2. Session 1 Arzeni OECD PPT

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ADB-OECD Workshop on Enhancing

Financial Accessibility for SMEs

2013/3/6 Session 1

1

Emerging Trends in SME and Entrepreneurship Finance:

Findings from the OECD Scoreboard

ADB - OECD Workshop on

Enhancing Financial Accessibility for SMEs

Manila, 6 7 March 2013

Mr Sergio ArzeniDirector of the OECD Centre for SMEs, Entrepreneurship & Local Development(CFE)

Overview

1. The SME Financing Gap

2. The monitoring challenge

3. OECD Scoreboard on SME andEntrepreneurship Finance: emerging trends

4. The impact of financial reforms

5. Government policies to support SME access tofinance

6. Key challenges ahead


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The SME Financing Gap

Financial deepening varies largely across regions

but access to finance is a common challenge for SMEso Debt financing limited by under-collateralisation

o Little access to venture and growth capitalo Cash flow shortages from late payments

exacerbated by the global crisis

Firms with line of credit from financial institution (%)

Source: IFC

Domestic credit to private sector (% GDP), 2011

Source: WB

SME Financing: the monitoring challenge

Policy makers and major stakeholders (e.g. financialinstitutions) lack the hard data necessary to:

Monitor SME financing trends and needs

Evaluate SME financing policies and programmes

Knowledge gap on:

- Supply of financeby (various) financial institutions

- Demand and use of financing by SMEs

- capital structure and destination of funding

- Effectiveness of government policies directly andindirectly affecting SME access to finance


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OECD Scoreboard on SME and Entrepreneurship Finance

o Launched in 2012 by the OECD Working Party on SMEsand Entrepreneurship (WPSMEE), the official OECD body

helping member and non-member economies develop policiesthat:

Foster entrepreneurship

Facilitate sustainable growth, competitiveness, and skilled jobscreation, and

Help their SMEs to meet the challenge of globalisation.

o Contributing to the G20 Global Partnership for FinancialInclusion


Objectives :

1. Provide a tool for policy makers to monitor SME access tofinance in a timely manner andjudge policy effectiveness

2.Highlight important economic and policydevelopments in SME finance

3.Identify and exchange on a regular basis good policy andpractices

4.Guide governments to assemble meaningful indicatorsand favour harmonization of definitions and datacollection methods

Tool for policy learningto become an international reference


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13 core indicators of debt, equity and frameworkconditions, 25 countries over 2007-2011

allocation of credit by size of firm

structure of SME debt (short vs long term)

unmet demand for credit by SMEs

conditions for SMEs access to credit (i.e., interest rates, collateralrequirements) relative to large firms

role that venture and growth capital play in SME financing

incidence of other cash flow constraints, such as payment delays

bankruptcy rates

Recent trends in SME finance: the Scoreboard evidence

Trends in SME loans, 2007-2011

Expanding Stagnating or contracting


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SME finance at crisis time

In many OECD countries, SMEs squeezed by: Drop in demand

Tougher credit conditions (shortened maturities,increases interest spreads, higher demand for collaterals)

Increased payment delaysby large firms and publicadministration

severeworking capital problems

Financing difficulties translated into solvencyproblems

Increases in non-performing loans

Surge in bankruptcy rates

Business and SME loans declined markedly

Lending to firms in Italy, 2005-2012Monthly data, 12 month percentage changes

Note: SME interest rates for loans less than EUR 1 million

Source: Financing SMEs and Entrepreneurs 2013 : An OECD Scoreboard

-8.0

-4.0

0.0

4.0

8.0

12.0

16.0

Small firms (less than 20 employees)Medium and large firms (at least 20 employees)


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SMEs were more severly affected through the

uncertain recovery

KoreaQuarterly, in KRW millions (left) and as a % of total business loans (right)


SMEs faced more severe credit conditions

Denmark France

Interest rates for SMEs and interest rate spread, 2007-11Annual, as a percentage

Note: SME interest rates for loans less than EUR 1 million


1.121.39

2.893.19

3.43

0

1

2

3

4

5

6

7

8

2007 2008 2009 2010 2011

I nter est r ate spr ead I nter est r ate, S ME s


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and increased collateral requirements

Canada% of Small businesses required and not required to provide collateral

Thailand

Value of collateral provided by SMEsAs a percentage of total SME business loans


Increased solvency problems and bankruptcy rates

Trends in Bankruptcies, 2007-11Annual, 2007 = 1.00


* SMEs only


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Venture and growth capital declined

late modest recovery

Venture and growth capital invested, 2007-11Annual, in EUR million and USD billion

Denmark USA


3230

20

23

30

25

19

910

11

0

5

10

15

20

25

30

35

2007 2008 2009 2010 2011

Venture capital Business angels

The impact of financial reforms

Basel III

Avoid future financial crises by increasing banks capitalrequirements and improving liquidity management.

Concerns that Basel III may result in restricted access tofinance for SMEs in the short-medium term, due to highrisk-weightings and rapid deleveraging by banks

January 2013: easing of rules to spur credit

Need to closely monitor the effects of the Basel IIIimplementation to ensure that stability does not put anundue break on business finance


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Response to the crisis: restore credit to SMEs Significant increase in scale and scope of existing guarantee anddirect lending programs

Implementation of new programmes to overcome informationasymmetry (e.g. credit mediation schemes, business advice)

Following liquidity shortages, measures to support workingcapital (reduction of payment delays, tax payment deferral)

Post-crisis policies: restore growth under

stringent public budget constraints Credit guarantee programs continued

Codes of conduct and lending targets for banks

Financing for growth (e.g guarantees to equity, mezzaninefinance)

Government policies to support SME finance

Key role of Public Financial Institutions

Market channels and Public-Private Partnership

Restoring growth and employment

Strengthening SMEs and reviving entrepreneurialdynamics

Boosting innovative entrepreneurship and addressing

the growth capital gap Fostering social inclusion and poverty reduction through

the SME sector

Improving the policy process

Design and implement effective policies under tightbudget constraints: leveraging resources

Improve instruments to monitor and assess policies

Diffuse best practices and sustain policy learning

Key challenges ahead


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THANK YOU

[email protected]

OECD CENTRE FOR ENTREPRENEURSHIP, SMEs &

LOCAL DEVELOPMENT(CFE)www.oecd.org/cfe

2. Session 1 Arzeni OECD PPT

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