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7
I.
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.
II.
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.
co.uk,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
ability.
III.
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
1
. 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
above.
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
2
. 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).
IV.
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
1
For the most up-to-date version, please access: https://
www.abfa.org.uk/standards/code.pdf.2
Securitization
of
accounts
receivable
and
its
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.