DEVELOPMENT FINANCE ASSIGNMENT:

REVIEW SMALL AND MEDIUM-SCALE FINANCE PRACTICES IN OTHER COUNTRIES LIKE CANADA (CANADIAN BANKERS ASSOCIATION), GERMANY (DUTCH GUARANTEE SYSTEM), ALBENIA DEVELOPMENT FUND INITIATIVE AND CROATIA GUARANTEE AGENCY

SUBMITTED BY

NSUK/ADM/MBA/377/10/11

INTRODUCTION Small and medium scale enterprises (SME) which were previously neglected by nations of the world have started gaining prominent attention because of their inherent capacity as stimulants for economic development. It has been proven that SMEs contribution to Gross Domestic Production (GDP) in USA and European Union over the years has increased and is over 50% according to an International Finance Corporation (IFC) in 2001.

According to Wikipedia, SME finance is the funding of small and medium sized enterprises, and represents a major function of the general business finance market in which capital for different types of firms are supplied, acquired, and costed or priced. Capital is supplied through the business finance market in the form of bank loans and overdrafts; leasing and hire-purchase arrangements; equity/corporate bond issues; venture capital or private equity; and asset-based finance such as factoring and invoice discounting. The economic and social importance of the small and medium enterprise (SME) sector is well recognized in academic and policy literature. It is also acknowledged that these actors in the economy may be under-served, especially in terms of finance. This has led to significant debate on the best practices/methods to serve this sector

One major challenge of SMEs is the issue of funding. This is because most promoters of SMEs lack the financial muscle to establish the enterprises of their choice, banks are not eager to learn due to non-availability of collaterals and high risk nature of SMEs amongst other factors. This has led to government of nations intervening in the funding of SMEs by way of initiatives that encourage funding of SMEs, easy accessibility of such funds, monitoring of the initiatives so as to ensure accomplishment of the goals of such initiatives.

SMEs finance practices varies from nation to nation and we shall review that of the following nations:

1. CANADA (CANADIAN BANKERS ASSOCIATION) Federal financing for small businesses in Canada is facilitated via a number of programs and agencies. Financing is available in the form of grants (sometimes called "non-repayable contributions"), loans, loan guarantees, income support and subsidized hiring and/or training programs. The government also provides funding for no-cost or subsidized services to small businesses, including workshops, business plan consulting, education, and federally-sponsored trade missions. Financing, and federally funded or subsidized services are available both to established businesses looking to grow or expand into new markets and to entrepreneurs seeking to launch a new business. The Government of Canada has supported SMEs via strategic partnership with financial institutions. In 1961, the Small Business Loan Act (SBLA) was enacted and this encouraged the sharing of risk associated with credits to SMEs. According to the Canadian Bankers Association, So far, the SBLA has handled the financing, creation and/or improvement of more than 500,000 businesses. Financial institutions have been able to provide small and medium-sized enterprises with more than $20billion in finance. Loans guaranteed during 1997-98 totalled $1.9 billion in Canada and more than $145 million in Atlantic Canada On the other hand, as a way of encouraging and stimulating SMEs export, the Export Development Corporation (EDC) provides support in the form of insurance services. They give loan to foreign buyers of Canadian exports. According to the Canadian Bankers Association, this has allowed Canadian SMEs to bid successfully on and finance export sales opportunity.

2. GERMANY (DUTCH GUARANTEE SYSTEM) Mainoma et ela (2012) stated that the Dutch Guarantee System has been brought through several stages of development since it started in 1915. During the economic crises of the 1930s, a number of guarantee schemes were developed. In 1972, the Nederland Middenstands (NMB) was incorporated. After the World War, the guarantee scheme became one of the strongholds of Dutch SME policy. They further stated that in 1965, the first general Loan Guarantee Scheme was introduced replacing the previous schemes. In 1976, banks recognized by the Netherlands Central Bank were allowed to conclude guarantee agreements with SMEs. A revised SME Loan guarantee Scheme was introduced which reduced the administrative burden. One of the major features of the new scheme is that the authority to decide whether to include a state guarantee in loans has been delegated to banks. The latest decree in 1997 is based on the policy of enabling access to credit by SMEs with good profitability and continuity prospects. However, they are not able to receive loans at their own risk under normal banking conditions due to the lack of adequate security. The SME guarantee schemes in the SME Security Scheme are applicable for loans up to NLG 2 million for SMEs with up to 100 employees. The German KFW-GTZ and the World Bank have provided financial means through the SME Foundation established in 1993 as a non-profit organization with its seven Regional Business Agencies that manages micro credit lines. It provides advisory services and provides access to loans by covering the guarantee obligations of SMEs.

3. ALBENIA DEVELOPMENT FUND INITIATIVE The Albenia Development Fund has successfully provided credits in the rural and urban areas. Mainoma et el stated that the ECU 8.5 million PHARE project supports rural and urban infrastructure development through the provision of small loans to the rural population for all kinds of incomegeneration activities. The urban infrastructure is devoted to the rehabilitation of urban infrastructure and the creation of long-term employment through town sub-projects. In 1996, 5,838 loan applications were made amounting to USD 54.5 million.

4. CROATIA GUARANTEE AGENCY (CGA) The Croatia Guarantee Agency provides 80% of the total amount of loan needed by SMEs. As stated by Mainoma et el, Small loans are available up to DM 50,000 with an interest rate of between 1 to 9%. Start-ups may obtain up to DM 100,000 and existing businesses up to DM 300,000 at interest of between 7 and 12% with a repayment period of between 5 and 8 years.

CONCLUSION From the above, certain finance practices are obvious. These are: 1. Direct lending to SMEs by some financial institutions 2. Government guarantee of part or all the credits and some of these are covered by an Act. 3. Government direct loans or grants to SMEs 4. Government direct loans or grant to financing institutions who in turn finances activities of SMEs

REFERENCES 1. Mainoma M.A. and Aruwa S.A.S (2012), Entrepreneurship: Concepts, Processes & Development. Kaduna:Felicity Publishing Co. 2. Canadian Bankers Association. 1997, 1998. 3. Gamser M. (1998). Final Report of Export Meeting on Best Practices In Financing SMEs. United Nations/ECE, Switzerland. May. 4. http://en.wikipedia.org/wiki/SME_finance 5. http://www.answers.com/topic/federal-financing-for-small-businesses-incanada