The Law for Strengthening Factoring will allow interest rates –set by banks for credits requested by micro, small and medium-sized enterprises (MSMEs)– to be reduced by half, from 30% to 15%, Production Minister Piero Ghezzi estimated.
Nowadays MSMEs serving large companies, which are the majority of them, receive bills to be paid within 90 or 120 days, so in order to capitalize they ask loans to banks using such invoice as proof of payment.
However, as bills are not considered as securities, he said, banks reject loan applications or approve them by setting annual interest rates ranging from 25% to 30%.
Cheap Financing
According Ghezzi, the law, which turns invoices into securities, will enable MSMEs to secure cheap financing.
"Under this new law –given that bills will become securities– banks will be able to establish that the large company is the debtor and will determine the financing based on that risk," he noted.
"This might cause interest rates to fall to 15% annually and even come down to a single digit, between 6% and 8%," the minister said.
Potential Beneficiaries
After the Cabinet meeting that approved the decree to boost the Law for Strengthening Factoring, Ghezzi estimated that one million MSMEs will benefit from the regulation.
"About a million MSMEs will potentially benefit from the regulation,” he said.
(END) RGP/JJN/RMB
Published: 7/23/2015