Remarks by Angel Gurría,
Washington, USA, 21 April 2017
(As prepared for delivery)
Minister Padoan, Ladies and Gentlemen,
It is a pleasure to be here today to launch the 2017 OECD Scoreboard on Financing SMEs and Entrepreneurs. It is an honour to welcome Minister Padoan, an old friend of the OECD, here at our Washington Centre. And it is a very timely moment to take a closer look at the issue of SME finance.
SMEs are key players in national economies around the world, contributing to economic growth, employment - with about 70% of jobs in the OECD area - and generating between 50% and 60% of value added on average. As governments work to restore trust among citizens, reduce inequalities and pursue inclusive growth, SMEs must be an integral part of the solution.
To enable SMEs to make an even stronger contribution to and participate more actively in today’s globalised and digital economy, governments have to provide a level playing field across the business environment. However, we are not there yet, and nowhere is this more evident than in the area of SMEs access to finance.
The annual OECD Scoreboard on Financing SMEs and Entrepreneurs provides governments with information on the state of play regarding SME access to finance in 39 countries, along with recent policy developments in this area.
The main message of our latest report is that lending to SMEs continued to improve in 2015, but demand side obstacles are likely holding back a stronger recovery. Moreover, SME finance through non-bank instruments is still not sufficiently developed to meet the different needs of firms, and ensure resilience to changing economic conditions.
Allow me now to outline some of the key findings of this report, which we hope will guide the policy agenda going forward.
Overall, lending to SMEs increased moderately in 2015, with a few countries seeing significant improvements and others a slowdown. In Spain, for example, the volume of new SME loans rose by 12.2% in 2015 after 6 consecutive years of decline. On the other hand, in emerging economies, the previous rapid growth in outstanding SME loans decelerated in 2015.
The average interest rate charged to SMEs declined in 2015 for almost every Scoreboard country and was often less than half of 2008 levels, reflecting a very accommodative monetary policy almost across the board.
However, in the economies most affected by the financial and/or the sovereign debt crises, such as Greece, Hungary, Ireland, Portugal and Slovenia, interest rates were on average about one percentage point above the Scoreboard median. In addition, the spread in the average interest rates charged to SMEs and to large firms has widened considerably compared to the pre-crisis period, pointing to a higher risk aversion vis-à-vis SMEs. While in 2008, SMEs paid interest rates that were on average 15% higher than those for large enterprises (equivalent to a spread of 81 basis points), the spread has been on the rise since 2011, reaching almost 56% in 2015 (i.e. a spread of 140bps).
B2B payment delays and SME bankruptcies are generally down
In 2015, there was also a significant decline in business to business payment delays, which were down in more than two thirds of participating countries. In Portugal, for example, B2B payment delays averaged 21 days in 2015, down from 33 days in 2014, and compared to 40 days prior to the crisis.
SME bankruptcies also declined in close to two thirds of participating countries, and often stood below their pre-crisis level. These developments reflect an economic environment for SMEs that has generally improved.
Despite favourable conditions, the recovery in SME lending is not running at full speed. Our analysis suggests that demand for credit is relatively weak. In Denmark, France, Italy, the Netherlands and the United States, for example, demand for credit dropped in recent years, especially among micro-enterprises. This may stem in part from a lack of investment opportunities, which are positively and significantly correlated with new SME lending, but may also indicate that discouraged borrowers have ceased to seek bank finance.
New leasing and hire-purchase activities, an important source of finance for SMEs, increased by almost 17% in 2015, compared to 7.9% in 2014. Equity crowdfunding and peer-to-peer lending were also on the rise, but volumes remain limited in most countries.
On the other hand, factoring volumes, which had increased over the 2009-14 period, stagnated in 2015.
And while annual global venture capital investments were up by 14.2% in 2015, this increase was driven mostly by the 17% rise in the United States: this rapid expansion of venture capital in the most developed market for venture capital, with close to 60 billion USD in investments in 2015, actually masked declines in most other countries.
Overall, SMEs’ uptake of non-bank finance, especially from the capital market, remains structurally limited in most Scoreboard countries. As a result, small businesses continue to rely too heavily on straight debt, making them vulnerable to changes in the credit market. In the thematic chapter of the report, we identify a number of challenges holding back the development of non-bank finance instruments for SMEs. On the demand side, many entrepreneurs lack financial knowledge, strategic vision, and the resources to attract alternative finance instruments. On the supply side, potential investors are often dissuaded by the opacity of the SME finance market, a lack of investor-ready projects and limited exit options. Policy must tackle these issues in tandem in order to be effective.
Developing alternative financial instruments is especially important for those SMEs that still face difficulties in accessing bank finance, in particular start-ups, young firms and very small enterprises.
As in previous years, loan guarantees remain the most widely used instrument to ease SME access to finance, with continuous adjustments to address the changing conditions and needs of firms.
But there is also a growing effort to stimulate the use of alternative instruments, especially from the capital market. For example, Italy has taken action in this direction, including new regulation which allows equity crowd investment in innovative firms and “mini-bonds”, and the creation of the Italian Investment Fund (Fondo Italiano) to invest in growth-oriented SMEs. In addition, a stock market with tailored rules for SMEs has been established.
Governments, in Scoreboard countries, are also taking steps to facilitate financing instruments that can spur SME internationalisation and participation in global value chains, such as export credit insurance, trade credit, or innovative mixtures of private and public risk capital. In addition, supporting finance for female entrepreneurs has become an integral objective of many policies or programmes.
Ladies and gentlemen, SMEs are an important engine to pull our economies out of the current low growth trap, create jobs, revive productivity growth and reduce inequalities. The OECD is stepping up its work on SMEs and developing a cross-cutting approach to SME policy. Building on the SME finance Scoreboard, and on OECD’s analysis on innovation, skills, productivity and the business environment, we will continue to support governments in mobilising SMEs for the development of more resilient, sustainable and inclusive economies.