This presentation by Miriam Koreen and Gert Wehinger was made at the 3rd OECD-GFLEC Global Policy research Symposium to Advance Financial Literacy "Harnessing Financial Education to Spur Entrepreneurship and Innovation" which cutting-edge policy issues and identify key research directions, as well as practical solutions, with a view to advancing financial literacy for micro, small and medium-sized enterprises (MSMEs). Find out more at http://www.oecd.org/daf/fin/financial-education/3rdglobalpolicyresearchsymposiumtoadvancefinancialliteracy.htm

1. Financing SMEs and entrepreneurs:
Recent trends and the role of financial skills
OECD/GFLEC Global Policy Research Symposium
to Advance Financial Literacy
Paris, 7 May 2015
Miriam Koreen, Deputy Director
OECD Centre for Entrepreneurship, SMEs and Local Development
Gert Wehinger, Senior Economist,
OECD Directorate for Financial Affairs

2. Financing SMEs and Entrepreneurs:
An OECD Scoreboard
• Indicators on access to
finance for SMEs
• Information about relevant
government policies
• 34 countries
• Data for 2007-13.
=> Comprehensive framework to
evaluate the state of SME finance.

3. Credit to SMEs decreased in many countries since
2011…
Trends in outstanding SME loans 2011-13
Year-on-year growth, percentages
Expansion since 2011 Contraction since 2011

4. Alternative forms of finance cannot currently
compensate for the contraction of bank credit
Global crowdfunding market* Factoring volumes, average increase
in the OECD, 2007 = 1
1
1.2
1.4
1.6
1.8
2
2.2
2.4
2007 2008 2009 2010 2011 2012 2013
* Data from Massolution

5. There is a pressing need to broaden the range of
financial instruments for SMEs and entrepreneurs
Low Risk/
Return
Low Risk/
Return
Medium Risk/
Return
High Risk/ Return
Asset-Based
Finance
Alternative Debt
“Hybrid”
Instruments
Equity
Instruments
 Asset-based
lending
 Factoring
 Purchase
Order Finance
 Warehouse
Receipts
 Leasing
 Corporate
Bonds
 Securitised Debt
 Covered Bonds
 Private
Placements
 Crowdfunding
(debt)
 Subordinated
Loans/Bonds
 Silent
Participations
 Participating
Loans
 Profit Participation
Rights
 Convertible Bonds
 Bonds with
Warrants
 Mezzanine Finance
 Private Equity
 Venture Capital
 Business Angels
 Specialised
Platforms for
Public Listing of
SMEs
 Crowdfunding
(equity)
External financing instruments alternative to traditional debt

6. …but their development calls for a number of policy actions
 Effective regulation that balances financial stability and
the opening of new financing channels for SMEs
 Development of information infrastructures to reflect
more accurately the level of risk associated with SME
financing and encourage investors’ participation
 Implementation of policies that incentivise private
investors and develop appropriate risk-sharing
mechanisms
 Building up the evidence base to identify good policy
practices
 Improvement of SME skills and strategic vision for
their financing needs

7. The financial knowledge of entrepreneurs represents an
important barrier to financial diversification
 Lack a long-term strategic view of financing needs
 Entrepreneurs may not know about many
alternative instruments and need skills to match
the instruments with the financial needs of their
business.
 Instruments not always perceived positively,
especially for equity instruments
 Entrepreneurs require financial skills to attract
them

8. Policy implications
 Supply-side policies to develop financial markets for SMEs
will have limited success without tackling demand-side
issues
 Investor-readiness programmes are needed to expand the use of
BA and VC investments
 Demand-side policy initiatives have been undertaken:
 Financial literacy programmes
 Investor-readiness programmes
 The provision of mentoring, advisory or training facilities, often in
addition to financial support (e.g. through business incubators)
 Policies should be evidence-based and reviewed through
evaluations

9. 9
Putting our work on SME finance in context
Source: OECD Secretariat, based on an exhibit by the European Investment Fund (EIF). Adapted from [DAF/CMF(2014)25]
1
2
NAEC

10. New study: Opportunities and limitations
of public equity markets for SMEs
Opportunites Problems & limitations
 Development of small IPO
markets could incentivise
investment in SMEs
 Enhanced allocation of risk and
risk taking, supporting growth
 Broadening of investor base for
SMEs
 Makes SMEs an “investable” asset
class for institutional investors
 Longer-term repeat access to
financing beyond IPO
 Increased creditworthiness,
transparency and visibility
through association with a
dedicated ecosystem
 An equity gap for risk financing, in particular for fast-
growing companies, not to be closed by banks
 Admission cost and listing requirements in main markets
are often discouragingly high for SMEs
 Limited ecosystems (exchanges, platforms, brokers, market-
makers, advisors, equity research)
 Limited liquidity is key challenge in publicly traded SME
equity
 Educational gap of SMEs with regard to equity financing,
and the limited awareness of SMEs when it comes to equity
instruments, limits their access to such instruments
 Lack of a (risk) equity culture and asymmetric
treatment of equity and debt financing in some cases (e.g. tax
treatment) limits participation by both institutional and retail
investors
10
 The share of SME financing provided through equity markets is currently very small
 but equity capital is critical to growth

11. Don’t miss the opportunities of market-based SME finance!
> Some implications for policy makers
11
 Provide support for raising awareness about the availability and attractiveness of
financing alternatives for SMEs and financial intermediaries
 Both among SME entrepreneurs & smaller local financial institutions traditionally
serving SMEs
 Official sector–private sector co-operation in improving the visibility of successful
transactions and platforms
 Increase (retail) investor participation in SME financing , tapping an abundant
source of capital, by
 the provision of tax and other incentives (small caps in UK ISA, French PME-PEA)
 developing standardised “off-the-shelf” versions of non-bank financing instruments
for SMEs
 increasing transparency (loan-level data/ performance track records, ongoing
reporting and data sharing)
 Creating indices to enhance liquidity & investor participation

12. Thank you!
Miriam.koreen@oecd.org
Gert.wehinger@oecd.org