The Future of SME Finance Gerhard Huemer UEAPME Director Economic and Fiscal Policy 3 rd SME Summit Luxemburg, April 23, 2004

Introduction n economic restructuring and innovation => needs investment n better qualification and developing new markets => needs investment n creation of more and better jobs => needs investment é SMEs are ready to invest, but ê access to finance – main complain of SMEs SMEFINANCESMEFINANCE

Changes in the Finance sector n globalisation and internationalisation n mergers and restructuring n economic situation of some finance companies n Basel II n new State Aide rules SMEFINANCESMEFINANCE

Changes in Finance Sector results à in higher risk awareness of banks à the introduction of rating systems à the loss of personnel relations between SME owner and decision-maker in banks à decrease of transparency for SMEs à higher costs due to previous losses and higher administrative burdens SMEFINANCESMEFINANCE

SMEs have to face î the introduction Basel II î new obligations resulting from rating î higher credit costs î loss of personal contacts – soft factors è all of them endanger access to finance and increase the uncertainty of SMEs SMEFINANCESMEFINANCE

Policy actions are required n to make credits and loans for SMEs available n to reduced the administrative costs or Basel II for small / SME banks n to strengthen the capacity of SME to build risk capital n to increase the availability of external risk capital for SMEs n to strengthen the confidence of SMEs regarding access to finance SMEFINANCESMEFINANCE

UEAPME activities n Basel II consultation process with Basel Committee, Commission and Parliament n Basel II dissemination conferences n extending the credit guaranty schemes n increase the transparency of risk assessment and rating systems – Code of Conduct n to strengthen the confidence of SMEs regarding access to finance n elaboration a comprehensive approach for a better Future in SME finance SMEFINANCESMEFINANCE

Open list of proposed policy measures n SME friendly implementation of Basel II => administrative burdens for smaller Banks => partial use of the IRB approach n extension of credit guaranty schemes for SME credits and SME portfolios n ensuring the transparency of rating systems => SMEs should not be confronted with a „Black Box“ n tax reforms to allow SMEs to build-up risk capital n establishment of a market for SME venture capital SMEFINANCESMEFINANCE