SME and Entrepreneurship Access to Finance:

an OECD Scoreboard

MENA-OECD Investment Programme

Meeting of the Working Group on SME Policy, Entrepreneurship and Human Capital Development

Rome, 17 July 2012

Sergio Arzeni Director OECD Centre for SMEs, Entrepreneurship & Local Development (CFE)

SME Financing Gap in MENA Countries

Structural deficiencies o Credit maninly directed to public sector and large firms

o SMEs and micro firms are under-collateralised

o Cash flow shortages from late payments o Little venture capital for start-ups

Firms with loan/line of credit from financial

institution (%)

Source: IFC

Policies to improve SME access to finance

The experience across OECD and non-OECD countries

Easing cash flow

• Direct lending

• Loan guarantees

• Deferring or exempting tax payments temporarily

• Capping interest rates

• Credit mediation

• Reducing payment delays by the public administration

• Collateral reforms (movable assets)

Favouring long term equity investment

• Guarantees and tax incentives for equity capital

• Co-financing venture capital

SME Financing: the assessment challenge

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

• Monitor SME financing trends and needs

• Evaluate SME financing policies and programmes

Knowledge gap on:

- Supply of finance by (various) financial institutions

- Demand and use of financing by SMEs

- capital structure and destination of funding

- Effectiveness of government policies directly and indirectly affecting SME access to finance

SME and Entrepreneurship Financing

an OECD Scoreboard

Objectives of the Annual Scoreboard:

1. Provide a tool for policy makers to monitor access to finance in a timely manner and judge policy effectiveness

2.Highlight important economic and policy developments

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

4.Guide governments to assemble meaningful indicators and favour harmonization of definitions and data collection methods

Building a monitoring framework

2010: Pilot Scoreboard (11 countries)

methodological input to the G20 SME Finance Sub Group

2012: First Edition (18 countries) • 2007-2010

– pre crisis (benchmark) – crisis – recovery

• Thematic focus: Basel III and SME lending

2013: Second Edition (28 countries)

• Learning process: Refinement of indicators and policy review

• Thematic focus: role of public financial institutions

International reference on SME financing

The Criteria for Selection of Indicators

1. Availability: they must be based on existing data or

2. Feasibility: data that could be made available easily

3. Usefulness: they must assist policy makers in assessing the situation

4. Timeliness: they must be produced annually or quarterly to serve as a tool for monitoring

5. Comparability: they must cover the same target population of SMEs for the same time period; target population are firms that are non-financial and independent and have at least 1 employee

The ‘Core’ Indicators

DEBT

SME loans / business loans SME non-performing loans/SME loans

SME short term loans/SME loans SME interest rates

SME gov. guaranteed loans/SME

loans

Interest rate spreads (small vs. large

firms)

SME gov. direct loans/SME loans SME collateral

SME loans authorized/SME loans

requested

OTHER

SME payment delays

SME bankruptcies

EQUITY

Venture and growth capital

Business loans to SMEs and large firms

76%

78%

80%

82%

84%

86%

88%

90%

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2007 2008 2009 2010

Business loans, large firms Business loans, SMEs % business loans, SMEs

Korea Quarterly, in KRW millions and as a % of total business loans

-15

-10

-5

0

5

10

15

20

25

30

Mar 2008

Jun 2008

Sep 2008

Dec 2008

Mar 2009

Jun 2009

Sep 2009

Dec 2009

Mar 2010

Jun 2010

Sep 2010

Dec 2010

Mar 2011

Corporations All SMEs (Up to GBP 25m turnover) Small SMEs (Less than GBP 1m turnover)

United Kingdom Year-on-year percentage change, as a percentage

Source: Bank of England Trends in Lending July 2011 Source: OECD Scoreboard, 2011

10

l SME Interest rate and spreads, 2007-10 Quarterly, average SME interest rate and spreads between SMEs and large firm rates

0

1

2

3

4

5

6

7

8

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2007 2008 2009 2010

Interest rate spread Interest rate, SMEs

Denmark

1.04 0.96 1.070.64

0.86 0.96 1.051.36

0.961.31 1.18

1.391.63

1.36 1.43 1.46

0%

1%

2%

3%

4%

5%

6%

7%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2007 2008 2009 2010

Interest rate spreads (SME vs large firm) SME average interest rate

Italy

Source: OECD Scoreboard, 2011 Source: OECD Scoreboard, 2011

Collateral requirements

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

0%

50%

100%

150%

200%

250%

2007 2008 2009 2010

Collateral, SMEs Collateral, SMEs

Thailand

Value of collateral provided by SMEs As a percentage of total SME business loans

Non-performing loans

1.22%

1.89%

3.9%

3.47%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2007 2008 2009 2010

Non-performing loans, total

United States Annual, as a % of total loan stock

7.9%

6.85% 7.6%

7.3%

5.3% 5.4%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

2007 2008 2009

Non-performing loans, SMEs Non-performing loans, total

Thailand Annual, as a % of total business loan

Recommendations to improve

data collection and monitoring

• Require financial institutions

– to use the national definition for an SME, based on firm size

– to report on a timely basis to their regulatory authorities SME loans, interest rates, collateral requirements, as well as those loans that have government support

• Encourage international, regional and national authorities as well as business associations to work together to harmonise quantitative demand-side surveys

• Promote the harmonisation of Venture Capital definitions

OECD Scoreboard: How to participate

• Nomination of a country expert

• Typically specialised in SME finance statistics

• Access to data from different sources

• Coordination of the expert with the OECD Secretariat

– Identification of appropriate data sources

– Definitions and proxies

– Regular updates

THANK YOU

Sergio.Arzeni@oecd.org

CENTRE FOR ENTREPRENEURSHIP, SMEs & LOCAL

DEVELOPMENT(CFE)

www.oecd.org/cfe