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““Finance for Start-up in Serbia Finance for Start-up in Serbia - A Success Story?”- A Success Story?”
Igor Igor BrkanovićBrkanović, , SME expertSME expert
Berlin, April 2007.Berlin, April 2007.
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Macroeconomic Environment in Serbia Macroeconomic Environment in Serbia for 2005.for 2005.
Over 7 million inhabitants Over 7 million inhabitants GDP growth 6,3 % Inflation 17,7 % in GDP growth 6,3 % Inflation 17,7 % in
Employment rate 51%, unemployment rate Employment rate 51%, unemployment rate 20,8%, long-term unemployment rate 16,5% in 20,8%, long-term unemployment rate 16,5% in
Export - Import 1:2Export - Import 1:2 FDI 1,4 billion $FDI 1,4 billion $ SME contributionSME contribution
““This sector accounts for 60% in employment, 65.5% in This sector accounts for 60% in employment, 65.5% in the total turnover and almost 55% in creating gross the total turnover and almost 55% in creating gross
value added of the Serbian economy”value added of the Serbian economy”
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Supply and DemandSupply and Demand Large scale enterprises “Pillars of Development”Large scale enterprises “Pillars of Development” Financial sectorFinancial sector
• Republic Development FundRepublic Development Fund• Banking sectorBanking sector
Channels of distributionChannels of distribution Supply created according to the needs of political Supply created according to the needs of political
interestinterest
SMEs consider themselves as “SMEs consider themselves as “NNew Pillars of ew Pillars of Development” Development”
Who will pay price of SME developmentWho will pay price of SME development
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StructureStructure of Serbian Economy by Form of Serbian Economy by Form and Size of Entitiesand Size of Entities
Large and medium-sized Large and medium-sized enterprisesenterprises 1% 1%
Entrepreneurs and small Entrepreneurs and small enterprisesenterprises 99% 99%
64254
2452
201959
8030 694
sole traders / entrepreneurs Micro enterprisesSmall enterprises Large enterprisesMedium enterprises
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SMEs - DemandSMEs - Demand 95% of small enterprises are micro-enterprises95% of small enterprises are micro-enterprises Over 10000 enterprises and more then 20000 sole Over 10000 enterprises and more then 20000 sole
traders has been registered in 2006. traders has been registered in 2006. Development financed from own resources, together Development financed from own resources, together
with down payments of customers and supplier creditswith down payments of customers and supplier credits More then 10000 applicants for different forms of public More then 10000 applicants for different forms of public
sector finance supportsector finance support
SignificantSignificant need needss for policies, business support and for policies, business support and varietyvariety external types and sources of external types and sources of SME SME fundingfunding and and
financingfinancing
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How Banks View SME FinancingHow Banks View SME Financing Country riskCountry risk Obstacles in legal regulationsObstacles in legal regulations SMEs unprepared to cooperate with banksSMEs unprepared to cooperate with banks Lack of “goodLack of “good’’ ’’ projectsprojects Unreliable annual financial reports Unreliable annual financial reports Lack of credit historyLack of credit history Inadequate collateral Inadequate collateral
Interest in consumer landing and crediting large enterprises Interest in consumer landing and crediting large enterprises Interest in short-term crediting SMEsInterest in short-term crediting SMEs
Collateral-based lendingCollateral-based lendingUnwillingness to create partnerships and share the risk with SMEsUnwillingness to create partnerships and share the risk with SMEs
Start-up projects are not market for the banksStart-up projects are not market for the banks((Lack ofLack of)) training of credit officers training of credit officers
Currency riskCurrency riskNo data available on participation of SMEs sector in the banking operationsNo data available on participation of SMEs sector in the banking operations
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ProCredit Bank ProCredit Bank
Cash flow basedCash flow based Very flexible collateralizationVery flexible collateralization On site analysisOn site analysis Qualified and specialized loan officersQualified and specialized loan officers Close and long term relationship with loan clientsClose and long term relationship with loan clients SMEs are possible clients three months after business SMEs are possible clients three months after business
registrationregistration
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How SMEs View Access to FinanceHow SMEs View Access to Finance Sole traders has difficulties in access to the financial marketSole traders has difficulties in access to the financial market Expensive creditsExpensive credits Limited mid-term and long-term creditsLimited mid-term and long-term credits Non-standardized methodology of Business Plan preparationNon-standardized methodology of Business Plan preparation
• Banks charge the Business Plan evaluationBanks charge the Business Plan evaluation InefficientInefficient, , intricate and expensive valuation procedures applied to business intricate and expensive valuation procedures applied to business
potential and creditworthiness potential and creditworthiness Credit collateralCredit collateral Banks serve as distribution channels in payment clearing systemBanks serve as distribution channels in payment clearing system
Lack of confidence in banks as partnersLack of confidence in banks as partnersLack of well-educated staff and managementLack of well-educated staff and management
Poorly prepared business plansPoorly prepared business plansUninformed on available source of financingUninformed on available source of financing
Lack of SME Association and dialogue with public and banking sector Lack of SME Association and dialogue with public and banking sector
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Financing Sources of SMEs by Stage of Financing Sources of SMEs by Stage of DevelopmentDevelopment
Development Development StageStage
Types of Finance Types of Finance Main Sources of Main Sources of Finance Finance
Available Sources in Available Sources in SerbiaSerbia
““Seed” Seed” stagestage Informal equityInformal equity 3F3F 3F3F
Start-up Start-up stagestage LoansLoansLLeasing for equipmenteasing for equipmentInformal equityInformal equityVenture capitalVenture capital
FoundersFoundersSuppliers, buyersSuppliers, buyersStart -up Start -up fundsfundsBankBankssLLeasing companieseasing companiesBusiness angelsBusiness angels Venture fundsVenture funds
3 F3 FNNESESDevelopment FundDevelopment FundNNGGOOssSuppliers, buyersSuppliers, buyersGuarantee FundGuarantee Fund
Expansion stageExpansion stage LoansLoansFormal equityFormal equityLeasingLeasingFactoringFactoring
BanksBanksLoan fundsLoan fundsVenture Venture fundsfundsLeasing companiesLeasing companiesFactoring companiesFactoring companiesState fundsState funds
Development FundDevelopment FundGuarantee FundGuarantee FundBankBanks / donor support:s / donor support:
RF, EIB, KFW, IK, PCRF, EIB, KFW, IK, PC,OI,OISMECASMECALLeasing companieseasing companiesRegRegional initiativesional initiatives
Replacement Replacement capitalcapital
Trade investmentTrade investmentShare issueShare issue
SuppliersSuppliersStock exchangeStock exchange
1111
Case studyCase study
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Supply GapsSupply Gaps Start up fStart up fuundnd Microfinance Microfinance
institutionsinstitutions FaFacctoringtoring Venture Venture fundsfunds Business angelsBusiness angels Legal regulationsLegal regulations
Start up loans Start up loans Micro credit loansMicro credit loans Venture capitalVenture capital Mid and long term creditsMid and long term credits Credit and guarantee Credit and guarantee
schemesschemes DecentralisationDecentralisation Loans in less developed, rural Loans in less developed, rural
areas areas
Lack of an integrative SME financing policyLack of an integrative SME financing policyEstablishment of the SME Council and Start-up Working GroupEstablishment of the SME Council and Start-up Working Group
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EU Charter for Small EnterprisesEU Charter for Small Enterprises
Guide for establishment of efficient and Guide for establishment of efficient and effective process of SME policy creation effective process of SME policy creation and implementation and implementation procesproces
Designed for EU member countries Designed for EU member countries SerbiaSerbia become signatory inbecome signatory in 2003. 2003. ““Belgrade Declaration” signed inBelgrade Declaration” signed in 2005. 2005.
Ten principles, five levels of developmentTen principles, five levels of development
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PrinciplePrinciple 7 7
PrinciplePrinciple 7.2. 7.2. Financing SMEs Financing SMEs • Credit Guarantee schemesCredit Guarantee schemes• CollateralCollateral• Law on bankruptcyLaw on bankruptcy• CadastreCadastre• Leasing industryLeasing industry• Venture capital fundsVenture capital funds
General Framework of Principle 7.2.General Framework of Principle 7.2.• Microfinance institutionsMicrofinance institutions• Dedicated credit lines for SMEsDedicated credit lines for SMEs• Interest rates sInterest rates spreadpread• Credit historyCredit history• Movable Movable ccollateralollateral• Bank Bank pprivatisationrivatisation
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Start up support policy in SerbiaStart up support policy in Serbia
Start up financing in strategic policy documentsStart up financing in strategic policy documents• SME Strategy 2003-2007SME Strategy 2003-2007• Plan for stimulating SMEs 2005-2007Plan for stimulating SMEs 2005-2007• National Investment PlanNational Investment Plan
Instrument for the establishment of SME financing policy Instrument for the establishment of SME financing policy • EU Charter EU Charter • SME Council breakthrough in SME policy implementationSME Council breakthrough in SME policy implementation• Start-up Working GroupStart-up Working Group• Donor supportDonor support
Lack of an integrative start up financing policyLack of an integrative start up financing policy
