Rome, 18/04/2007
Rome, 18/04/2007
These are the findings of the “Financial and Credit Conduct in a Multiethnic Society” survey carried out by Unioncamere, Nomisma, CRIF and Adiconsum, presented this morning in Rome. The survey also features the results of a sample survey, conducted on over one thousand non-European businessmen.
What is certain, given the marked growth of this type of business, is that the desire for integration demonstrated by the businessmen, and their overall investment capacity mean that these emerging companies should not only be considered a resource for national development within the Italian economic fabric, but also an interesting opportunity for the credit and finance system. The country is progressively taking note of this new target clientele which, moreover, is not without certain risk margins. The credit offer available today is not substantially discriminating compared to that offered to small Italian businesses. However, it is limited by the fact that it is not yet fully targeted at meeting the needs of this type of business which, in half of all cases, considers the services offered by the banks to be good, despite complaining of the growing cost of debt.
Over the last 5 years, the number of immigrant-run sole proprietorships has climbed from around 100,000 to over 227,000, with growth rates well above those of general business, approaching 10% per annum. This is a young area of business (15% of immigrant entrepreneurs are aged under 30), primarily concentrated in the field of commerce (a sector that accounts for over 40% of business), construction (29.9%) and services (13.5%). The manufacturing sector plays a much smaller role, with approximately 50% of the 25,000 plus businesses being involved in the textile and clothing industry.
Profits are generally used to increase consumption, while a small part is set aside to increase remittances to the country of origin (just over 2%).
Around one quarter of the entrepreneurs interviewed believe it is important to invest earnings in boosting their business. The ethnic groups most interested in increasing investments are those from Eastern Europe, while a smaller inclination is observed amongst African entrepreneurs, the group which sends most resources back to their country of origin.
Unioncamere-Nomisma-CRIF-Adisconsum surveys show that the envisaged average investment size is decidedly modest (just 10,700 euros).
For immigrant entrepreneurs, self-financing is the most common method for supporting business start-up costs and subsequent investments. To this we can add financial support from friends and relatives (16%), from banks (15%) and, to a lesser extent, from other financial institutions (5%). Loans from public institutions do not exceed 2.3%, demonstrating the difficulties experienced by this type of business in accessing support set aside for them by public policies.
Service and manufacturing firms tend to make greater use of bank loans. On the other hand, self-financing is particularly dominant in the construction and agricultural sectors.
Eastern European and African entrepreneurs make most use of bank loans. The Chinese, on the other hand, are more likely to be financed by their own community (friends and relatives). Chinese entrepreneurs and, to a lesser extent, Africans, display the most hesitation when disclosing the source of their finances.
Around 70% of businessmen have dealings with banks. Of these, 6% have dealings with more than one lending institution, while 64% deal with just one bank. Dealings with banks are far more frequent in the services and construction sector than in the field of commerce. Immigrants deal with Italian banks in almost all cases, while the number of foreign banks is absolutely marginal. In fact, foreign banks are used solely by businessmen of African origin.
The most common bank services are the current account (95%) and takings and payments management (24%). Around 11% of entrepreneurs use money transfer services, primarily those of Asian origin and, to a lesser extent, Africans.
50% of entrepreneurs perceive banking services to be good, while they are seen as only sufficient or poor by 27%. Opinions regarding the evolution of quality are positive and indicate a general improvement, which is particularly marked for entrepreneurs in the services sector, while it appears to be worsening for agricultural and construction companies. This worsening is primarily perceived in terms of the clarity of the services offered. Opinions regarding the cost of debt are not positive. This appears to be the aspect to which the businessmen are most sensitive.
Businessmen have access to many services and almost 40% of them have applied directly to the bank for a loan. The application was granted by the bank in two thirds of cases, while one third of applications was refused. Africans were the most likely to be refused a loan, while businessmen from Eastern Europe were the most likely to be granted a loan. Businesses in the agricultural, construction and services sectors were the least appreciated by the banking sector.
The average requested loan amount was around 34,000 euros, primarily for the purpose of starting-up or purchasing and running a business (40% overall). However, a significant number of loans (26%) were requested for purchasing or renovating a house.
The various ethnic groups behave in a differentiated fashion with respect to the purpose of the loan. In fact, while most business start-ups and takeovers were achieved by entrepreneurs of Asian origin (Chinese, Indians and Pakistanis), most loans for the purchase of instrumental assets (machinery, vans and lorries) were taken out by entrepreneurs from Eastern Europe.
Loans are generally repayable in short-term installments, while mortgages are repayable over the long term. A fairly significant share is represented by current account credit. Economic (income statements, pay packet) and personal guarantees are required (guarantees from associations and credit guarantee consortia, as well as external guarantors).
There is therefore no doubt that the companies which obtain loans are highly reliable companies. An analysis of the size of the loan with respect to its purpose indicates that entrepreneurs already have significant sums in their possession for the takeover, primarily making use of bank loans to supplement this and finalize the deal. This attitude may be the effect of the entrepreneurs’ distrust of financial services, or greater financial institution awareness/caution when dealing with businesses of this kind.
An analysis of which types of banks fund immigrant businesses shows that the market is covered, to a significant extent, by small banks, which account for around 26.79%, while the medium and large banks cater for 19.44% and 20.48% respectively of this market. In view of the amounts, the largest and biggest banks covered over 40% of the market in June 2006, while the small banks covered 23.88%.
The model adopted by the financial institutions in their dealings with the businesses makes use of slightly different systems compared to those used with Italian businesses. The financial institutions tend to entrust the sector associations and guarantee consortia with performing pre-selections on their behalf. Overall, the rejection rate, of around 15%, is only slightly above the national average, and thus does not represent an adverse selection phenomenon.
The serious and light default rate of small immigrant businesses has remained substantially stable over the period of observation. However, the write-off rate has increased (reaching almost 8% in June 2006). The overall risk for small immigrant businesses has risen from just under 10% to 14.5%. The overall credit risk, which was close to that of sole proprietorships and small businesses in June 2003, grew over the period of observation in keeping with the maturity of the contracts, while that of small businesses has stayed stable overall, falling from 10.53% in June 2003 to 10.11% in June 2006. If we compare the write-off rates of three groups (small immigrant businesses and small businesses/sole proprietorships and the various ethnic groups of the immigrant entrepreneurs), other significant differences emerge: the write-off rate for small immigrant businesses and the ethnic groups in question is substantially aligned and has grown over time, while that for small businesses (at 4.7% in June 2006) fell between June 2003 and June 2006.
