Bank of Valletta is to provide €51 million in new loans to small businesses after formally signing a guarantee agreement with the European Investment Fund yesterday.
The First Loss Portfolio Guarantee, a new instrument to the local market, means the long-awaited micro-credit scheme aimed at facilitating access to finance for Malta’s smallest businesses, finally sees the light of day.
BoV beat two other financial institutions to administer the scheme in a tendering process.
Yesterday’s announcement brought a considerable extension to the original Budget 2010 pledge which aimed to set up a €10 million EU-financed fund. The scheme was earmarked for launch in April last year but met delays.
The guarantee is implemented under the Joint European Resources for Micro to Medium Enterprises, financed from European Union Structural Funds.
Finance Minister Tonio Fenech said yesterday the agreement was “good news” for both small businesses and the economy, particularly as the scope of support to firms had been extended from the original maximum of €25,000 to €500,000.
He stressed that the scheme would maintain its originally intended focus on micro enterprises despite its wider reach: 20 per cent of the fund was earmarked for firms with fewer than 10 employees and a turnover of not less than €2 million.
Loans will be made available to businesses at advantageous rates and with considerably lower collateral requirements.
Bank of Valletta has appointed a specialist team to administer the loan portfolio and will draw on its expertise, having already assisted businesses access more than €14 million in EU financing and co-financing over the past few years.
Albert Frendo, the bank’s chief officer, credit, said in-house research compiled recently with stakeholders within the business community had shown only 57 per cent of SMEs had sufficient financing to see their projects through.
Malta’s smallest firms faced a ‘financing gap’ in the local business culture where venture capitalists and business angels were practically non-existent and collateral requirements and debt pricing were often prohibitive.
The new funds were particularly suited to start-ups and small firms seeking growth or innovation. Firms could request loans for a variety of projects including green technology, initiatives to add value, or establishing online presences.
Fishing and agriculture were excluded from this scheme as there were other specific European programmes available to them. Firms involved in construction, real estate and transport were not eligible. Drawn over three years, the loans will be granted for capital expenditure not for working capital purposes. No one sector will take up more than a fifth of the fund.
€25 million will be made available in the first 12 months of the scheme, followed by a second tranche of €20 million, and a final tranche of €6 million.
European Investment Fund deputy chief officer Jean-Marie Magnette said yesterday JEREMIE differed from other programmes as it sought to use EU funding in a more innovative and efficient way than traditional grants. Designed to act as revolving finance, untapped guarantees provided by the programme could be preserved for future schemes as guarantees were only triggered in case of default.
In Malta, the JEREMIE Holding Fund is financed from the EU Structural Funds under the 2007-2013 Operational Programme ‘Investing in Competitiveness for a Better Quality of Life’, managed by the EIF.