/SME
loans
3. SME loan guarantees 9. SME interest rates
4. SME guaranteed loans
10. Interest rate spreads (small vs.
large firms)
5. SME direct government loans 11. SME collateral requirements
6. Rejection rate
NON-BANK FINANCE OTHER
12. Venture and growth capital 15. SME payment delays
13. Leasing and higher purchases 16. SME bankruptcies
14. Factoring and invoice discounting
7. www.oecd.org/cfe/sme 7
Lending to SMEs improved in 2014
Trends in outstanding SME loans, 2012-14
Year-on-year growth, percentages, inflation-adjusted data
8. Credit conditions generally eased in 2014 but
remain challenging for many SMEs
www.oecd.org/cfe/sme 8
Trends in average interest rates on SME loans, 2011-14
Year-on-year change
10. Trends in non-performing loans, 2012-14
Year-on-year percentage change
www.oecd.org/cfe/sme 10
NPLs show a diverse picture and are weighing
on business lending in several countries
Notes: *Data on total non-performing loans **Canada reports on the 90-day delinquency rate for small businesses.
11. www.oecd.org/cfe/sme 11
Alternative financing instruments show
promise, but reach only a small share of SMEs
Venture capital investments in 2014
In percent relative to 2007
-100
-50
0
50
100
150
ITA ESP DNK AUS NOR PRT GBR NLD CHE FRA BEL SWE AUT FIN ISR IRE KOR USA RUS
12. • Address a clear financing gap by targeting firms at the seed and early
stage with a high risk-return profile
• Provide services beyond financing, including mentoring, business
advice and access to networks
• Policy initiatives in this area:
co-investment schemes (e.g. Korea, Spain and UK)
tax incentives (e.g. Italy, Israel and Turkey)
provision of financial support towards network development (such as
“France angels”)
financial literacy programmes for recipients of angel investments (e.g.
Canada, Portugal and Mexico)
www.oecd.org/cfe/sme 12
Business angel investments targeting young,
innovative, high-growth firms
14. Government loan guarantees as a percentage of GDP in 2014
www.oecd.org/cfe/sme 14
Loan guarantees continue to be the most
widespread policy instrument to support SMEs
15. • Targeting young innovative SMEs more explicitly
– Austria’s promotional bank activities or repayable grants in New Zealand
• Stimulating equity investments, through:
– Tax incentives (Australia and Sweden)
– Direct government investment such as seed capital funds (Canada and
Chile)
– Regulatory reforms (China and Turkey)
• Efforts to increase SMEs participation in GVCs (Australia and Finland)
www.oecd.org/cfe/sme 15
Other policy initiatives
17. • Downward risks in the macro-economic outlook persist:
– And could reverse gains made in recent years
• SMEs remain over-reliant on bank credit
– Banks continue to deleverage
– More efforts are needed to broaden the range of financial instruments
used by SMEs
• The OECD can assist policy making in this area
– G20/OECD High Level Principles on SME Financing
– Development of effective approaches for the implementation of the
principles
www.oecd.org/cfe/sme 17
SME financing will remain fragile in the medium
term
18. Thank you for your attention!
Contact: Miriam.koreen@oecd.org
Editor's Notes
Since the 2015 report, I am pleased to say there have been some encouraging signs. Eight years after the financial crisis, SMEs’ access to credit appears to have turned the corner. The outstanding stock of SME loans in 2014 surpassed 2013 levels in 20 of the 26 countries that provide these data, including some of the countries whose SME lending was most affected by the economic and financial crisis. For example, credit to SMEs expanded by more than 2% in 2014 in Greece. In Chile, Colombia and Turkey, the annual growth in SME lending surpassed 10%.
The picture is broadly similar for new lending, with a few exceptions. In 2014, the contraction in new SME lending accelerated for instance in Austria, Ireland and the Netherlands, and growth turned sharply negative in Finland and the Russian Federation.
What is more, progress has been uneven. In Spain, despite a robust expansion of 8.5% between 2013 and 2014, new lending to SMEs stood at only 36% of its pre-crisis level. In the United Kingdom, net lending, the difference between new lending and repayments, only turned positive in the first quarter of 2015, after a continuous decline since 2008.
SME interest rates continued to decline in 2014, often significantly. In 2014, the average interest rate charged to SMEs in Chile, Italy and Mexico fell by more than one percentage point year-on-year. But large cross-country differences persist. In countries where a sovereign debt crisis followed the financial crisis, such as Greece and Portugal, real SME interest rates were about twice as high as the median value of Scoreboard countries.
It should also be noted that the median interest rate spread for Scoreboard countries has been increasing continuously since 2007 [when it stood at 0.87 percentage points, to reach 1.57 percentage points in 2014]. In Mexico, SMEs paid interest rates that were, on average, 4 percentage points higher than the rate charged to large firms in 2014.
These findings have also been supported by demand-side surveys, which indicate that credit conditions have generally been easing although they remain tight in some countries.
In contrast to previous years, the majority of Scoreboard countries observed a drop in SME bankruptcies between 2013 and 2014. Bankruptcy rates reflect difficulties in maintaining cashflows and are indicative of the overall financial health of SMEs. In Australia, Korea and Greece, SME bankruptcies declined by between 15% to 20% in 2014. But some countries still face an enormous challenge; for example, in Spain, where bankruptcies decreased by 30.9% in 2014, they still remained almost six times higher than before the crisis. In Italy, bankruptcies increased by 11% between 2013-14.
Evidence on NPLs was mixed in 2014. In 12 out of 27 countries with data, NPLs have been in constant decline since 2009. A number of countries have seen NPLs dip below pre-crisis levels. In Canada and the United States, NPL levels fell by more than 50% and 70% respectively over between 2007 and 2014.
At the same time, NPLs continued to rise between 2010 and 2014 in countries where a sovereign debt crisis followed the financial crisis, and where economic recovery has been slow and domestic demand weak in recent years. In countries such as Greece, Hungary, Italy, Portugal and Spain, SME NPLs have been increasing continuously since 2012, reaching historically high levels in 2014. In Portugal, one in six loans to SMEs was non-performing in 2014, and in Greece the corresponding figure was one in three. Although there is some evidence that SME NPLs are peaking in these economies, the large share of non-performing loans is likely to remain a drag on business lending, in particular for SMEs, and for economic recovery more generally.
Venture capital investments declined sharply after the financial crisis, and although volumes showed encouraging signs of recovery, they remain below pre-crisis levels in most countries, with the exception of Korea, Russia and the United States.
Leasing volumes have almost universally remained below pre-crisis levels and in 2014 stood at 79% of their 2007 value on average. However, in China, leasing and hire purchase volumes increased by more than 50% between 2013 and 2014.
Even more striking, the peer-to-peer lending market, which was virtually non-existent in 2012, was estimated at RMB 440 billion in outstanding loans at the end of 2015 – around 0.7% of Chinese GDP, according to the People’s Bank of China. While this market has been growing exponentially, it is still only a small fraction of SME financing.
However, small businesses continue to rely too heavily on straight debt, and at their current levels of uptake, alternative instruments cannot fill the gap when bank lending is constrained. Only 3% of SMEs in the euro zone report using equity financing, while more than half rely on bank credit for their financial needs.
Despite its importance, reliable data and evidence on the size of the market is relatively sparse due to its informal nature, comprehensive data on business angel investments are lacking.
Much of the available evidence on angel activities comes from surveys, is anecdotal and plagued by inaccuracies and biases, which also explains to a large extent why angel activities often receive fewer attention from researchers and policy makers than other sources of finance.
The methodological difficulties concerning building an evidence base on angel activities are daunting indeed.
Investments are made by individuals who do not make up a known population
Especially investments made outside of Business Angel Networks and syndicates are hard to capture, although they most likely compromise the vast majority of all angel investments, even up to more than 90% by some estimates
Significant improvements in data collection and coverage are needed to provide a reliable evidence base on business angel activities.
So what are governments doing to respond to this situation? We are heartened to see that policy makers are increasingly adopting a two-pronged approach to SME financing, which is consistent with the G20/OECD High-level Principles on SME Financing, welcomed by G20 Leaders in 2015.
On the one hand, additional efforts are being made to improve SME access to debt finance. Governments are taking action through better designed and targeted guarantee schemes, direct lending mechanisms, and interest rate support.
The use of government loan guarantees to secure bank lending to SMEs continued to be the most widespread measure among countries participating in the Scoreboard – although their share in GDP varies.
Some emerging trends in guarantee schemes:
More and more countries combine financial support with coaching support.
SMEs may have the opportunity to receive pre-approval for a guarantee prior to making a loan request.
PFIs are starting to provide guarantees for specific innovative projects and experimenting with ways to collateralise intangible assets.
But more needs to be done, including by improving the availability of credit risk information and making use of new technologies and mechanisms for underwriting risk.
One the other hand, there is a growing effort to stimulate the development of alternative sources of SME finance. For example, Canada and Chile created or expanded seed capital funds, and Australia and Sweden recently instituted tax incentives for investors in innovative start-ups.
Export guarantees and trade credit are among the most important instruments to overcome financial barriers and support SME participation in GVCs, and around half of all Scoreboard countries provide such support to further stimulate SMEs to internationalise.
Other needed steps include improving transparency of SME markets, providing greater regulatory certainty, ensuring appropriate options for exit, as well as developing financial skills in SMEs.
Sluggish economic growth in OECD countries is likely to have a negative impact on business financing, and could potentially reverse improvements in SMEs’ access to finance.
Also, start-ups, fast-growing and/or innovative firms and micro-enterprises will continue to face structural problems accessing finance. These firms find it particularly hard to access bank credit, and alternative sources of finance may often be more appropriate. While some financial instruments other than straight bank debt, such as different types of crowdfunding and factoring, have gained traction in recent years, a large financing gap persists.
We are pleased to continue our engagement on this issue with a broad range of countries, as we work to identify and develop effective, innovative, successful and country-tailored approaches for the implementation of the G20/OECD Principles.
In conclusion, we still have a lot to do to create the conditions for the diverse population of SMEs to access finance in the appropriate forms and terms. The OECD will continue to support governments in understanding SME financing trends and developing appropriate policy responses, as a part of our broader quest for better policies for better lives.