Facilitating Malta’s Twin Transition

STAKEHOLDER OUTLOOK

Prof Josef Bonnici Chairman Malta Development Bank

Throughout the centuries crises have spurred innovation and creativity. Innovation has been important in keeping many people’s lives and livelihoods safe throughout the COVID-19 pandemic. Meal and grocery delivery services have become more common, in-person meetings have been replaced by video conferencing, and in certain cases health care visits have been replaced by virtual consultations. However, economies are not yet out of the woods, with entrepreneurs facing multidirectional challenges including supply chain disruptions, an inflationary spiral, war on Europe’s borders, and a challenging human resource market.

This disruption is accompanying and accelerating a significant transformation that came to reflect the post-pandemic reality. This transformation broadly has two strands: green and digital. These new realities are transforming business strategies, technological invention and adoption, the consumption of digital applications, and information exchange on both human and machine-learning realms.

On one hand, the integration of digital technology into all aspects of a business is fundamentally transforming how businesses operate and deliver value to customers, while also increasing the competitiveness of certain industrial sectors, affecting both the private and public sectors. This transformation is opening up new markets even for smaller firms with the appropriate business model which can now extend their reach in ways never considered before. Machine automation is also taking over a multitude of tasks.

On the other hand, the green economy is described as a low-carbon, resourceefficient, and socially inclusive economy that pursues knowledge and practices that can lead to more environmentally friendly and ecologically responsible actions, business models and lifestyles. What was simply a backburner issue until a few years ago, going green today is rapidly being transformed from an option into an obligation, if not an economic necessity.

MDB’S NEW INCENTIVES

The Malta Development Bank (MDB)’s mandate of delivering promotional banking services include a wide variety of operations when there is evidence of market failure. To that aim, the Bank considers investments by entrepreneurs which seek to combine green and digital as its main priority in the months ahead. The Bank is well aware that despite the importance of such investments, firms still struggle to secure the appropriate credit to finance their needs, not least because both digitalisation and green technology often do not entail assets which banks conventionally accept as collateral.

In this context, after a wide consultative process, the Bank has launched an expression of interest inviting commercial banks to become banking partners to participate in two new MDB schemes, namely the MDB’s Guaranteed Co-Lending Scheme (GCLS) and SME Guarantee Scheme (SGS). Both these schemes are supported by the EIF’s Pan-European Guarantee Fund (EGF). These instruments will make more than €150 million available for SMEs supporting their drive to grow and innovate. These will serve as an important contribution to the Maltese economy’s efforts to recover and regenerate itself following the pandemic.

Although these schemes will be available to SMEs in all economic sectors, the MDB will be encouraging those investment projects that aim to build a greener, more digital, modern, innovative and resilient Maltese economy. The MDB strongly believes that this is the way forward to propel Malta into the next level of growth. It is aware that many local entrepreneurs have the right ideas to make this happen, and we will be there to support them to get their projects off the ground.

On the other hand, the green economy is described as a low-carbon, resource-efficient, and socially inclusive economy that pursues knowledge and practices that can lead to more environmentally friendly and ecologically responsible actions, business models and lifestyles. What was simply a backburner issue until a few years ago, going green today is rapidly being transformed from an option into an obligation, if not an economic necessity.

SUPPLY CHAIN SUPPORT

While these two schemes are intended to push local firms towards the next level of growth, the Bank is strongly aware of the more immediate challenges being caused by geo-political tensions in Ukraine. As was the case with the Covid-19 Guarantee Scheme, the Bank was quick to act and adopt its offering to meet the reality of local firms.

In this context, the MDB has launched the MDB Subsidised Loans Scheme following the approval of the European Commission under the Temporary Crisis Framework for State Aid. This support measure is intended to ensure the security of supply of grains, animal feeds and related products of strategic importance by assisting importers and wholesalers through the provision of temporary liquidity support primarily to build inventories. The MDB will also be offering derisking instrument with broader eligibility to enable the provision of more accessible and affordable working capital loans, thus reducing the impact on all the affected economic operators. This Liquidity Support Guarantee Scheme will be intermediated by partner credit institutions and shall cover urgent liquidity needs for working capital purposes, including higher prices for the importation of raw materials and primary goods, higher costs related to electricity and gas and other increases in working capital costs incurred by undertakings through a direct or indirect effect of the crisis.

In MDB’s short but intensive five-year history, we had the opportunity to witness first-hand the creativity and forwardlooking vision of local entrepreneurs. All this bodes well for future economic growth and quality job creation prospects. With the right tools supporting this vision, the MDB is positioning itself to truly act as one of the leading institutions supporting Malta’s economic renewal.

MDB’S NEW INVESTMENT SCHEMES

The MDB’s Guaranteed Co-Lending Scheme (GCLS) is a risk-sharing facility involving colending between the MDB and accredited commercial banks on a 50:50 basis, plus an additional uncapped MDB guarantee on the commercial banks’ part of the loan. The targeted GCLS global loan portfolio is €100 million, half funded by MDB and the other half by the participating commercial banks. Following MDB’s agreement with the European Investment Fund under the EGF, the Bank will be able to offer larger loans under this scheme, as well as an uncapped guarantee rate of 60% on the commercial bank’s financing. This will reduce substantially the banks’ exposure to credit risks and should therefore contribute to enhance significantly access to bank financing to SMEs for new investments. The maximum loan amount under the GCLS is €10 million and the scheme will be available until December 2024.

The SME Guarantee Scheme (SGS), which is also partly backed by the EGF, will offer an uncapped guarantee of 80% on a portfolio of up to €80 million. The SGS will build on the success of the MDB’s previous guarantee scheme for SMEs and will be the first uncapped guarantee product offered by the Bank which previously only offered guarantees which were capped at a portfolio level. The SGS will thus enhance enterprises’ access to bank credit for new investment as well as other purposes, including for working capital related to new investment and business transfers. The facility enables commercial banks to be more responsive to the borrowing requirements of smaller businesses, which, in turn, allows these businesses to fulfil their growth ambitions. This scheme will also be available until December 2024.