The micro invest scheme, its performance and relevance to Maltese SMEs

Abstract

PURPOSE: The aim of this study is to analyse the Micro Invest Scheme; in particular how it assists SMEs to have funds available for investment. The efficient and effective operation of small businesses is key to economic growth, innovation, competitiveness and job creation in Malta and Gozo. However, SMEs and startups face various challenges in the opening up and/or expanding of their business, mainly due to lack of financial resources. The biggest challenge for small enterprises is to survive and eventually expand in today’s highly complex and competitive business environment. This makes the aid provided by the Maltese Government through the Micro Invest Scheme, an excellent instrument for eligible undertakings to meet their set goals and achieve their strategies. DESIGN: This study applies both quantitative and qualitative research methods. A quantitative approach was utilised for company beneficiaries that were eligible under both the Micro Invest Scheme and the Investment Aid Tax Credits. A qualitative approach was chosen for Micro Invest beneficiaries that were not eligible, and could not opt for Investment Aid. An interview was also carried out with a Micro Invest specialist at Malta Enterprise so to gain a better understanding of the Scheme. FINDINGS: External financing through financial institutions can be a challenge for small companies unless a company has a strong trading record and can secure the loan against collateral. Investment Aid is preferred for higher value investments, but in terms of the eligible tax credit rate on qualified expenditure, Micro Invest is more beneficial for smaller investments. Hence, ME should guide potential applicants to the most beneficial incentive, in line with their future business plans. Micro Invest tax credits do not appear to be adequate for startups since a startup is not profitable in its early years. Awareness of the Micro Invest Scheme is not sufficient and Malta Enterprise should tailor its advertising and communication to reach a wider spectrum of SMEs. The whole application process and the terms and conditions of the Scheme could also be refined to better meet SME needs. CONCLUSIONS: Although not substantial, the money saved in taxes through the Micro Invest Scheme can be re-invested in the company, giving small companies a greater opportunity for growth and higher profits. In the absence of Micro Invest tax credits, companies would still carry out innovative projects, but investments would probably take longer to be undertaken. Apart from helping the beneficiaries themselves, tax credits also have an impact on the country’s economy as they are an incentive for further investments, meaning more business in the economy as a whole. The Micro Invest Scheme is hence a success and should be built upon in order to better assist local SMEs with their business ventures. VALUE: This study may prove valuable to Malta Enterprise to recognise better the challenges of SMEs and serve as an overview of what small local company owners have to say about the Micro Invest Scheme. The feedback obtained directly from company owners may serve as a good guide for Malta Enterprise to follow in order to improve the Scheme.