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Improving Statistics

Lack of SME sector statistics impairs comparison of

companies’ solvency likelihood, credit selectiveness,

and policy design. Indeed, some databases with

financial statistics available in Brazil lack the necessary

breakdown, regardless of the definition of SME (by

earnings or number of workers). As a result, risk aversion

towards SME is disproportionately larger in Brazil than it

would otherwise be, contributing to the higher average

cost and lower overall availability of any source of funds.

On the other hand, in the UK, one can notice continuing

efforts of surveys even before data collection, through

estimates of the company size breakdown most likely

to be relevant for aggregation and comparisons. For

instance, this enables one to include or exclude the

individual entrepreneur from any given analysis. This

can be especially helpful in countries, such as Brazil,

where fiscal benefits are provided for this particular

segment - and thereby possible uses of this breakdown

could enhance policy decisions as well as deepen the

usefulness of the statistical bases for credit purposes.


Foster mentoring

A relevant role in improving the cascade of finance

options known to start-ups and small businesses in the

UK was played by initiatives to foster the availability

and quality of mentoring services. Mentoring can be

loosely defined as a one-to-one relationship between

a less experienced person (mentee) and an established

professional (mentor), who provides consistent support,

guidance and practical help, enabling the entrepreneur

to gain skills, knowledge and confidence in order to

perform at a higher managerial level.

In 1996, the UK government-recognized Standards

Setting Body for Business Support and Business

Enterprise (SFEDI) was established, and although it does

have similarities with roles played in Brazil by SEBRAE

(Micro and Small Business Support Service), SFEDI is

responsible for the assessment of organizations willing

to offer mentoring services. At the portal mentorsme.,

for instance, SME looking for mentors can search

lists of region and activity-based, SFEDI-approved

organizations offering mentoring services, while also

raising awareness of benefits provided by mentors.

While the specific subjects covered in the process are

more general, they in practice often focus on financial

management – from discussing the funding options

available to each type of business as well as supporting

the loan solicitation and appraisal of its repayment



Promote awareness about and the use of

factoring and securitization products

Both Brazilian and British SME have a generally negative

perception towards the use of factoring, resulting

mostly from the lack of knowledge regarding this

financing vehicle and from bad practices that – far from

being the norm, did happen on occasion. Advances

towards improving perception of factoring were

targeted by the Asset Based Finance Association (ABFA)

in the UK, building on efforts such as the adoption of an

autoregulation and best practices code


. The code aims

at protecting entrepreneurs and ultimately encourage

them to adopt factoring as a regular source of financing.

In addition, ABFA took measures towards raising

awareness among accountants of factoring as a

completely legal anddesirable funding source, improving

the image of the approach and further distancing it from

bad practices that have occurred such as usurer money

lending or loan sharks. Finally, ABFA has experienced

a degree of success in creating a database with

standardized, comparable credit information of SME – a

welcome step toward overcoming the lack of relevant

statistics as discussed in the first recommendation


With another, similar asset based approach, one could

note that Brazil has seen a fast rise of its FIDC industry

(the Portuguese acronym for credit rights investment

funds), with new issuance topping the equivalent of

US$ 10 billion in 2011


. A very successful case in Brazil

was the VW suppliers FDIC. Usually those suppliers

are SME, and in 2009 a FDIC was set up in which funds

(amounting to approximately US$115 million at the

time) were obtained using their receivables to VW

as collateral. Since the holders of fund quotas were

ultimately bearing VW risk, the fund was granted a

AAA rating, thus improving interest in the fund for

investors and substantially diminishing funding costs

for suppliers. More recently the same approach was

used again in Brazil for suppliers of Mitsubishi Motors

of Brazil (MMCB).


Developing the venture capital market

Here we start by pointing out that while Brazil has

a representative private equity industry (sponsored

mainly by the wealth management sector looking for

higher returns, given the stability of its public equities

market in the last many years), there is no pervasive

culture of investing in earlier business stages. Thus,

the development of the private investor presence in

angel, seed, mezzanine or venture segments of business


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commercialization as investment funds have widely debated risks

and advantages whose analysis escape the aim of this article, but it is

worth reminding that banks also profit from this investment approach,

often earning income as managers, administrators and/or custodians,

thus seeing it as an income source and having interests in developing

the sector.