The credit crunch "pushes" Italian SMEs towards alternative finance. In this perspective, the new rating attribution models and technology connected to artificial intelligence could represent a new "promised land" for Italian companies in search of liquidity. Also because in June 2019 bank loans to non-financial companies recorded a -6,4% on the previous year, or 45 billion less credits in 12 months (analysis by the Credito Confesercenti observatory on Bank of Italy data) . The most recent analysis by the Bank of Italy also shows a further -2019% in November 1,9, he explains Mattia Ciprian, founder in 2009 with Valentino Pediroba of Modefinance, the first Fintech rating agency in Europe.
President Ciprian, the latest analysis that you conducted on 50.000 companies therefore confirms the persistent difficulty in accessing credit by small and medium-sized enterprises.
«The evolution of the market, and the changed regulatory conditions, highlight this contraction on credit. If it is true that the restriction of bank credit has strongly affected the 141 industrial districts present in Italy, which make up about a quarter of our country's production system, on the other hand companies find themselves having to face a "post- crisis". The past is a sort of Darwinian selection, where the weakest subjects have been hit, and sunk hard, leaving greater confidence and strength to those who have managed to resist. The rating, seen as an index of resilience (as the ability to face and overcome the period of difficulty), however shows a general improvement in the conditions of SMEs".
This scenario has therefore prompted entrepreneurs and start-ups to look for new sources of financing.
«What has been said has led to the explosion of alternative finance instruments: crowdfunding and crowdinvesting, factoring, invoice trading, and a greater use of moribunds for small businesses have established themselves in the Fintech panorama. All this, to respond to the new liquidity and credit needs of the Italian entrepreneurial fabric, which has encountered the decrease in risk-taking by the traditional system».
What are the main factors that lead to little liquidity in the accounts of Italian companies: low equity, however high debt, or is there something new? For example, a different approach to the traditional banking system.
«The changes in the rules have the greatest influence on this evolution of the system: the adoption of new guarantees, the introduction of the IFRS9 accounting standard for banks and renewed European regulations, have indirect developments also for companies. If in the Italian case they already show historical intolerances, new needs are added to them, above all the internal capacity of the company itself to keep its economic-financial situation under control. Primarily to avoid any penalties, but also with a view to adopting healthier and more balanced methods of developing one's business. In dealing with these changes, it is the banks themselves who find themselves in the situation of having to apply early warning measures and preventive provisions to a different extent than in the past. Particular attention is paid to the ability of the banking system to intercept the riskiest situations in advance, with the implementation of predictive tools (early warnings), such as to unequivocally and promptly grasp the warning indications».
Has the introduction of the IFRS9 standards effectively severed ties with the old system of creating and managing credit in Italy as well?
«The IFRS 9 accounting standard, adopted two years ago by the banking system, classifies creditors by stage, i.e. by stage of life: upon their initial disbursement, loans are usually in stage one, which makes it possible to assess the probability of default over a period of 12 months; in view of particular circumstances, they can pass to stage two, issuing an alert for which the bank will have to assess the probability of default of the creditor on the future life of the instrument, thus causing a necessarily higher provision for credit risk; all this, in order not to reach stage three, i.e. the state of default».
What kind of difficulty does accessing alternative debt capital or innovative capital instruments present for Italian SMEs? Little knowledge of the tools, reluctance of entrepreneurs to involve third parties in the company capital.
«I wouldn't talk about difficulties, because intrinsically Fintech brings with it greater ease of use than pre-existing tools and has the user at the center (also given the close relationship with technology and digitization). Rather, we are discussing tools to date little known by the companies themselves. There is also a widespread and never-ending difficulty in abandoning the status quo, the "it's always been done this way": those who don't have particular problems continue to adopt traditional solutions and rely on banks as their primary source of financing. Those who, on the other hand, need liquidity and cannot find the usual solutions, and at the same time realize the internal need for evolution, go in search of these alternative solutions, instruments which are therefore complementary to the banks' offer. There is also an awareness of the value of transparency that Fintech has brought, as well as a greater democratization of access to credit».
Modefinance is the first Fintech rating agency in the European panorama: what scenarios can artificial intelligence tools support the creation of corporate ratings open up for healthy Italian companies?
«Were we to highlight only two of the characteristics that distinguish the use of advanced technologies in the solutions offered by Modefinance, I would speak of speed and accuracy. The evaluation of complex information, if processed by Artificial Intelligence and, secondly, by the human analyst, allows ratings to be processed in an extremely short time compared to traditional ratings; the same data analysis through statistical and algorithmic models shows greater accuracy. Both of these features make Fintech ratings more convenient and accessible for companies, even for the smallest ones».
A global assessment of the panorama of Italian SMEs in the light of all the latest analyses?
«It shows a decisive improvement compared to the past: capital has increased in the last 3 years by 5,6% (only in the North-East there is a +7%). On the other hand, the debt ratio – which represents the total liabilities compared to shareholders' equity – fell from 3.60 to 2.89, and the number of loss-making companies decreased. Therefore, the number of SMEs is growing, demonstrating a significant but not fully exploited growth potential, which could benefit from obtaining a rating to access more favorable conditions for accessing debt capital".
