OECD High-level Conference on "Better Financing for Entrepreneurship and SMEs"
27-30 March 2006, Brasilia (Brazil)
Access to financing continues to be one of the most significant impediments to the creation, survival and growth of SMEs, including innovative ones, especially in time when enterprises operate in environments of high complexity and rapid change.
SMEs form a broad spectrum as far as their relative size, sector of activity, seniority, location and performance are concerned. They can be innovative and growth oriented or basically subsistence-driven. Depending on the enterprise’s characteristics and stage of business creation and development, the financing needs and sources (e.g. family, banks, equity, etc.) are likely to differ.
SMEs tend generally to have a high risk profile for a number of reasons: e.g. absence of track records, informational asymmetries, shortage of assets and collateral, insufficient management skills. Additionally, the disproportionately high administrative costs in relation to the financing amounts involved, as well as uncertainties about future performance generally make SME financing unattractive to potential funding sources.
When SMEs are able to raise capital, they may still encounter higher interest rates, as well as credit rationing due to shortage of collateral. Consequently, SMEs experience difficulty in accessing long-term credit and risk capital, which are necessary for starting up, expanding or upgrading a business.
Financing issues vary at different stages of business development, as well as country development. But overall, the greater variability in the perceived prospects for profitability, survival and growth of SMEs, compared to larger firms, accounts to a large extent for their specific problems with regard to financing.
At the 2nd OECD Ministerial Conference on SMEs held in Istanbul, Turkey in June 2004, Ministers recognised, in the Istanbul Ministerial Declaration,
“The need to improve access to financing for SMEs on reasonable terms. While SMEs’ financing requirements differ at each stage of their development, policies should aim to ensure that markets can provide financing for credit-worthy SMEs and that innovative SMEs with good growth prospects have access to appropriately structured risk capital at all stages of their development. Policies should also contribute to increasing the managerial and technical expertise of those intermediaries whose role is to evaluate and monitor companies with a view to matching expanding small firms with investors.”
Ministers underlined the importance of this issue by encouraging the OECD to organise a thematic conference in order to further discuss and seek more innovative solutions, and/or initiatives for facilitating SME access to the financing, from creation to all stages of development.
In pursuit of these objectives and at the invitation of the Brazilian Ministry of Development, Industry and Foreign Trade, the OECD Working Party on SMEs and Entrepreneurship (WPSME), in co-operation with the Committee on Financial Markets (CMF), organised a high-level global conference on Better Financing for Entrepreneurship and SME Growth, held in Brasilia (Brazil) on 27-30 March 2006 in the framework of the OECD Bologna Process on SME and Entrepreneurship Policies.
Recommendations from the conference are included in the OECD Brasilia Action Statement.
The outcomes of the conference were published in two volumes:
The SME Financing Gap (Vol 1), Theory and Evidence
The SME Financing Gap: (Vol 2). Proceedings of the Brasilia Conference, 27-30 March 2006
. The OECD Bologna Process on SME & Entrepreneurship Policies, i.e. the follow-up to the first OECD Ministerial Conference on SMEs held in Bolognain June 2000, is a mechanism to foster the entrepreneurship and SME agenda at the global level. It involves at present more than 80 economies, including all OECD countries and APEC economies, and a number of African and Latin American countries, including Brazil. Its aim is to help governments design policies to assist entrepreneurs and SMEs worldwide to meet the challenges and reap the benefits of globalisation. The OECD enjoys an undoubted edge in this domain, as the only institution that effectively deals with these issues horizontally and applying a global perspective and approach.