The International Organisation of Securities Commissions (IOSCO) published a research note on Market-Based Long-Term Financing Solutions for SMEs and Infrastructure.
The note is a compilation of recent examples of capital market solutions in developed and emerging markets that have contributed to the financing of small and medium enterprises (SME) and infrastructure projects.
IOSCO is the leading international policy forum for securities regulators and is recognised as the global standard setter for securities regulation.
The research note was prepared for the G20 Finance Ministers and Central Bank Governors. It describes innovative structures and products in equity capital markets, debt capital markets, securitisation and pooled investment vehicles that provide practical solutions to broadly recognised challenges for financing of SMEs and infrastructure projects.
The note also provides key takeaways from each example and identifies themes common to the innovations. The market-based financing solutions described in the note cover many jurisdictions across a wide geographical region, while several case studies reference cross border activities and/or have regional reach.
Since the 2008 global financial crisis, the banking sector which has traditionally been a major source of funding for long-term financing (LTF) needs, has undergone a significant deleveraging process.
This has increased the gap between supply and demand for LTF in many economies around the world. As governments implement austerity measures and face budget constraints, public funding for SMEs and infrastructure projects has been constrained.
Against this backdrop of constrained funding, there has been a gradual shift from a predominantly bank-funded model for LTF towards a model that includes a greater share of capital market-based funding.
In recognition of the increasing role that the capital markets play in the provision of LTF for SMEs and infrastructure, IOSCO established the Long-Term Financing Task Force in November 2013 to review the issues and challenges facing LTF and opportunities for growth.
Howard I. Wetston, co-chair of the LTF Task Force, vice chair of the IOSCO Board and chair of the Ontario Securities Commission, stated that: “This research note reflects the important contribution that IOSCO is making in this area, as well as its expertise in terms of the oversight of the capital markets. The note contains concrete and practical capital-markets based solutions that address the increasing demand for long-term financing by SMEs”.
Ranjit Ajit Singh, co-chair of the LTF Task Force, vice chair of the IOSCO Board, chair of the Growth and Emerging Markets Committee, and chair of the Securities Commission Malaysia, said that: “Given the scale of long-term financing needed globally, particularly for infrastructure development and SME financing, a sound market conduit that can effectively channel funds for economic growth and productivity is of paramount importance. The publication of this research note underscores IOSCO’s commitment to facilitating pragmatic market-based financing solutions”.
