credito flow

Credit Enhancement Proposal

Author: Action Institute

Date: 11 July 2013

Type: Policy Brief

Topic: Credit

EXECUTIVE SUMMARY

The present note contains a proposal aimed at improving access to credit for Italian small and medium enterprises (SMEs). The reason of the proposal lies in the fact that the interest rate differential between loans to Italian companies and North European ones – including Germany – strongly diminishes the formers’ competitiveness. Moreover, the interest rate differential is a significant barrier to growth for Italian companies, whose survival is consequently threatened.

The proposal focuses on SMEs’ loan portfolios, which negatively affect bank balance sheets and are hardly refinanceable.

The main purpose of the proposal is to create an investment vehicle, on the basis of the “Fondo di Garanzia” (Guarantee Fund). The vehicle would be capitalized with European structural funds (10 billion euros, approximately) and would serve as a guarantee for banks’ SME loan portfolios.

The foremost consequences of this process would be the portfolios’ credit enhancement and the possibility to refinance loans through the European Central Bank. Secondly, loan portfolios would benefit from a capital relief.

Eligible credits, which amount to 120-150 billion euros, would take advantage from significantly lower financing costs. In order to take part at this program and to achieve these financial benefits, banks have to reduce the cost of debt for companies.

The proposal does not violate the European Union legislation in terms of state aid.
 

Credit

Let me remind you that credit is the lifeblood of business, the lifeblood of prices and jobs.

Herbert Hoover

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World Health Organization

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