In the face of many difficulties in accessing traditional bank credit, an increasing number of small and medium-sized businesses are turning to alternative finance.
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But what exactly does alternative finance mean? And what are the reasons to explain the rapid growth not only in our country, but throughout Europe?
We explain what Alternative Finance means
When we talk about "alternative finance" we are referring to all those instruments and private entities that are not included in the conventional banking system.
If we want to refer to some examples of alternative finance products, we can mention online platforms for direct lending, minibond issuance, crowdfunding, invoice trading etc., all tools that can propose subjects from the economic world such as Azimut Direct, a company of the Azimut group specialized in minibonds, direct lending, private and public equity, one of the leading companies in Italy.
Why Alternative Finance Developed
The demand for credit and the search for capital by SMEs increased dramatically after Covid, but the banking credit system, which had already had its first squeezes after the 2008 economic and financial crisis, was not ready to intervene and so there was a progressive development of the alternative market.
Alternative finance is becoming increasingly important in the credit situation in Italy, especially for the economic support to small and medium-sized enterprises, where traditional banking channels are often inadequate.
Since the pandemic years, companies have begun to learn about the services offered by fintech operators, understanding the added value of professionalism, technical expertise and speed.
Is traditional bank credit far from SMEs?
The process of consolidation of the banking system began after the great global crisis of 2008 and data from the Bank of Italy show a 30 percent drop in the total number of institutions between 2015 and 2021, with a parallel drop in the number of branches in the country. In 2015, there were over 30.000 bank branches. By the end of 2021, that number had fallen to just over 20.000.
This means that if in 2015 there were 50 branches per 100.000 inhabitants, in 2021 they had dropped to 37. This phenomenon does not only concern Italy. The number of financial institutions in Europe has also decreased by almost 30% in the last decade, according to the ECB.
This consolidation process has proven to be poorly suited to the needs of small and medium-sized businesses. Three key elements are:
- The smaller number of branches has caused the loss of ties with the territory and, therefore, with the companies that work locally;
- Less diversification of credit instruments;
- Standardized financial products, not very flexible and not very customizable.
How Alternative Finance Supports the SME Economy
It is a statement of reality that today alternative finance, outside the ordinary channels of bank credit, reaches businesses directly through fintech platforms.
Fintech platforms they are gradually occupying that large slice of the market that the banks themselves are no longer able to cover, especially after the Basel III criteria imposed not only severe but even punitive rules on small and medium-sized enterprises, which represent the majority of the Italian economic system.
Allowing alternative finance to develop is therefore strategic for the development of the Italian and European economic fabric itself. The mission of alternative finance, and therefore of the world of fintech, is to provide capital to SMEs, so as to concretely support the growth path of companies and encourage the creation of new jobs.
Article published on 19 December 2022 - 09:14
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