The availibilty of credit facilities to Maltese businesses : a micro enterprise perspective

Abstract

The backbone of Malta's economy is represented to a large extent by Micro Enterprises (MEs). The number of MEs operating in Malta is by far higher vis-à-vis the small organisations and their medium sized counterparts. They generate a substantial amount of employment opportunities and contribute to the Gross Domestic Product. This implies that their existence cannot be underestimated or worst discarded. Due to the small scale nature of the business, MEs tend to be at a disadvantage in the granting of credit facilities. This represents the gravity of the constraint endured by MEs due to the financing gap which will in turn restrict their scale of operations. The aim of this research is to evaluate the granting of credit facilities by local banks in relation to MEs, so as to further analyse the extent of the challenges encountered by such businesses. Moreover, the study further analyzes the perception of banks towards these businesses together with their position in this regard. The initial research objective seeks to assess the impact of the global recession on the system of credit availability within the Maltese economy. The second objective is going to identify the strengths of the Maltese system of credit availability. In contrast to the above, it is essential to qualify the weakness of the underlying system of credit availability promoted by local banks. This aim is essential with a view to transform the weakness into strengths. A further objective of this research is to design a set of recommendations addressed to owners to MEs and banking institutions. This is essential so as to address the constraints currently apparent within the system of credit availability and how these can be effectively remedied. From the research it transpired that ba MEs tend to disfavour the non-traditional sources of finance, due to their nature of business ownership. Access to finance is still a major constraint, especially start-ups and those businesses operating in saturated markets. In this regard one has to further state, that the availability of credit facilities has not been impacted by the recession in a profound manner. In this context, Relationship Banking plays a vital role. Although the problem of financing gap is being addressed, there is still space for improvement.