OECD welcomes the support provided by the Latvian government for access of SMEs to funding

15-04-2019

On 12 April, José Ángel Gurría, the Secretary-General of the Organisation for Economic Co-operation and Development (OECD), presented a Financing SMEs and Entrepreneurs 2019 report, which provides information on the latest trends in the access to finance and financing conditions for small and medium-sized enterprises (SME) in the OECD countries. The report covers information on the situation in 46 countries, including Latvia, over the period from 2007 to 2017 in the field of various financial market instruments.

 

In its report, the OECD welcomed the support provided by the Latvian government in access of SMEs to finance and existing state aid instruments, which allow small and medium-sized enterprises in Latvia to develop and successfully export their products to the world. The OECD has concluded that the most widely used source of funding in Latvia is investment in the share capital and short-term liabilities. However, the commercial banking sector also plays an important role in the financing of our SMEs, e.g., in 2016, approximately 20% of SMEs were financed by commercial banks, while 76% of all loans issued by commercial banks were diverted to financing of SMEs. Meanwhile, in 2017, the amount of venture capital investments increased significantly – by about 50% – to 120 million euro.

 

“The main conclusions of OECD show that we need to implement even more targeted activities to improve the business environment and to develop SME support instruments, especially for fast-growing technology companies or start-ups, in order to promote further growth of the Latvian national economy, added value and innovation. We see that the aid already introduced by Latvia in the form of financial instruments for SMEs allows our entrepreneurs to compete in the world, but at the same time it is necessary to promote the production of products and services with high added value. We need to ensure the conditions, in which companies can grow rapidly in global markets while working in Latvia, and ensuring access to finance is essential here,” notes Ralfs Nemiro, the Minister of Economics.

 

In OECD countries, SMEs are the driver for the economy, generating up to 60% of added value and employing around 60% of employees. Access of SMEs to funding for the creation and development in the various phases of their business cycle is therefore an important element in ensuring strengthening of their productivity, sustainable growth and adaptation to global development trends such as digital economy, ageing of the population, globalisation, etc.

 

The 2019 report shows that there are four trends in access of SMEs to finance in the OECD countries:

  • the number and size of loan guarantee transactions are increasing, as well as the conditions for access are simplified in order to reach more effectively individual SME target groups, such as innovative companies, start-ups and female entrepreneurs. Loan guarantees remain the most widely used instrument to support SMEs;
  • national governments are increasingly looking for solutions to reduce late payments, such as the introduction of e-invoicing systems or payment codes;
  • more and more countries have established or improved regulation and policies to support fintech financial technology companies;
  • many countries have introduced or increased support for the venture capital industry.

 

OECD has concluded that overall the business environment and the macroeconomic situation are favourable for the development of SMEs. Thanks to 3.6% increase in global GDP, the amount of outstanding loans, delayed payments and the number of bankruptcy proceedings started by SMEs continue to reduce. In view of the favourable circumstances, between 2014 and 2017, the number of SMEs financing their investment and liquidity needs from their own funds, without borrowing, increased by almost 10%, and the total share of such SMEs was 44%. In addition, the number of long-term loans to SMEs continued to increase.

 

The main findings of the report show that in most OECD countries there is a slight increase, of about 5%, in commercial bank lending, but the situation varies considerably among countries. For example, in the United Kingdom and the United States, commercial bank lending to SMEs has decreased significantly due to the growing demand for alternative sources of funding – the volume of transactions in both factoring and leasing, venture capital investment and various sources of funding based on the digital environment, such as crowd funding, has increased.

 

Despite the overall favourable situation, OECD emphasises that, at the same time, SMEs still face difficulties in accessing finance, which has a detrimental effect on the emergence and growth of new businesses. This issue is particularly topical for start-ups, micro-enterprises and innovative businesses, and this is related to a variety of market gaps, such as increased business risks or insufficient credit history. Consequently, state aid programmes play an important role in supporting SMEs. The information included in the report reflects the efforts of the OECD to encourage and support national governments to implement initiatives to promote access of SMEs to funding and to ensure an evaluation of the effectiveness of the implemented policy initiatives.

 

The Financing SMEs and Entrepreneurs 2019 report is published on the OECD website.

Last update:    28-01-2020