In these stormy times, improving SME policy is high on our agenda. SMEs are important drivers of growth, jobs and social cohesion but because of the global crisis they face more and more financing constraints.
In 2008-2009, they suffered a double shock: a drastic drop in demand for the goods and services they provide, and, on top of that, a credit crunch. These events have had a serious effect on SMEs’ cash flows and liquidity. Many of them were forced into bankruptcy, thus contributing to record levels of unemployment in many European countries.
In my opinion, SMEs and entrepreneurs are the core of European economic recovery. Investments must continue to flow to these businesses because they can create growth and jobs. Therefore, it is imperative that we address this recurrent structural problem in order to improve the well-being of our societies.
My main message today is twofold:
- Banks and SMEs need to collaborate in a constructive manner to regain mutual trust. Lending to SMEs must be at the heart of banking activities. SMEs, for their part, must be "investment ready". They should know how to sell themselves and their businesses to potential investors.
- The European Union and Member States must do their utmost to build a financial and regulatory framework that can stimulate this relationship.
To start with the first point let me remind you of the role of the banking system in the SME financing chain. Studies show that Bank lending is still by far the main source of access to finance for SMEs. But since the beginning of the financial crisis, SMEs have been particularly affected by tightening credit conditions. As a result, debt financing has become more expensive and difficult to obtain.
Money has been called the root of all evil, but also the thing that makes the world go round. Love it or hate it, an entrepreneurial business can’t live without it!
The Committee has always stressed that the first role of a bank is to provide access to funding and financial services to local business and citizens.
Banks have to understand the particular needs and preferences of SMEs. This begins with working to understand the market, and how it differs from both the retail and commercial segments. It is of big importance that banks change the way they do business and manage risk at each stage of the banking value chain. They should for instance be able to predict risk without only relying on financial information but rather using more tools such as credit scoring.
Improving SMEs’ access to finance is not only a question of enhancing and improving the supply side.
Many of the issues relate to the interaction between companies and financial institutions. We need now to overcome the communication hurdles between SMEs and finance providers. If banks need to go back to their normal job, by which I mean financing the real economy, I am convinced that SMEs have to be "investment ready" for their part.
In this context, SMEs sometimes need coaches, mentors, advisors to help them to develop a business plan, to explain the sources of financing or to understand investors’ requirements. A number of models for investment readiness programmes are already in place in some Member States. All these schemes form good practices. Today, I personally invite the SME organisations present with us to play a key role in disseminating them!
Let us now turn to another important EESC priority which is my second point. Improving relations between the banking sector and SMEs cannot work without clear involvement from European and national authorities.
As regards the European regulatory role, we all know that the banking sector environment is going through deep changes. Today, banks have to adapt to the post-crisis economic environment and to new domestic and international regulations.
That is why the Committee insists on good implementation of the Basel III regulation and its European incarnation, the CRD IV directive. What we definitely need is a system that shows that banking business models are sound; that their supervisors are well informed; and that the regulation that oversees them includes adequate safeguards to control risk.
Member States must play their role as well. EU governments' involvement in SME finance policy is crucial, especially when it comes to developing favourable taxation policy, stimulating private investment or boosting credit information facilities. In other words, government measures to promote SMEs should aim at making markets work efficiently and providing incentives for the private sector to assume an active role in SME finance.
Each good project must find a financier! Each entrepreneur must find adequate resources to help him achieve his dreams!
I will therefore conclude as follows. The EESC will continue to work with all interested parties to explore new strategies to facilitate access to finance for SMEs.
I believe that SMEs deserve our full support. They need to have unleashed their potential as drivers of European growth and employment.
I am sure that cooperative banks are actively engaged in participating in setting policies and making decisions according to that principle.