The role of guarantees to access financial markets: A study of Italian companies

Laura Martiniello,Riccardo Savio,Raffaele Marcello

doi:10.22495/cocv18i1siart5

Abstract

Access to credit in agriculture pursues the important objective of allowing the development of the agricultural sector. In recent years the need for a new paradigm rises. It aims for sustainable finance in agriculture and uses of guarantee instruments in order to mitigate risks, lower costs, and expand the opportunities for access to credit. This article aims to analyze the guarantee instruments available on the Italian financial market in relation to several variables including sector, size, age, and geographical location of the company. From an analysis of the sample of data on the guarantees provided by ISMEA (Italian Service Institute for the Agri-Food Market), emerges the presence of territorial disparities in the use of guarantees, more widespread in northern Italy, and a higher cost of debt for micro-enterprises and for funds dedicated to innovation. Research results are in line with previous research that points out the importance of guarantees to reduce financial risks and increase access to bank financing. The paper contributes to the existing research in this field by analysing the effect of guarantees on the cost of debt and by suggesting an increase in the use of these instruments in some sectors and in some areas of Italy

Highlights

Agriculture is an economic activity characterized by a high level of risk: production risks, market risks, legal and environmental risks as well as financial risks related to the ability to invest and innovate successfully
We explore the fundamental relations between guarantees and the cost of debts in the light of some additional explanatory variables as firms’ size, firms’ geographical position, firms’ age, and types of investments
Necessary to ensure the system of disbursement of guaranteed loans functions efficiently through the development of synergies among all the parties involved such as Banks, ISMEA, Guarantee Fund, and Confidi credit consortia, all of which have the capacity to play an important role at a territorial level by reducing the time and costs of access to credit, for the smaller agricultural businesses

Summary

Introduction

Agriculture is an economic activity characterized by a high level of risk: production risks, market risks, legal and environmental risks as well as financial risks related to the ability to invest and innovate successfully. Obtaining credit is largely influenced by the level of risk and information asymmetries that can increase difficulties and borrowing costs as well as other dimensional, environmental, and cultural factors that often create disparities throughout the different Italian areas (Swinnen & Gow, 1999; Martin & Roychowdhury, 2015). The Rural Development Plans – RDPs (Piani Rurali di Sviluppo) played an important role in the development of agriculture in Italy and across the EU. The European rural development policy which was put in place in the period from 2007 to 2013, and continued by the 2014-2020 plan, pursued the objective of supporting the rural development actions of the Member States (ISMEA, 2016)

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