20 November 2015

G20/OECD high level principles on SME financing

These high level principles are addressed to G20 and OECD members and other interested economies, to support their efforts to enhance access to a diverse range of financing instruments by SMEs, including micro-enterprises, and entrepreneurs.

1. Identify SME financing needs and gaps and improve the evidence base

[...] Efforts should be placed on improving statistical information on SME financing, particularly in developing economies, where a lack of reliable evidence constrains policy design, implementation and assessment. This calls for cooperation at the national and international levels (including through an expansion of the OECD Scoreboard on Financing SMEs and Entrepreneurs) to increase transparency regarding definitions, improve the comparability of data and indicators, within and across countries , facilitate international benchmarking and regulatory coordination, and shed light on outstanding financing gaps and issues.

2. Strengthen SME access to traditional bank financing.

[...] Measures may include credit guarantees, securitization , credit insurance and adequate provisioning for loan losses. Risk mitigation measures should be strengthened, making use of new technologies and mechanisms for underwriting risk. Effective and predictable insolvency regimes should ensure creditor rights while supporting healthy companies and offering a second chance for honest entrepreneurs. Likewise, SMEs should be afforded credit on reasonable terms and with appropriate consumer protection measures in place. Policy makers should consider enabling SMEs to use a broader set of assets beyond fixed collateral, such as movable assets, to secure loans. The feasibility of expanding the use of intangibles as collateral should be carefully considered, to ease access to lending particularly by knowledge-based companies, while taking into account potential risks. The use of credit information should also be enabled to improve risk management for lenders and access for borrowers.

3. Enable SMEs to access diverse non-traditional financing instruments and channels

[...] Assetbased finance could be fostered to enable young and small firms to access working capital on rapid and flexible terms, as well as supply chain and trade finance to support their integration in global value chains. Alternative forms of debt could be cultivated to enable SMEs to invest, expand and restructure. Adequate policy attention should go to the development of hybrid tools and equity instruments to strengthen SMEs’ capital structure and boost investment in innovative start-ups and high-growth SMEs. Special consideration should be given to venture and private equity financing, including capital for seed, early and later stage investments, as well as to trade finance instruments.

4. Promote financial inclusion for SMEs and ease access to formal financial services, including for informal firms

[...]Financial inclusion is an important tool to reduce informality, and national financial inclusion strategies should include reviewing the legal and regulatory framework of the financial sector; defining a public intervention strategy and identifying appropriate delivery instruments; and ensuring the existence of tools for groups excluded from the formal banking sector. [...]

5. Design regulation that supports a range of financing instruments for SMEs, while ensuring financial stability and investor protection

[...] Regulations should be proportionate to the risks of different financing instruments. Efforts should be made to avoid undue administrative burdens (including through digitalisation), cut red tape and facilitate bankruptcy resolutions. Particularly in the equity space, flexibility provided to SMEs should be compatible with investor protection, integrity of market participants, corporate governance and transparency. Good corporate governance in SMEs should be encouraged, to enhance their access to equity markets. [...]

6. Improve transparency in SME finance markets

[...] Information infrastructures for credit risk assessment should aim to support an accurate evaluation of the risk in SME financing. To the extent possible and appropriate, credit risk information should be standardised and made accessible to relevant market participants and policy makers to foster both debt and non-debt SME financing instruments. [...]

7. Enhance SME financial skills and strategic vision

[...] SME managers should be encouraged to devote due attention to finance issues, acquire skills (including digital skills) for accounting and financial and risk planning, improve communication with investors and respond to disclosure requirements. Efforts should also aim to improve the quality of start-ups’ business plans and SME investment projects, especially for the riskier segment of the market. [...]

8. Adopt principles of risk sharing for publicly supported SME finance instruments

Public programmes for SME finance should help catalyse and leverage the provision of private resources, especially in risk capital markets. Under certain conditions, public schemes can be effective in kick-starting the offer of financing tools for SMEs. Nevertheless, leveraging private resources and competencies may be essential to enhance the resilience of SME financing in the face of rapid economic and regulatory change. Policies should aim at encouraging the participation of private investors and developing appropriate risk-sharing and mitigating mechanisms with private partners which ensure proper functioning of public measures, including the allocation of government resources to their most efficient use. Policies should also be designed to avoid “moral hazard”, i.e. excessive risk-taking against the public interest, and potential crowding-out effects. [...]

9. Encourage timely payments in commercial transactions and public procurement

Timely payments in Business to Business (B2B) and Government to Business (G2B) transactions could be encouraged to enhance the cash flow of small business suppliers. [...]

10. Design public programmes for SME finance which ensure additionality, cost effectiveness and user-friendliness

The design of public programmes to enhance SME access to finance should ensure financial and economic additionality, along with cost effectiveness. Policy coherence across levels of government and between government and non-government bodies dealing with SME finance should be pursued, based on reliable evidence. [...]

11. Monitor and evaluate public programmes to enhance SME finance

Monitoring and evaluation of policies to ease SMEs’ access to finance should be promoted. Ex ante and ex post evaluation should be performed regularly based on clearly defined, rigorous and measurable policy objectives and impacts and in co-operation with financial institutions, SME representatives and other stakeholders. [...]

Full publication

© G-20