The latest case study published by fi-compass presents a First Loss Portfolio Guarantee (FLPG) fund implemented in Malta from 2011 to 2015 for small and medium sized enterprises (SMEs).These types of businesses play a predominant role in the Maltese economy, with SMEs accounting for 99.8% of companies and 79% of jobs in the country. Access to credit for SMEs had been difficult in the recent past.
In order to help redress these business development challenges experienced by Maltese SMEs, the Government of Malta, represented by the Ministry of Finance, the Economy and Investment established a financial instrument using opportunities offered by the JEREMIE initiative. The Ministry signed a funding agreement with the European Investment Fund (EIF), which established a JEREMIE Holding fund. Thereafter, a financial intermediary, Bank of Valletta, was selected by the EIF, through a competitive call for expression of interest, to build a portfolio of SME loans thanks to the FLPG issued by EIF.
Implementation details for this FLPG are reviewed in the fi-compass case study. Content highlights how the financing package for SMEs was designed using EUR 10.2 million of co-finance from the European Regional Development Fund. This helped to guarantee a loan portfolio of EUR 62.6 million (a multiplier of six) and the total investment (including contributions from SMEs) reached more than EUR 103 million.
Interesting points from the case study describe how Bank of Valetta’s business finance department selected SMEs using a scorecard and price matrix analysis. Loans were provided at below-the-market interest rates (with an average discount of approximately 1% compared to regular commercial loans). What’s more, borrowers had to offer less collateral than what normally the Bank would require. All loans approved by Bank of Valetta under this scheme were backed by an EIF-managed portfolio guarantee.
By March 2015, the instrument had supported 760 projects in 650 Maltese SMEs. The scheme’s success was in part attributed to effective marketing and promotion to final recipients by the Bank of Valletta. This included press articles in national media, intensive use of online and printed marketing as well as dedicated workshops. Seminars involving organisations like the Chamber of Commerce, Malta Hotels and Restaurants Association, the General Retailers and Traders Union and accounting firms also proved to be very useful, as they in turn promoted the scheme to their members.
See the new Maltese SME case study on www.fi-compass.eu for full details about this SME instrument. Further resources on the fi-compass website concerning SME finance include (among others): guidance on ex-ante assessment for SME-related financial instruments; and information about the SME initiative, which Malta is among the first Member States to invest in.