SMEs’ interest in new funding scheme sees BoV, MDB planning second programme

After receiving positive feedback following the launch of an SME funding scheme with BOV, the Malta Development Bank is set to develop another bigger scheme


Local SMEs have shown keen interest in a new multi-million euro funding scheme launched by Bank of Valletta and supported by Malta’s development bank, with a second bigger programme currently being planned.

The scheme, which is a €50 million kitty being made available by BOV to small and medium enterprises at an advantageous rates of interest, was an initiative of the Malta Development Bank (MDB), proposed to address gaps in the financial support given to SMEs, MDB chairman Josef Bonnici told BusinessToday.

BOV and the MDB signed an agreement for the new loan facility for businesses on Monday, with the scheme being available for loans taken out by SMEs for capital projects at a minimum of €200,000 and a maximum of €750,000, with an interest rate of 3.5%.

MDB is supporting the scheme by providing a guarantee of up to €10 million. The maturity of loans issued under the scheme will be at a maximum of 10 years.

Bonnici said that since the scheme was announced earlier this week, the MDB had been “contacted continuously” by SMEs keen on making use of the funding.

Moreover, the MDB would “probably” be launching a similar scheme with one or more banks, with a larger amount of funding being made available, he said.

“The Malta Development Bank suggested the scheme precisely because there were some gaps in the area of SME funding, in terms of the financial support that they can get. This is normally due to projects being innovative or a bit more risky, placing them outside of banking institutions’ normal parameters,” he said, “Another issue is that SMEs might not have enough collateral to guarantee the funding given.”

In light of this, the MDB was supporting the scheme through providing a guarantee of up to €10 million of the funds loaned by BOV to the SMEs’ projects, he said.

The MDB is providing an up to 80% guarantee for each project to a maximum loan of €750,000, Bonnici explained.

“The concept is that this will stimulate the more creative part of our economy, for which it is normally not all that easy to obtain funding,” Bonnici highlighted.

He acknowledged that there was an element of risk for the development bank through the scheme, but that this was being balanced by means of the €10 million limit.

“There is a risk involved, of course. What we are doing to mitigate this is that, although for each project we provide up to 80% of the guarantee, our total exposure is limited to €10 million on this portfolio. On that, BOV can expand loans up to €50 million,” he said.

“In this way, we absorb a portion of the risk for the bank. Moreover, the bank does not have to provide a large degree of capital form its own funds to provide for this,” he said, “…Naturally, the bank is risking a little as well, but it is much more protected than if it went into the loan on its own.”

Banks, he noted, would usually be reluctant to lend to projects that were “a bit risky”, so the scheme would serve as an opportunity for SMEs to obtain the required funding for such projects, which they would otherwise not have been able to secure.

The funding programme bore similarities to the JAIME and JEREMIE SME invest schemes, he said, but these were now being wound down since the structural funds were almost all spent. “This is why we’ve come up with our own home-grown scheme.”

Asked about the feedback the MDB had received since launching the scheme, Bonnici said SMEs had been inundating them with calls. “We have been contacted continuously since we announced the scheme.”

The MDB was in fact planning to follow this scheme up with other programmes drawn up with other banks, he said.

“The MDB will probably be launching a similar scheme with another bank or banks, and are also planning to develop a scheme offering higher amounts - over €750,000 - where we would share the investment 50/50 with the bank,” he said, “We’re still developing this, but it’s definitely in the pipeline.”

“So we are an institution which can basically bring together the commercial banks, the international banks – and we can provide some funds ourselves as well – to create these kind of new structures which fund certain types of projects, especially in the area of the green economy, the environment, the education and health sectors, and so on,” Bonnici added.

A showcase of Malta’s institutional growth - Prime Minister

Speaking at the launch, Prime Minister Joseph Muscat said the event was significant not just because it a new scheme was being made available, but since it showcased the country’s institutional growth.

“Part of the trajectory of this country’s development was to think of the future by ensuring it has an institutional setup that catered for growth… the MDB addresses the Achilles Heel of the banking system by supporting investments that banks may shy away because of the higher risk component,” Muscat said.

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