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From Basel III to alternative sources of funding: Assessing the impact of financial regulation on access to finance for SMEs

Date

15 Feb 2012

Sections

Euro & Finance

- It is crucial to strike the right balance between financial stability and ensuring sufficient access to finance for the real economy. To that end, we need to revise the risk weights for SME loans when implementing the “Basel III” rules on capital requirements in the EU, and further develop and encourage alternative sources of funding, such as equity –oriented instruments and leasing - were the conclusions of a roundtable recently organized by UEAPME, ACCA and Leaseurope.

The need for a new framework to increase the resilience of the financial system is commonly accepted by all. However, many stakeholders, including regulators, the banking industry, as well as small businesses and their advisors, have warned that Basel III and its European version, known as CRDIV, requiring banks to hold more capital, is likely to have a disproportionately negative impact on small and medium sized enterprises' (SMEs) access to finance, even though this sector had little to do with the causes of the financial crisis. In Europe, given our SMEs' greater dependence on debt, the impact is likely to be even more adverse and it is more important than ever to develop alternative sources of funding - such as venture capital, micro credit, or leasing - namely through the new European Programme for the Competitiveness of Enterprises and SMEs (COSME).

In this context, UEAPME, the voice of Small Businesses in Europe, ACCA (The Association of Chartered Certified Accountants) and Leaseurope recently organised a debate to exchange views on the real impact of the new capital requirements - especially in conjunction with other measures such as Solvency II - on the real economy and consider the trade-off between safeguarding against future financial crises and protecting the interests of SMEs.

The main conclusions from the roundtable indicate that SME financing is likely to be impacted by financial regulation on capital requirements and liquidity, but that this impact must be balanced with the cost of enhancing financial stability.

Othmar Karas, MEP Rapporteur on CRDIV however warned that “SMEs must not disproportionately bear this cost” and noted that “there is a broad consensus amongst the industry and EU decision makers that risk weights for SMEs lending must be adjusted now. The European Banking Authority must undertake its review as a matter of urgency”.

UEAPME’s Economic and Fiscal Policy Director Gerhard Huemer further explained that “we need to make sure that guarantees given by guarantee institutions and mutual guarantee schemes are fully recognized by the regulation as risk mitigator and used at national levels. Given that loans will remain an important source of finance to SMEs in the future, it is also very important to explore ways how to ease access to finance through alternative financial instruments such as venture capital, leasing, private equity, or business angels”.

It was nevertheless stressed that a culture change is necessary to make the best of these equity finance instruments, which must be further encouraged.

Jochen Lemlich, representing Leaseurope, added that “given that the crucial role leasing plays in financing SME’s investment, with 40% of all European SMEs making use of this means of financing, it is crucial to ensure that no unintended consequences arise from the changes made to credit risk mitigation framework for physical assets under the CRDIV proposals”.

Robin Jarvis, head of SME Affairs at ACCA concluded by adding: “‘SMEs, it is widely recognized, make a massive contribution to the EU economy. If the economies of the member states are to break through this plague of austerity and recession it is critical that they have the opportunity to raise debt finance from banking institutions. Basel III must not be a constraint on these enterprises to raise debt finance.”

-ends-

Notes to Editors

About UEAPME

For further information please contact Francesco Longu, Press and Communications Officer, Tel. +32 (0)496 520 329, Email: pressoffice@ueapme.com

UEAPME is the employers’ organisation representing exclusively crafts, trades and SMEs from the EU and accession countries at European level. UEAPME has 84 member organisations covering over 12 million enterprises with 55 million employees. UEAPME is a European Social Partner. For further information: http://www.ueapme.com/

About ACCA

For further information please contact Cecile Bonino tel:+ 32 (0) 2 286 11 37, mob: +44 (0) 7809595008, mail:Cecile.bonino@accaglobal.com

ACCA’s report on CRDIV can be found here http://www.accaglobal.com/content/dam/acca/global/pdf/pol-af-crdiv.pdf
ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management.

We support our 147,000 members and 424,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,500 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence.

Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.

About Leaseurope

For further information, please contact Anne Valette , Head of Communications , +32 2 778 05 65 , a.valette@leaseurope.org

The Oxford Economics Report on the Use of Leasing Amongst European SMEs : To obtain details on how to access the report please visit the SME page on Leaseurope’s website: http://www.leaseurope.org/index.php?page=smes. Please click here for a summary of the report’s key findings.

As a Federation, Leaseurope brings together 45 associations throughout Europe representing either the leasing, long term and/or short term automotive rental industries. The scope of products covered by Leaseurope's members range from hire purchase and finance leases to operating leases of all asset types (automotive, equipment and real estate) and also includes the rental of cars, vans and trucks. It is estimated that Leaseurope represents approximately 96% of the European leasing market.

Our membership represents more than 1200 leasing firms across Europe who financed assets worth in excess of €224 billion in 2010

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