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2. 2 “Finance for Start-up in Serbia - A Success Story?” Igor Brkanović, SME expert Berlin, April 2007.

3. 3 Macroeconomic Environment in Serbia for 2005. Over 7 million inhabitants Over 7 million inhabitants GDP growth 6,3 % Inflation 17,7 % in Employment rate 51%, unemployment rate 20,8%, long-term unemployment rate 16,5% in GDP growth 6,3 % Inflation 17,7 % in Employment rate 51%, unemployment rate 20,8%, long-term unemployment rate 16,5% in Export - Import 1:2 Export - Import 1:2 FDI 1,4 billion $ FDI 1,4 billion $ SME contribution SME contribution “This sector accounts for 60% in employment, 65.5% in the total turnover and almost 55% in creating gross value added of the Serbian economy”

4. 4 Supply and Demand Large scale enterprises “Pillars of Development” Large scale enterprises “Pillars of Development” Financial sector Financial sector Republic Development FundRepublic Development Fund Banking sectorBanking sector Channels of distribution Channels of distribution Supply created according to the needs of political interest Supply created according to the needs of political interest SMEs consider themselves as “New Pillars of Development” Who will pay price of SME development

5. 5 Structure of Serbian Economy by Form and Size of Entities Large and medium-sized enterprises 1% Large and medium-sized enterprises 1% Entrepreneurs and small enterprises 99% Entrepreneurs and small enterprises 99%

6. 6 SMEs - Demand 95% of small enterprises are micro-enterprises 95% of small enterprises are micro-enterprises Over 10000 enterprises and more then 20000 sole traders has been registered in 2006. Over 10000 enterprises and more then 20000 sole traders has been registered in 2006. Development financed from own resources, together with down payments of customers and supplier credits Development financed from own resources, together with down payments of customers and supplier credits More then 10000 applicants for different forms of public sector finance support More then 10000 applicants for different forms of public sector finance support Significant needs for policies, business support and variety external types and sources of SME funding and financing

7. 7 How Banks View SME Financing Country risk Country risk Obstacles in legal regulations Obstacles in legal regulations SMEs unprepared to cooperate with banks SMEs unprepared to cooperate with banks Lack of “good’’ projects Lack of “good’’ projects Unreliable annual financial reports Unreliable annual financial reports Lack of credit history Lack of credit history Inadequate collateral Inadequate collateral Interest in consumer landing and crediting large enterprises Interest in short-term crediting SMEs Collateral-based lending Unwillingness to create partnerships and share the risk with SMEs Start-up projects are not market for the banks (Lack of) training of credit officers Currency risk No data available on participation of SMEs sector in the banking operations

8. 8 ProCredit Bank Cash flow based Cash flow based Very flexible collateralization Very flexible collateralization On site analysis On site analysis Qualified and specialized loan officers Qualified and specialized loan officers Close and long term relationship with loan clients Close and long term relationship with loan clients SMEs are possible clients three months after business registration SMEs are possible clients three months after business registration

9. 9 How SMEs View Access to Finance Sole traders has difficulties in access to the financial market Sole traders has difficulties in access to the financial market Expensive credits Expensive credits Limited mid-term and long-term credits Limited mid-term and long-term credits Non-standardized methodology of Business Plan preparation Non-standardized methodology of Business Plan preparation Banks charge the Business Plan evaluationBanks charge the Business Plan evaluation Inefficient, intricate and expensive valuation procedures applied to business potential and creditworthiness Inefficient, intricate and expensive valuation procedures applied to business potential and creditworthiness Credit collateral Credit collateral Banks serve as distribution channels in payment clearing system Banks serve as distribution channels in payment clearing system Lack of confidence in banks as partners Lack of well-educated staff and management Poorly prepared business plans Uninformed on available source of financing Lack of SME Association and dialogue with public and banking sector

10. 10 Financing Sources of SMEs by Stage of Development Development Stage Types of Finance Main Sources of Finance Available Sources in Serbia “Seed” stage Informal equity Informal equity 3F 3F Start-up stage Loans Loans Leasing for equipment Leasing for equipment Informal equity Informal equity Venture capital Venture capital Founders Founders Suppliers, buyers Suppliers, buyers Start -up funds Start -up funds Banks Banks Leasing companies Leasing companies Business angels Business angels Venture funds Venture funds 3 F 3 F NES NES Development Fund Development Fund NGOs NGOs Suppliers, buyers Suppliers, buyers Guarantee Fund Guarantee Fund Expansion stage Loans Loans Formal equity Formal equity Leasing Leasing Factoring Factoring Banks Banks Loan funds Loan funds Venture funds Venture funds Leasing companies Leasing companies Factoring companies Factoring companies State funds State funds Development Fund Development Fund Guarantee Fund Guarantee Fund Banks / donor support: Banks / donor support: RF, EIB, KFW, IK, PC,OI SMECA SMECA Leasing companies Leasing companies Regional initiatives Regional initiatives Replacement capital Trade investment Trade investment Share issue Share issue Suppliers Suppliers Stock exchange Stock exchange

11. 11 Case study

12. 12 Supply Gaps Start up fund Start up fund Microfinance institutions Microfinance institutions Factoring Factoring Venture funds Venture funds Business angels Business angels Legal regulations Legal regulations Start up loans Start up loans Micro credit loans Micro credit loans Venture capital Venture capital Mid and long term credits Mid and long term credits Credit and guarantee schemes Credit and guarantee schemes Decentralisation Decentralisation Loans in less developed, rural areas Loans in less developed, rural areas Lack of an integrative SME financing policy Establishment of the SME Council and Start-up Working Group

13. 13 EU Charter for Small Enterprises Guide for establishment of efficient and effective process of SME policy creation and implementation proces Guide for establishment of efficient and effective process of SME policy creation and implementation proces Designed for EU member countries Designed for EU member countries Serbia become signatory in 2003. Serbia become signatory in 2003. “Belgrade Declaration” signed in 2005. “Belgrade Declaration” signed in 2005. Ten principles, five levels of development

14. 14 Principle 7 Principle 7.2. Financing SMEs Principle 7.2. Financing SMEs Credit Guarantee schemesCredit Guarantee schemes CollateralCollateral Law on bankruptcyLaw on bankruptcy CadastreCadastre Leasing industryLeasing industry Venture capital fundsVenture capital funds General Framework of Principle 7.2. General Framework of Principle 7.2. Microfinance institutionsMicrofinance institutions Dedicated credit lines for SMEsDedicated credit lines for SMEs Interest rates spreadInterest rates spread Credit historyCredit history Movable collateralMovable collateral Bank privatisationBank privatisation

15. 15 Start up support policy in Serbia Start up financing in strategic policy documents Start up financing in strategic policy documents SME Strategy 2003-2007SME Strategy 2003-2007 Plan for stimulating SMEs 2005-2007Plan for stimulating SMEs 2005-2007 National Investment PlanNational Investment Plan Instrument for the establishment of SME financing policy Instrument for the establishment of SME financing policy EU CharterEU Charter SME Council breakthrough in SME policy implementationSME Council breakthrough in SME policy implementation Start-up Working GroupStart-up Working Group Donor supportDonor support Lack of an integrative start up financing policy

16. 16 THANK YOU! Igor Brkanović siva@net.yu