Taking SME support to the next level

Ensuring that profitable projects do not fail due to lack of financing, is an important part of Finnvera’s mandate as a state-backed risk financier. Katja Keitaanniemi, executive vice president responsible for SMEs at Finland’s Finnvera, explains what special measures the group takes to look after smaller businesses.

Small and medium-sized enterprises (SMEs) have become an important part of our export credit agency (ECA) mandates. We all like to (repeatedly) state this in our strategies and in our communications, both internally and externally. Certainly, many ECAs have streamlined their products and processes to better serve their SME clients.

Finnvera too has ‘upgraded’ its products targeting SMEs or small transactions in general. The group recently launched ‘Export Receivables Guarantee’ aimed at the exporter and ‘Receivables Purchase Guarantee’ aimed at banks financing export invoices. Finnvera has also introduced a ‘Bill of Exchange Guarantee’ for markets where bills of exchange work well as a simple way of documenting an export credit. In the trade credit business, these new modified credit insurances and buyer credit guarantees serve the short-term credit insurance with relatively small amounts. However, there has been some discussion about longer credit terms and about the possibility to offer direct cross-border export credits for small transactions – a business area where banks seem to have lost interest due to ever-increasing transaction costs resulting from tightening regulation.

Many ECAs have in recent years successfully introduced products such as Working Capital Guarantee. From our perspective this seems curious as Finnvera has been combining domestic SME financing and an export credit agency from the beginning and has always had Working Capital Guarantee in its product portfolio. Providing credit enhancement for the working capital needs of SMEs, has been bread and butter in our business model since the 1960s.

When working with SMEs, one must use simplified policies and procedures. Most ECAs have by now introduced SME-friendly approaches to process applications quickly and efficiently and to offer products with a minimal amount of ‘fine print’. 

But what else can be done for SMEs apart from improving products and processes? In its risk policy, Finnvera has introduced increased flexibility, a more aggressive approach to taking risk in SME exporters’ small transactions compared to larger exporters’ transactions. This may be shown, for example, in accepting a lower level of information required on the buyer. We have experienced a tendency where SMEs often sell or export to other SMEs – and the buyer credit information tends to be insufficient or very scarce. In such cases, Finnvera can be more flexible. The experience so far is encouraging. If loss ratios turned out to be higher, one could argue that the impact of these transactions for SMEs is very high and the SME-related buyer credit portfolio is only a small fraction of Finnvera’s overall portfolio.

Focusing merely on products is clearly not enough - and may even be a bit old-fashioned. SMEs may not know which products they need or want. And client managers in commercial banks working with growth oriented SMEs and mid-caps may have gaps in their knowledge of financing instruments used in foreign trade. To bridge these gaps Finnvera has been organising training programmes both for growth oriented companies and their bankers. It is now considering the next step: offering trade finance-related consulting services for SMEs.

As a domestic SME financier, Finnvera offers a product palette that covers loans and guarantees from investments and working capital to financing changes of company ownership, environmental guarantees, start-up -guarantees, internationalisation guarantees, etc. Until recently the products on offer also included early stage Venture Capital ‘Seed Financing’ for innovative growth-oriented SMEs. The special focus is to offer a palette that covers financing needs from the start to internationalisation. And for the customer, it does not really matter which product is being used: they just need financing or risk cover.

Finnvera focuses specifically on SMEs aiming at growth and internationalisation. Our target clients are growing and globalising enterprises - or ‘global’ companies. The special unit that covers this market segment offers both domestic financing needs and export credit products. It is absolutely essential that our client relationship and credit managers can offer solutions on a larger scale of financing needs so that domestic SME financing and export credit guarantees as operational functions do not work in silos.

This of course requires some expertise from the personnel as they need to master a wider range of products. These particular client managers focusing on growth-oriented and export-oriented customers are very experienced and have worked on both the domestic and the export finance side of business. The same specialisation is needed on the credit manager side as Finnvera has separated its credit function from its client function. Finnvera has some 1,000 clients in this customer segment taken care of by around 20 highly skilled customer relationship managers, and the yearly offering reaches to several hundreds of millions of euros.

Combining domestic financing solutions with export credit agency offerings is not all: Finnvera is part of ‘Team Finland’, which gathers various official actors together to find synergies when serving customers. Team Finland members include other important state-backed agencies or entities promoting innovation and growth such as TEKES (organisation for financing research, development and innovation), Finpro (Finland’s export promotion agency helping SMEs to export), and TESI (equity / venture capital provider).  These groups share the same premises in the same office building. In total, 600 experts from four separate organisations now share a modern open plan, multi-space office focusing on their joint customer base of growth and export-oriented companies.

We are quite sure that the next megatrend in public SME financing will be in external focusing and cooperation, not any more in internal concentration: how to combine forces with your colleague organisations to serve SMEs better. This requires a new attitude, but Finnvera is determined to remain in the frontline in finding new and better ways to support SMEs. In the end, it is results that matter: we need more ‘global’ companies!

Katja Keitaanniemi

Executive Vice President, SME's, Finnvera

The article was originally published in Berne Union’s newsletter The Bulletin in September 2017
More information about Berne Union