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“Finance for Start-up in Serbia - A Success Story?”

“Finance for Start-up in Serbia - A Success Story?”. Igor Brkanović , SME expert Berlin, April 2007. Macroeconomic Environment in Serbia for 2005. Over 7 million inhabitants

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“Finance for Start-up in Serbia - A Success Story?”

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  1. “Finance for Start-up in Serbia - A Success Story?” Igor Brkanović, SME expert Berlin, April 2007.

  2. Macroeconomic Environment in Serbia for 2005. • Over 7 million inhabitants • GDP growth 6,3 % Inflation 17,7 % in Employment rate 51%, unemployment rate 20,8%, long-term unemployment rate 16,5% in • Export - Import 1:2 • FDI 1,4 billion $ • SME contribution “This sector accounts for 60% in employment, 65.5% in the total turnover and almost 55% in creating gross value added of the Serbian economy”

  3. Supply and Demand • Large scale enterprises “Pillars of Development” • Financial sector • Republic Development Fund • Banking sector • Channels of distribution • Supply created according to the needs of political interest SMEs consider themselves as “New Pillars of Development” Who will pay price of SME development

  4. Structure of Serbian Economy by Form and Size of Entities • Large and medium-sized enterprises 1% • Entrepreneurs and small enterprises 99%

  5. SMEs - Demand • 95% of small enterprises are micro-enterprises • Over 10000 enterprises and more then 20000 sole traders has been registered in 2006. • Development financed from own resources, together with down payments of customers and supplier credits • More then 10000 applicants for different forms of public sector finance support Significant needs for policies, business support and variety external types and sources of SME funding and financing

  6. How Banks View SME Financing • Country risk • Obstacles in legal regulations • SMEs unprepared to cooperate with banks • Lack of “good’’ projects • Unreliable annual financial reports • Lack of credit history • Inadequate collateral Interest in consumer landing and crediting large enterprises Interest in short-term crediting SMEs Collateral-based lending Unwillingness to create partnerships and share the risk with SMEs Start-up projects are not market for the banks (Lack of) training of credit officers Currency risk No data available on participation of SMEs sector in the banking operations

  7. ProCredit Bank • Cash flow based • Very flexible collateralization • On site analysis • Qualified and specialized loan officers • Close and long term relationship with loan clients • SMEs are possible clients three months after business registration

  8. How SMEs View Access to Finance • Sole traders has difficulties in access to the financial market • Expensive credits • Limited mid-term and long-term credits • Non-standardized methodology of Business Plan preparation • Banks charge the Business Plan evaluation • Inefficient, intricate and expensive valuation procedures applied to business potential and creditworthiness • Credit collateral • Banks serve as distribution channels in payment clearing system Lack of confidence in banks as partners Lack of well-educated staff and management Poorly prepared business plans Uninformed on available source of financing Lack of SME Association and dialogue with public and banking sector

  9. Financing Sources of SMEs by Stage of Development

  10. Case study

  11. Supply Gaps • Start up fund • Microfinance institutions • Factoring • Venture funds • Business angels • Legal regulations • Start up loans • Micro credit loans • Venture capital • Mid and long term credits • Credit and guarantee schemes • Decentralisation • Loans in less developed, rural areas Lack of an integrative SME financing policy Establishment of the SME Council and Start-up Working Group

  12. EU Charter for Small Enterprises • Guide for establishment of efficient and effective process of SME policy creation and implementation proces • Designed for EU member countries • Serbiabecome signatory in 2003. • “Belgrade Declaration” signed in 2005. Ten principles, five levels of development

  13. Principle 7 • Principle 7.2. Financing SMEs • Credit Guarantee schemes • Collateral • Law on bankruptcy • Cadastre • Leasing industry • Venture capital funds • General Framework of Principle 7.2. • Microfinance institutions • Dedicated credit lines for SMEs • Interest rates spread • Credit history • Movable collateral • Bank privatisation

  14. Start up support policy in Serbia • Start up financing in strategic policy documents • SME Strategy 2003-2007 • Plan for stimulating SMEs 2005-2007 • National Investment Plan • Instrument for the establishment of SME financing policy • EU Charter • SME Council breakthrough in SME policy implementation • Start-up Working Group • Donor support Lack of an integrative start up financing policy

  15. THANK YOU! Igor Brkanović siva@net.yu

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