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

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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

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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

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