WASHINGTON--(BUSINESS WIRE)--New report findings presented today by Bain & Company and the Institute of International Finance (IIF) at the IIF 2013 annual conference in Washington D.C. calls for the creation of national taskforces in Europe, working in coordination with the European Commission, to implement a series of tailored proposals aimed at reviving lending and equity to European SMEs, which have seen major declines in financing since the onset of the financial crisis in 2008.
European SMEs have “pulled apart” since 2008, creating a spectrum of “high potential” SMEs that operate in specialized niches, have globally competitive cost structures, make significant investments in R&D or new technologies, and are often export-oriented or part of global supply chains. Challenged and over-indebted SMEs can often be found in specific sectors such as construction, real estate-related services and hospitality, although even in these sectors clear winners have emerged. Each group requires tailored solutions to help unlock needed access to capital.
“SMEs in Europe account for two of every three jobs and 58 percent of gross value added, but the healthy, growing SMEs are starving for the financing necessary to fuel job creation and economic growth,” said John Ott, senior Bain partner and co-author of the report ‘Restoring Financing and Growth to Europe’s SMEs’. The report notes that SMEs are very different across Europe. For instance, a typical German SME is twice as large as its counterparts in Italy and Spain and has typically separated ownership from management of the SME. In a number of European countries, there are strong cultural reasons to maintain control of the SME by combining family ownership and management, hence SMEs are typically smaller in those countries. “As such, a one-size-fits-all solution will not work, so European institutions should enhance the sharing of the many innovative market-based initiatives we’ve observed across the continent that are helping SMEs gain access to much needed capital, as well as fund good ideas and provide semi reports on progress across the Eurozone,” continued Mr. Ott.
The report is based on 140 interviews with a broad cross-section of key stakeholders in France, Italy, Spain, the Netherlands, Portugal and Ireland. In the six countries reviewed, new bank lending to SMEs (using loans of less than €1 million as a proxy) declined by 47 percent since the pre-crisis peaks. Declines from the peaks range from 21 percent to 45 percent for Italy, the Netherlands, France and Portugal, and lending dropped by 66 percent for Spain and 82 percent for Ireland.
Bain and the IIF identified a large number of national and European initiatives to address SME financing since the crisis in 2008 -- although progress has been decidedly mixed, according to the interviews. “Many of the interviewees wanted to ensure that this effort drove results this time not just another report,” added Mr. Ott.
To that end, Bain and the IIF identified four inter-related impediments revealed from its stakeholder interviews:
1. Information about SME creditworthiness and potential is too costly and difficult to obtain
2. SMEs face many disincentives to achieving greater scale to be competitive and financially healthy
3. Banks are able to shoulder less credit risk than before the crisis
4. Alternative funding providers face many barriers to financing SMEs
While these four impediments to SME health and potential were common across Europe, the relative importance of each impediment differed widely by country and by the health of the SMEs in that country. This finding is central to the report’s primary recommendation for a call to the European Council for a coordinated European process to be established, steered by the European Commission (with participation of the ECB, EIB and EIF) and focused on technocratic, nonpartisan national taskforces. The report recommends four broad solutions to address the SME financing impediments, customized to the country- and sector-specific issues:
- Create low cost, accurate, comprehensive, timely, easy-to-access information for and about SMEs. Addressing this impediment is central to addressing the other three impediments
- Reduce administrative, legal, tax, accounting, regulatory, and other burdens on all SMEs, focus limited official resources on high potential SMEs and supporting the legal and financial restructuring of challenged SMEs
- Provide short-term support to help banks make more funding available through guarantee schemes and credit insurance; provide support to banks and other groups to restructure loans to struggling SMEs
- Foster a “funding escalator” of a variety of alternative financing products (both debt and equity) for start-ups to mature SMEs; foster the eco-systems of players to source, structure, warehouse, rate, and invest in alternative SME funding products
“We are proposing a systematic approach to finding specific solutions to each impediment within each market, and to sharing ‘best-practice innovations’ across the EU to ease SME financing impediments,” said Jeffrey Anderson, Senior Director for European Affairs for the IIF and co-author of the report. “These steps should help Europe assure better information about a broader base of stronger SMEs, underpinned by improved access to more lenders and investors able to provide the financing SMEs need to prosper and grow.”
For a copy of the report, ‘Restoring Financing and Growth to Europe’s SMEs,’ or to schedule an interview with John Ott or Jeffrey Anderson, please contact Cheryl Krauss at email: firstname.lastname@example.org or +1 646-562-7863, or Frank Pinto at email: email@example.com or +1 917-309-1065, or Andrew DeSouza at email: firstname.lastname@example.org or +1 202 857 3602.
About Bain & Company, Inc.
Bain & Company is the management consulting firm that the world's business leaders come to when they want results. Bain advises clients on strategy, operations, technology, organization, private equity and mergers and acquisition, developing practical insights that clients act on and transferring skills that make change stick. The firm aligns its incentives with clients by linking its fees to their results. Bain clients have outperformed the stock market 4 to 1. Founded in 1973, Bain has 50 offices in 32 countries, and its deep expertise and client roster cross every industry and economic sector. For more information visit: www.bain.com. Follow us on Twitter @BainAlerts.
About Institute of International Finance
The Institute of International Finance (IIF) is a global association of more than 470 financial institutions. Its mission is to support the financial industry in the prudent management of risks, including sovereign risk; the development of sound industry practices and standards; and the advocacy of regulatory, financial and economic policies that are in the broad interests of its members and global financial stability. Within its membership the IIF counts leading global banks, insurers, pension funds, asset managers and sovereign wealth funds, as well as leading law firms and consultancies. More information about the Institute of International Finance is available at www.iif.com.