The Financing of SME:The model of Confidi for the Districts. Dott. Luciano Consolati coordinatore Fedartfidi Progetto GIFIP Novi Sad 29/09/2008

Articulation of industrial districts Raw materials Machinery Semi-finished SUPPLIERS Trust Job market SOCIAL CAPITAL Attitude Value Accessibility Transports Water purifying Building land INFRASTRUCTURECAPITAL Banks Designers Transports Agents PRIVATE SERVICE TYPICAL ACTIVITIES Sub contractors CUSTOMERS Markets Schools Trade associations SOCIAL SERVICES Services centres Consortiums Research Marketing ProductionSub contractors

Critical success factor in cluster development Networking partnership Innovative Technology Human capital Access to credit Presence of large firms Enterprise entrepreneurialism Physical infrastructure Specialist services Access to markets Access to business support services Competition Access to information Communications Leadership Virtual aspects/ICT External economic impacts Success Criteria

FINANCIAL Structure of SME -Leverage quite high; -Leverage quite high; - Rate between banking debts to financial debts too high (sometimes it is greater than 80%); - High dependency from the banking debt in the short term (often on account current) in comparison to the total bank debts; - High incidence of the financial burdens; - High implicit cost of the debt

The Italian model of Confidi The mutual guarantee system in Italy is very active: The mutual guarantee system in Italy is very active: 500 Confidi-mutual guarantee societies- operating in different sectors (industry, handicraft, commerce, agriculture) 500 Confidi-mutual guarantee societies- operating in different sectors (industry, handicraft, commerce, agriculture) small and medium enterprises small and medium enterprises million credit guaranteed by Confidi with an average insolvency of slightly more than 1,5% million credit guaranteed by Confidi with an average insolvency of slightly more than 1,5%

Definition of Confidi: Private institutions Private institutions Consortia or co-operative companies (as defined legally) without purpose of profit Consortia or co-operative companies (as defined legally) without purpose of profit Created by small entrepreneurs and sponsored by association of them Created by small entrepreneurs and sponsored by association of them Carries out an activity of mutual guarantee of credit Carries out an activity of mutual guarantee of credit

Mutual guarantee activity Financing activity, in the form of a guarantee service, developed by a Confidi, to facilitate the granting of credit to member enterprises; Financing activity, in the form of a guarantee service, developed by a Confidi, to facilitate the granting of credit to member enterprises; Obtaining additional credits further to the amounts of credit automatically received by each enterprise Obtaining additional credits further to the amounts of credit automatically received by each enterprise Obtaining lower interest rates as well as more transparent additional terms Obtaining lower interest rates as well as more transparent additional terms Making by banks focus the credit analysis on corporate profitability, rather than on the mere assessment of estate Making by banks focus the credit analysis on corporate profitability, rather than on the mere assessment of estate To practice this activity it is necessary to have: To practice this activity it is necessary to have: A guarantee fund A guarantee fund An agreement with one or more banks An agreement with one or more banks

Framework

Legal Form Cooperative or Consortium The co-operative is a form of association that is almost exclusively chosen by handicraft enterprises and is very common among traders. Conversely, the majority of "Confidi" among industrial enterprises is organised in consortia The co-operative is a form of association that is almost exclusively chosen by handicraft enterprises and is very common among traders. Conversely, the majority of "Confidi" among industrial enterprises is organised in consortia Currently, the choice between one form or another of association is up to the enterprises Currently, the choice between one form or another of association is up to the enterprises The regulation of co-operatives is more complex, they are governed by equal terms: each affiliate is entitled to one vote independently of its share value. The regulation of co-operatives is more complex, they are governed by equal terms: each affiliate is entitled to one vote independently of its share value.

Structure of the confidi Consortia and collective guarantee co-operatives are established directly by SMEs, which pay a share of the co-operative fund or share capital and participate in the establishment of guarantees Consortia and collective guarantee co-operatives are established directly by SMEs, which pay a share of the co-operative fund or share capital and participate in the establishment of guarantees The decision-making and administrative bodies of the consortia and co-operatives follow the lines of associative forms: shareholders meetings and board of governors or directors. Within these bodies, affiliate enterprises play a fundamental role, since they directly or indirectly – through their representatives – have the decision-making and administrative powers over the organisation The decision-making and administrative bodies of the consortia and co-operatives follow the lines of associative forms: shareholders meetings and board of governors or directors. Within these bodies, affiliate enterprises play a fundamental role, since they directly or indirectly – through their representatives – have the decision-making and administrative powers over the organisation

The risk fund: The power of Confidi The mutual guarantee that "Confidi" furnish to the banks with which they co-operate is governed by special agreements and is not based upon share capital (in the case of co-operatives) or co- operative funds (in the case of consortia), but rather on a monetary guarantee, called risk fund The mutual guarantee that "Confidi" furnish to the banks with which they co-operate is governed by special agreements and is not based upon share capital (in the case of co-operatives) or co- operative funds (in the case of consortia), but rather on a monetary guarantee, called risk fund The "risk fund" consists of money deposits in one or more banks that have signed an agreement The "risk fund" consists of money deposits in one or more banks that have signed an agreement

Public support to Confidi The most common form of intervention consists in assigning contributions aimed at increasing monetary guarantees ("risk fund") The most common form of intervention consists in assigning contributions aimed at increasing monetary guarantees ("risk fund") The interventions taken at a local level, within the framework of autonomous decision-making powers of the Regions as well as of Chambers of Commerce and other public entities, seem to be more consistent and more efficient than the national public support The interventions taken at a local level, within the framework of autonomous decision-making powers of the Regions as well as of Chambers of Commerce and other public entities, seem to be more consistent and more efficient than the national public support In addition some regional authorities have provided for the "Confidi" involvement in the development of support programmes aimed at enterprises and co- financed by EC structural funds In addition some regional authorities have provided for the "Confidi" involvement in the development of support programmes aimed at enterprises and co- financed by EC structural funds

The Regional Confidi In each region, Confidi are connected to their regional confidi that can offer: Counter-Guarantee Co-guarantee (EIF initiative Facility, growth and jobs, which was taken advantage of by our regional Confidi in Lombardy, Emilia Romagna, Tuscany and Umbria. This facility is being extended in 2004 to consortia in Piedmont, Marches and Calabria) Direct guarantee

The strenghts of Confidi The confidi have: information about enterprises information about enterprises funding of mutual guarantees funding of mutual guarantees they make preliminary investigations (less work for the banks = less costs) they make preliminary investigations (less work for the banks = less costs) In exchange the bank: reduces costs of interest rate for the enterprises reduces costs of interest rate for the enterprises gives an easyer access to credit gives an easyer access to credit keeps the same conditions for the duration of the financing keeps the same conditions for the duration of the financing It is important the bank takes on some of the risk It is important the bank takes on some of the risk

Benefits

Handicraft Credit 2007 Handicraft Credit : million ( 4,9% of total credit in Italy) Handicraft Credit : million ( 4,9% of total credit in Italy) Handicraft Confidi Credit (Fedart): million (19%) Handicraft Confidi Credit (Fedart): million (19%)

Handicraft Confidi Report 2007 (by Fedart Fidi- Artigiancassa Spa) Number of confidi: 251 Number of confidi: 251 Number of member enterprises: Number of member enterprises: Total loans existing at : Total loans existing at : million million Total mutual guarantees at : Total mutual guarantees at : million

PERCENTAGE LEVEL OF HANDICRAFT SMEs WITHIN THE CONFIDI SYSTEM