Financial tools for the back bone of the Greek Economy: Small and Medium Enterprises
Definition of SMEs
SME stands for Small and Medium Enterprises. The European Commission (EC) has provided for the definition of SMEs:
- A small sized enterprise is the one which employs less than 50 people and its turnover is less than 10 million Euros
- A medium sized company is the one that employs less than 250 people with a turnover less than 50 million euros and
- A micro sized company employs less than 10 people and its turnover is less than 2 million Euros.
The importance of the SMEs for the Greek economy
The results of the annual report of the EC on the SMEs (SBA fact sheets – Greece 2010- 2011) showed that by the year 2010, they represented the 99,9% of the total number of companies in Greece. The SME sector employed the 85% of the work force.
The Greek economy is still based on the small and medium enterprises, despite the fact that the sector has showed a deep decline and has suffered the effects of the economic crisis. In the 2011, there were 62.287 less SMEs compared to companies existing in 2009, which led to 144.604 job losses.
Support tools for the SMEs
It is evident that the SMEs sector is very crucial for the enhancement of the competiveness of the Greek economy. The government during the last four years has taken several steps to support the SMEs, for example it enacted several laws that simplify the start-up processes of a business, it adopted initiatives that promote the extroversion of the companies, it supported the creation of the electronic platform www.startupgreece.gov.gr which provides the new entrepreneur with all the necessary information to create a new business in Greece.
SMEs are dealing with a very serious problem: lack of liquidity. One of the reasons that are responsible for this problem is the difficulty to have access to various financing instruments (loans, grants, etc) because traditional banking loan system requires strong guarantees that the SMEs cannot provide.
The Greek government has undertaken some initiatives that will help the small and medium companies to overcome this difficulty:
Agreement with the European Investment Bank
On 12 June 2013, the European Investment Bank (EIB) and the Greek government signed an agreement, according to which the EIB provides 500 million Euros to support the foreign – trade oriented SMEs in Greece. The agreement was also signed by 3 Greek and by 3 foreign banks which provide the loans to the small and medium enterprises.
Hellenic Fund for Entrepreneurship and Development
The Hellenic Fund for Entrepreneurship and Development (HFED) was established in 2011 and is fully owned by the Greek state. Its original mission was to facilitate the access of the SMEs to the available financial instruments delivered by the Greek banks, by providing guarantees on behalf of the companies. Nowadays, the fund has broadened the range of its activities and it had created 4 sub-funds (each one of them with distinctive management) in order to provide financing tools at attractive terms. The HFED and its sub-funds are co-financed by the National Resources and the European Structural Fund. The sub-funds are:
Entrepreneurship Fund. The mission of the fund is to help the creation of new SMEs and to support the existing ones by refinancing their working capitals. The current activities of the fund are:
- Provision of low interest loans (total budget of the project 550million Euros). This activity is suitable for existing SMEs or start-ups. The interested parties may apply for a loan to the banks co-operating with the HFED.
- Provision of low interest loans (total budget of the project 80 million Euros). The activity aims to support SMEs located at the Greek islands.
- Provision of guarantees for any SME wishing to get a loan from a bank (total budget of the project 150 million Euros).
- Provision of loans (total budget of the project 315 million Euros) special for SMEs oriented to the following sectors: foreign trade, youth entrepreneurship, innovation, green entrepreneurship.
- Fisheries Fund. The mission of the fund is to provide guarantees to any SME with activities such as production, processing and marketing of fishery products. The fund is currently inactive.
- Fund for Energy Efficiency in Households. This fund helps the owners of households to undertake all the necessary actions to enhance the energy efficiency of buildings and reduce their energy consumption. These actions may include application of heat insulation, maintenance of heating and air cooling systems, replacement of old window technology. The program started on 1 February 2011 and it is valid until the resources are over. The interested party may contact a co-operating bank.
- Agricultural Entrepreneurship Fund. The fund ensures that any viable small to medium business of the agricultural sector is funded. The current activity regards financing SMEs that process and market agricultural products.
Institution for Growth in Greece
Despite the fact that the 2 previous initiatives helps the SMEs increase their liquidity by getting access to financial instruments, there are recent studies that show there is still a funding gap in the Greek market (around 15-18 billion euros).
In order to overcome this gap the government decided to establish another fund which will provide loans to SMEs: Institution for Growth (IfG). The preliminary negotiations started two years ago, followed by the voting of the law by the Greek parliament that described the formation process of the IfG (Christmas 2013). By the end of April 2014, the Greek government signed two important agreements: one with the German investment bank KfW and another agreement with EIB. It is ready to start its operations within the next 3 weeks.
The Hellenic Republic will participate no more than 50% in the capital share of the fund it will be financed by 3 main sources:
- Greek financial resources (eg. National Strategic Reference Framework). The Greek state has already pledged 350 million Euros
- Investments Banks (e.g KfW) or International Investment Organisations (e.g EIB). The French government has expressed the willingness to invest in the fund through its Bank for Public Investments and the “Caisse des Depots”. The China Development Bank has also showed interest in investing in the IfG.
- Private investors (e.g. Onassis Foundation has promised to offer 30 million Euros).
IfG is addressing to foreign private investors, therefore it was decided to locate this institution to the Duchy of Luxembourg (as international practice proposes). Even though, it will be located in Luxembourg and will be ruled by the laws of this country, the IfG invest in companies active in Greece. Its aim is not to substitute the existing financial institutions (such as HFED) but to overcome funding gaps. In order to achieve this goal, the IfG will operate as an “umbrella fund” which will embrace three sub funds that will provide:
- Debt financing for SMEs. 200 million will be given equally by the Hellenic Republic and the KfW. 50 million Euros will be given by EIB. It will be the first of the three funds what will start operating.
- Equity capital to SMEs having significant growth potential.
- Debt or equity financing for infrastructure projects which are not funded by the EIB’s programmes.
The interested parties may contact the banks for more information and apply for loans.
After 4 years of deep recession, the Greek economy is gaining again its competitive advantage. Financial institutions from abroad show their trust to the economy of the country and they appreciate the progress achieved regarding the creation of a friendly investment environment.
The initiatives described above aim to enhance entrepreneurship and liquidity for the SMEs, as well as to reduce the unacceptably high levels of unemployment.