Remarks by Angel Gurría
Mexico City, Mexico, 21 February 2018
(As prepared for delivery)
Minister Guajardo, Distinguished Guests, Ladies and Gentlemen:
It is my pleasure to present the 2018 OECD Scoreboard on Financing SMEs and Entrepreneurs. This is the seventh edition of our annual flagship publication, which now covers 43 countries. I’d like to thank Minister Guajardo for his support on this important topic.
Today’s launch could not be more timely! As we speak, Ministers and senior officials from more than 60 countries and international organisations are gathering here in Mexico City ahead of the 2018 OECD Ministerial Conference on SMEs. Over the next two days, we will explore measures to build a dynamic global SME population and foster entrepreneurship for stronger, more sustainable and more inclusive growth.
SMEs and entrepreneurs are the backbone of our economies and societies. In the OECD area, they generate 60% of total employment and between 50% and 60% of value added. Longstanding challenges in SME access to finance, however, persist in many countries. Without finance, SMEs face challenges in starting and growing their businesses, going international, and seizing the opportunities of the digital revolution.
In this context, the annual OECD Scoreboard plays a crucial role in helping to fill knowledge gaps in SME finance trends and conditions. It also supports governments to take actions on SME finance and is helping to strengthen the culture of evaluation of SME financing policies.
Our 2018 Scoreboard identifies several positive developments, but it also cautions that more effort is needed to diversify SME finance and address financing gaps for specific types of firms.
Let me outline some of its main findings.
First, the Scoreboard recognises that SMEs in OECD countries are benefiting from a more positive business environment. In 2016, bankruptcies fell in a majority of OECD countries for the fourth consecutive year. In Australia, for instance, the bankruptcy rate fell by more than one third between 2012 and 2016. Over the same period, bankruptcies almost halved in Portugal. The number of bankruptcies in Japan has fallen for 6 consecutive years, and in 2016 reached their lowest level in 26 years.
Non-performing loans are also lower than they were in the period following the financial crisis. In countries as diverse as Estonia, Korea and the United States, SME non performing loans fell by more than half between 2009 and 2016.
Survey data also point to more accommodating credit conditions, such as declining SME interest rates. In Spain, for example, the interest rate charged to SMEs fell by more than 50% between 2011 and 2016 (from 5% to 2.4%). In Mexico, interest rates fell by more than 2% over the same period, and fewer SMEs report having to provide a security interest to obtain a bank loan. Loan rejection rates are also falling in many countries.
Despite this positive news however, important challenges continue to dog SMEs. The Scoreboard reveals that new lending to SMEs decreased in many countries in 2016. In the United Kingdom, for example, new lending fell by -4.1% year on year. In the Netherlands, the drop was even more significant at -17.1%. This took place in a period of healthy economic growth and relatively loose credit conditions in both countries.
We need to understand better what drives the general trend of declining new loans, and to what extent it is a barrier to SME growth. For some countries, weak demand for credit, linked to sluggish investment, can explain the decline. In Italy, for example, weak credit demand reached a low in 2016; while in Greece, the drop in loans may be attributed to both risk aversion in the financial sector and very high levels of non-performing loans.
In the face of these challenges, SMEs are increasingly turning to other types of financing. Volumes of asset-based financing, such as leasing and factoring, have been rising. In France, for example, in 2016 leasing and hire purchase volumes were up by a third compared to 2014; in China, they almost doubled over the same period.
For the first time since the financial crisis, venture capital investments have also been rising in the majority of countries for which data are available. In addition, financing through crowdfunding and other alternative online sources of finance continues to grow at an exponential rate. While volumes remain modest in most countries, online alternative finance has become an established feature of SME finance markets in countries such as the United Kingdom, the United States, and especially China, where more than USD 240 billion was raised in 2016.
This diversification of financing instruments is important because many SMEs remain over-reliant on bank credit, and some SMEs – such as innovative fast growing firms, or start-ups and micro-enterprises – continue to face financing constraints, holding back their development.
The OECD and many governments have long acknowledged the importance of stepping up efforts to increase SME take-up of diverse financing instruments. For example, the Bologna Charter on SME Policies, adopted 18 years ago, recommended the development of market mechanisms to facilitate equity financing for SMEs.
In this respect, here in Mexico 40 public-private venture capital funds were established since 2013. In addition, government grants, co-investment schemes, incubator and accelerator programmes have been set up to fund high-potential ventures, often coupled with mentoring and counselling services to beneficiaries. Canada and Sweden have also boosted their support measures to enhance access to finance for innovative and growth-oriented businesses.
The evolving landscape in SME Financing is encouraging governments to step up their policy efforts. The implementation of the G20/OECD High-Level Principles on SME Financing – which underline the importance of access to both bank and non-bank sources of finance – is one example.
Our host country has been making the most of this two-pronged policy approach. The credit guarantee scheme and other measures taken by INADEM (Mexico’s National Institute of Entrepreneurs) have likely contributed to the impressive year-on-year expansion – around 14% – of the outstanding stock of SME loans between 2012 and 2015 in Mexico.
Another emerging policy trend is the introduction of comprehensive policy reforms to address the needs of innovative start-ups, combining financial and non-financial support. Chile, Georgia and Italy have all established start-up programmes in recent years. Moreover, China, France and the United Kingdom have taken initiatives to seek to address regional disparities in SMEs access to finance.
Looking ahead, the OECD Scoreboard will continue to identify new developments, including in areas such as capital market financing for SMEs, supply-chain financing, crowdfunding and blockchain technologies. It will also focus on specific segments of the SME population, such as micro-enterprises, women entrepreneurs, young firms, start-ups and innovative ventures.
Minister Guajardo, Ladies and Gentlemen:
Financing SMEs is like injecting life into our economies. It is clever energy to fuel inclusive growth. SMEs are essential for the redistribution of opportunities and the reduction of inequalities. It is therefore crucial to keep improving their access to finance. To do this, we need to improve the evidence base, with reliable disaggregated data that captures the heterogeneity of the SME population. This is what the OECD is trying to do with this Scoreboard. We will keep supporting governments to design, develop and deliver better SMEs policies for better lives. Thank you.