The government will be allocating €15 million to the latest SME funding initiative, considerably more than what it had allocated to the popular Jeremie initiative.
Since the amount guaranteed by the government could be leveraged by the financial intermediary, it could result in anything from €60 million to €90 million of loans.
BOV had decided to leverage the guarantee put up by the government for Jeremie – €10 million originally, with another €2 million put up later, by almost six times. During the period of the instrument, over 700 loans were granted, amounting to €62 million.
The SME Initiative is closely linked to the original Jeremie, and will be based on the same concept of a guarantee that frees up banks to offer loans to SMEs with less collateral requirements.
The government is currently awaiting final approval of its operational programme proposals and the tender will soon be launched by the European Investment Fund (EIF) asking for proposals from financial intermediaries.
“Only Bank of Valletta was chosen for Jeremie but it is probable that more than one provider will be selected for the SME Initiative,” Parliamentary Secretary for EU Funding Ian Borg said.
The scheme should be ready to launch by around June 2015, and will draw on various EU funds (European Regional Development Fund and European Agricultural Fund for Rural Development), including Cosme and Horizon 2020.
It is probable that more than one provider will be selected for the SME Initiative
“The SME Initiative was put forward by the European Commissioner for Regional Policy, Johannes Hahn, in an effort to transport cohesion policy into an EU-wide investment strategy. The days of unconditional money like grants and ‘blank cheques’ for regional policies are over,” Dr Borg said.
“Over the years we have seen fewer grants and more financial instruments.”
Most member states prefer to have a mix but Dr Borg is sceptical about grants as he is concerned that the award criteria are often very subjective. In fact, Malta is one of the few member states pursuing this SME initiative at the moment.
“I believe that this initiative is more transparent and more accountable, especially since it is handled through a regulated financial intermediary,” he said.
The most important difference from the original Jeremie is that more of the risk is being transferred from the bank to the government, as the guarantee on the borrowed amount is going to be raised from a maximum of 23 per cent of the total to 80 per cent.
Additionally, the financial intermediaries will also be obliged to allocate around one fifth of the total towards innovation.