Alternative finance is gaining increasing importance within the Italian credit scene, especially as regards financing SMEs, which are often underserved by the traditional banking channel. This growth goes hand in hand with that of fintech, a phenomenon that has literally exploded in recent years, when companies, perhaps due to the pandemic, began to experience the service offered by fintech operators and understood its added value, made up of professionalism, specialisation and speed.
As a matter of fact, alternative finance or non-banking finance today reaches businesses through fintech platforms, which fill the market space that has been created due to the banking consolidation process and stricter regulation, with Basel III.
The main alternative finance instruments are minibonds, equity crowdfunding, invoice trading, direct lending, ICOs and crypto-assets, private equity and venture capital. Below we shed light on some dominant trends in access to capital by domestic SMEs.
The minibond industry has been growing steadily since 2013.
Minibonds are a financing tool for unlisted companies that are easy to issue, less complicated and less expensive. The reference legislation is Decree Law No. 83 of 22 June 2012 ("Development Decree") and the subsequent additions and amendments made by Decree Law No. 179 of 18 October 2012 ("Development Bis Decree"), Decree Law No. 145 of 23 December 2013 ("Destination Italy" plan) and in the more recent Decree Law No. 91 of 24 June 2014 ("Competitiveness Decree").
With inflows of EUR 1.67 billion from 219 issues in 2021, a clear upturn from just over EUR 900 million from 191 issues in 2020, the minibond industry has returned to pre-Covid levels by winning new issuers and strengthening positions. The number of intermediaries and investors interested in these alternative instruments is growing steadily, with an interesting focus on green issues.
More and more SMEs are choosing equity crowdfunding over banks.
As of 30 June 2022, 51 portals for raising capital online were authorised by Consob, exactly the same as the year in 2021.
The number of Italian companies that have turned to equity crowdfunding is 742; new venture capital campaigns were 219 in the same period, organised by 215 different companies (there are cases of additional rounds organised by the companies themselves). The success rate continues to remain high: in the first 6 months of 2022 it is at 88.9%; the overall average for the entire sample since 2014 is 79.3%.
Among the issuers, SMEs are slowly gaining space, but the market is still dominated by innovative start-ups - 56% of cases in the last year.
Still little data comes from direct lending, which is however growing.
Direct lending is a useful way to make up for the lack of credit supply from traditional finance channels, to obtain liquidity quickly, at a fixed cost and in a flexible and customised manner. Direct lending in Italy represents a segment where it is still quite difficult to gather comprehensive information. New funds continue to arrive on the market, however, and between private debt and direct lending, EUR 2.214 billion were invested in Italy in 2021, almost double the 2020 figure (EUR 1.153 billion). All in 275 subscriptions (+28% compared to 215 in 2020), distributed among 142 companies (127 in 2020, an increase of 12%).
ICOs and NFTs are all the rage, but few industrial applications are yet to be seen.
Initial Coin Offering (ICO) is one method of raising capital from companies that are just entering the market and looking for investors. The Initial Coin Offering (ICO) allows the purchase by potential investors of cryptocurrencies or tokens exchangeable for goods or services provided by the issuer.
Nfts (an acronym for non-fungible tokens) are certificates that attest to the authenticity, uniqueness and ownership of a digital object (such as an image, a video, a song or even a tweet).
Despite the manifold potential of these instruments, Italian SMEs struggle to find real areas of application, outside of specific sectors such as art.
Italian invoice trading platforms have mobilised EUR 1.24 billion for SMEs in the last 12 months.
Invoice trading, i.e. the transfer through an online platform of commercial invoices in exchange for a cash advance, is a tool that SMEs view with great interest.
In 2021, invoice trading platforms mobilised EUR 1.24 billion in total, a 7.5 per cent increase over the previous year. Not only that, the sector is also growing strongly thanks to new resources from funds specialising in investing in trade receivables.
In closing, these trends paint a picture in which alternative finance instruments play almost on a par with traditional financial instruments for Italian SMEs. The above-mentioned numbers also show how access to capital remains one of the crucial resources to support and strengthen our country's economy.
Sources:
https://www.osservatoriefi.it/efi/wp-content/uploads/2022/07/reportcrowd2022.pdf