The international financial crisis and SMEs in Malta : implications for access to finance

Abstract

Overview: SMEs are crucial for the Maltese economy as they are the providers of new jobs; enhancers of innovation and contributors to national output. However, with the eruption of the global financial crisis, the ability of SMEs to operate effectively has been fairly diminished in terms of access to finance. Post-crisis access to finance became more limited for SMEs due to several factors. Aims and objectives: The main scope of this dissertation is to analyse the implications of the past global financial crisis on Maltese SMEs financing. Further objectives of this study are: - To understand why this is a major problem for Maltese SMEs, - To determine why and how this financial gap extended following the global financial crisis, - To determine the extent of the problem, - And to analyse what is being done and could be done to mitigate the problem. Approach: A set of face-to-face and electronic interviews have been used to collect data on the study. Conclusion: The study revealed that the past global financial crisis made access to finance more limited for Maltese SMEs. SMEs are finding it more difficult to access finance through traditional retail banks. It was found that post-crisis banks appetite to lend to SMEs decreased drastically due to risk associated with SMEs and tighter regulatory requirements. v The study revealed that part of the problem can be attributed to SMEs operating in certain sectors of the economy mainly the construction industry, where the latter may find it more difficult to access finance mainly through banks. Yet, the study also reveals that there is also a more general problem related to the requirement of collateral in securing bank loans. It has also been found that SMEs are being charged with excess rates of interest and high bank Malta is still lacking behind in Seed Funds and Venture Capital. This implies that bank financing is still the main source of finance to SMEs due to lack of alternative financing options. A number of recommendations have been proposed with the scope of facilitating access to finance for SMEs in developing their business ventures.