Banking, the crisis and SMEs

A debate in which every Minister of Finance (and I speak here from experience) and State Secretary for Economic Affairs (ask Mona Keijzer) can rely on recurring once in a while is the debate in which members of parliament speak up for SME owners who are unable to raise sufficient finance. This is a very difficult debate to conduct, as it is very difficult to pinpoint exactly what the problem is. Is it because the entrepreneurs and their plans are inadequate? If so, why should they be entitled to finance from the banks? But nonetheless, despite all the obvious issues, you also have to try to get at the underlying problems. And you can see that it is more difficult for many SME owners to obtain finance in the Netherlands than in other countries. Then again, it is also clear that it is rather expensive for the banks to enter into a new credit relationship for relatively small loans. And we know that these effects are only intensified in times of an economic downturn or a crisis.

We describe this as a market failure, as the market clearly cannot address this on its own and we look at whether we can help the situation. Not by granting small loans ourselves, there are others who can do this much better than we can. But we can provide finance to these other parties so that they are better positioned to do their work in the market for smaller non-bank loans. This idea is now being put into practice in cooperation with the Ministry of Economic Affairs (the EZK) and the European Investment Fund. We and the EZK are each committing 50 million euros, the EIF is committing 100 million euros and with this 200 million euros we will (according to calculation by the EIF) raise a further 400 million euros from the market. The EIF will administer this Dutch Alternative Credit Instrument for us. This has at least three benefits:

• One: we will improve the availability of finance for SMEs.
• Two: our investment of public capital will mobilise private capital and use European facilities, exactly for the aims for which we were created.
• Three: we will benefit from the EIF’s good reputation in the market and also from professional fund management in the interest of public affairs.

I almost forgot the fourth point: now I can go on holiday. I wish you a great summer!

Wouter Bos
CEO Invest-NL