Together with Bank of Valletta officials, I recently had the pleasure to announce the launch of the new JAIME scheme aimed at giving SMEs the platform they need to invest and to expand. This is an initiative that we have been working on for the past two years.
It was in December 2013 when the European Commission together with the European Investment Fund (EIF) and European Investment Bank (EIB) completed an assessment which showed a market failure in the provision of finance to viable SMEs in the EU, including Malta.
To address this market failure, the Commission, the EIF and EIB set up a joint initiative – the SME Initiative – with the purpose of supporting SMEs though joint risk-sharing financial instruments to leverage private sector and capital market investments in SMEs.
The SME initiative contemplates the combination of different resources, blending European structural and investment funds, EU budget under the programme Horizon 2020, and the lending capacity of EIF and EIB.
In simple terms, through this initiative, we are making it possible for small entrepreneurs to benefit from soft loans in support of their business activities.
This is being made possible thanks to an initial allocation of €15 million of EU funds from the new multi-annual financial framework 2014-2020, which is expected to leverage over €60 million to help SMEs perform better.
Benefits are various. As a start, an interest rate reduction of more than two per cent will be applicable on JAIME loans when compared to normal market rates relating to such type of lending. Reduced collateral obligations will also be in place. Under normal business lending a bank seeks to fully secure its loans through extendible collateral. Under the JAIME financing package, the bank will seek to secure only 25 per cent of the total portfolio amount.
The underlying objective of these schemes is to improve access to finance for SMEs. These loan guarantees are used to stimulate lending by financial intermediaries, in this case together with Bank of Valletta, to entrepreneurs and small enterprises that normally would not have sufficient collateral to obtain a loan in order to invest and extend their business. This is done through the European Regional & Developmental Funds.
Financial instruments are the way forward. They present significant return on investment that may not be possible through cash and they can provoke sustainable activity. They can improve business productivity and create a spillover effect within the economy.
The underlying objective of these schemes is to improve access to finance for SMEs
The local SME environment is quite a particular one. The vast majority of enterprises in Malta employ very few people or else they operate as sole traders. Maltese family businesses make up the bulk of the Maltese economy and are one of the major employment generators.
We have also got a big share of persons within the working population in Malta that is employed by micro-enterprises. It is thus pretty clear that the development of SMEs goes hand in hand with the development and growth of the Maltese economy.
Despite that, we still have not had enough credit facilities being offered to SMEs to fully address their needs. At the same time, Maltese banks have lately increasingly become more prudent in terms of their risk management.
In the past two years, we have had a number of support schemes – some of which under the EU structural funds, others nationally funded – aimed at providing aid and facilitating financing to SMEs.
But the growth we are experiencing necessitates further initiatives.
The improved financing conditions that will be offered to SMEs will assist projects that would be normally turned down by banks at normal banking conditions.
We aim at creating a framework that will provide SMEs with a package of measures that can complement and synergise each other.
We are expecting increased access to finance, increase in entrepreneurship and investment; increased employment and business infrastructure.
At the same time, we expect SMEs to provide higher standards in their operations as well as enhance the employment opportunities they offer.
This what this government is all about. Creating opportunities. Building platforms. Giving people hope for a better future. Through this initiative we are giving SMEs the ability to raise enough capital to support their business venture.
We are giving them the opportunity to expand and to grow.
I am convinced SMEs will capitalise on that.
Ian Borg is Parliamentary Secretary for EU Funds and EU Presidency 2017.