The establishment of a development bank in Malta : investigating the implications

Abstract

Purpose: This research intends to analyse the importance and roles of Development Banks (DB); to investigate the justification for a DB in Malta, the finance gap and the stimulus for growth that a DB would have for local SMEs and the risk involved and to analyse the impact on SMEs, Commercial Banks and on the Capital Market if DBs were to be introduced in Malta. The subject impacts 99% of the Maltese Economy. Design: A qualitative approach was used to conduct the study with the mostly used method being interviews. The interviews were conducted with different participants coming from different sectors including policy makers, banking regulators, big four firms, business representatives, bankers, an ex-governor of the Central Bank and other associations in order to to get a feel from all aspects. Interview guides were used for interviews with each and every interviewee. Findings: The findings show that a DB has several important roles which will benefit the Maltese economy especially SMEs. Such roles include advice and technical assistance, providing guarantees and lending, stimulating economic development, equity generation and SME support. The findings also justify the setting up of a MDB in decreasing bureaucracy, providing collateral to SMEs, lowering interest rates, and narrowing the finance gap amongst others. Conclusions: The study concluded that the MDB would serve a great purpose. SMEs, Commercial Banks and the Capital Market would all benefit. By performing its diverse roles, the DB could address all the aspects mentioned in chapter 4 of the research. This would be a direct solution to the financial gap issue which Malta currently faces. Value: Two crucial and possble implications coming out of this research are: increased competition between commercial banks in Malta and the willingness of these to start doing development banking themselves. If these actually occur, then under-financing in Malta would be mitigated drastically, and the problem SMEs face to access funds would be solved.