21/04/2017 - Lending volumes and credit conditions for small and medium-sized enterprises (SMEs) have gradually improved, according to a new report from the OECD, but demand-side obstacles such as a lack of financial knowledge are contributing to 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.
Financing SMEs and Entrepreneurs 2017: An OECD Scoreboard provides comprehensive data on debt, equity, asset-based finance, solvency and framework conditions, complemented by an overview of policy measures to ease SMEs’ access to finance in 39 countries. The 2017 edition of this annual publication was launched by OECD Secretary-General Angel Gurría and Pier Carlo Padoan, Minister of Economy and Finances of Italy, in Washington on the margins of the IMF/World Bank Spring meetings on 20-21 April.
“SMEs are an important engine to pull our economies out of the current low growth trap, revive productivity growth and reduce inequalities,” Secretary-General Gurría said during the presentation of the Scoreboard. “We need a comprehensive strategy for SME development, with policies that tackle both demand- and supply-side obstacles to expand the range of financing instruments available to SMEs and reduce their vulnerability to changes in credit markets.” [Read transcript]
Minister Padoan welcomed the OECD Scoreboard as a contribution to Italy’s G7 Presidency and remarked that SMEs are critical players in the efforts to achieve inclusive growth. “In order to continue to drive innovation and competitiveness, SMEs and entrepreneurs need the right forms of financing that will enable them to adapt to and thrive in the context of the next production revolution”.
The sixth annual edition of the OECD Scoreboard highlights developments in SME financing over the 2013-15 period. Overall, lending to SMEs increased, as illustrated by a rise of 6.4% in 2015 in the median value of new lending to SMEs. SME interest rates are at record lows, and credit conditions generally remained accommodative, although the difference in interest rates paid by SMEs and larger firms has continued to widen, reaching a spread of 1.4 percentage points in 2015. In addition, declines in B2B payment delays and bankruptcies could be observed in a majority of participating countries by 11% and 9% respectively in 2015 (median values).
Nonetheless, the recovery in SME lending is not running at full speed, held back by weak demand for credit. In a number of countries, 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.
At the same time, many SMEs remain very reliant on bank debt. The uptake by SMEs of non-bank sources was mixed, with venture capital investments down in most countries. Other sources of finance, such as leasing, equity crowdfunding and peer-to-peer lending, increased in 2015, but often from a low base. 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, the report says.
A special chapter in this year’s Scoreboard focuses on challenges which are limiting SME uptake of non-bank finance instruments and how to address them. 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, along with regulatory impediments. Policy must tackle these demand and supply side issues in tandem in order to be effective.
To find out more about the OECD’s work on SMEs and entrepreneurship, please visit: www.oecd.org/cfe/smes.
For more information on the OECD Scoreboard, contact Miriam Koreen, Deputy Director of the Centre for Entrepreneurship, SMEs, Local Development and Tourism at the OECD or the OECD Media division (+33 1 4524 9700).
Working with over 100 countries, the OECD is a global policy forum that promotes policies to improve the economic and social well-being of people around the world.