The development of SME bank financing in Malta and its prospects : a study

Abstract

TITLE: The Development of SME Bank Financing in Malta and its Prospects: A Study PURPOSE: The purpose is to study the SME bank financing dynamics and the determinants to the gaps in access to finance. This will be analysed by bringing the inherent challenges to the fore. The study will look into ways to bridge the financing gap in sustainable ways including the use of risk-sharing instruments. DESIGN: The objectives of this study were addressed using a qualitative methodology. Twenty semi-structured interviews were conducted with local SMEs of different sizes and sectors, local commercial banks and the Malta Development Bank. FINDINGS: The findings indicate that Maltese SMEs consider accessing finance more challenging than their EU counterparts. In addition, whilst the situation in the EU is improving annually, it is becoming more acute in Malta. All respondents confirm that challenges are substantial and that solutions are complex. Banks are facing more intrusive regulatory oversight and onerous requirements in their credit sanctioning and monitoring processes, straining the bank-SME interface. The Malta Development Bank has a crucial role in bridging the gap. It has already implemented several initiatives whilst having a primary role in implementing a robust COVID-19 support framework for SMEs. CONCLUSIONS: This study concludes that RSIs are effective tools and potential remedies to bridge the funding gap. RSIs minimise the inherent risks for banks whilst overcoming certain challenges for SMEs to be eligible for finance. The recent RSI used to address the pandemic can be considered a start for more collaboration between SMEs, banks and MDB. The ultimate objective is to ensure a sustainable framework of access to finance beyond disparate initiatives. IMPLICATIONS: COVID-19 aftermath will see heightened attention in ensuring better access to finance to SMEs as a means of economic regeneration. This study could be valuable in providing thoughts arising from SMEs and banks themselves on how to drive this forward and address market failures.