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Publication - Report

Scottish National Investment Bank: consultation report

Published: 28 Feb 2018
Part of:
Economy
ISBN:
9781788515856

Analysis of the Scottish National Investment Bank consultation.

43 page PDF

481.6kB

43 page PDF

481.6kB

Contents
Scottish National Investment Bank: consultation report
6. National and international examples (Question 3)

43 page PDF

481.6kB

6. National and international examples (Question 3)

This section provides an analysis of respondents' thoughts as to what national and international models would be suitable for the Bank to follow. Respondents were asked to consider, "In terms of existing international models, is there a particular example that you think is appropriate for Scotland and why?" 233 respondents (58%) answered this question, with 206 responses (88%) considered to be valid.

National and international model examples

With regards to national and international examples, many respondents found the German Investment Bank ( KfW) and the Norway oil fund as the most appropriate models for the Bank to follow. Examples are ordered in terms of the most popular responses first.

Germany - KfW

Several respondents commented that the KfW has a strong track record of facilitating SME financing by providing support to a network of local, small community banks through loans and guarantees. Additionally, a small number noted that the Bank should replicate the structure of the Bank in terms of its federal and state shared ownership ( i.e. shared Scottish Government and local authority ownership). A small number of respondents also supported the model because of its ability to influence the German economy without directly competing with commercial banks. Moreover, the KfW was viewed as being effective in targeting areas across Germany that are comparatively worse off than other regions. Similarly, some respondents, including the Scottish Independent Advocacy Alliance, Friends of the Earth Scotland, the Glasgow Labour Party, the Association for Research on Banking and the Economy and a number of individual respondents, expressed the opinion that the Bank could provide start-up capital and wider assistance to local authorities, who could ultimately act as intermediaries for SMEs to access low-cost capital.

Norway - state oil fund

Several respondents were advocates of Norway's sovereign wealth fund model, with a small number noting that the country allows businesses to borrow money interest free to help boost investment. It was suggested that the Bank follow a similar model with a 1% interest cap.

A number of other models were also identified – these are set out below.

Finland - Young Innovative Company ( YIC)

Some respondents identified the Finnish YIC as a public model stating that it has helped accelerate the growth of the most promising Finnish start-ups through providing finance for equity stakes in order to develop their commercial capabilities. The Finnish Government has allegedly used equity stakes in this way to retain company headquarters and jobs in the country.

Iceland

Whilst not representing a National Investment Bank, some respondents noted that lessons can be learned from Iceland's strong governance model whereby, following the economic crash, Iceland allowed banks to fail instead of recovering them and also imprisoned bankers for their role in the banks' downfall.

Denmark

Denmark was cited as a good example due to parallels in population demographics, geography and access to natural resources, leading to suggestions that their governance models are most appropriate to examine. Additionally, Denmark's focus on green energy, with 85% of wind turbines being owned by co-ops/farmers, was considered to be a worthwhile consideration.

China

A small number of respondents noted that lessons can be learned from China's infrastructure drive since the 2007/08 recession. It was cited that, following the crash, China's unemployment soared, which drove the country to start a significant and rapid infrastructure drive. It was highlighted that as their high speed rail construction was so successful they have now built an in-demand export out of assisting other developing countries with high speed rail engineering.

UK - British Business Bank ( BBB)

A small number of respondents remarked that the Bank should follow the BBB model, which was said to make investments to fill gaps in the market for business funding, normally through investing in new financial ventures and product areas (along with some guarantee and loan programmes).

Canada - Business Development Bank of Canada ( BDC)

A small number of respondents expressed support for the BDC, stating that it has a comprehensive suite of business support services focused on efforts to assist the areas with the most deprivation in Canada. It was noted that it could be worthwhile to look at the services that BDC offer and align them with what is currently on offer in the UK, identifying any gaps which will need to be developed in the Scottish context.

Ireland - Enterprise Ireland

A small number identified the Irish model of early-stage investment as a good example. It was highlighted that by splitting their resources into co-investment packages with the private sector, they have been able to increase their coverage and leverage in professional investors. A respondent outlined the Irish model to be much more efficient at deploying capital into early stage businesses, given that it is being managed by professional investors who have market-standard obligations and incentives.

Bank of North Dakota

This publicly owned bank was cited as an appropriate model to follow due to its ability to finance the building and maintenance of key infrastructure.

Nordic Investment Bank

Parallels were drawn to the Nordic Investment Bank as an appropriate model. The Bank finances projects that improve the competitiveness and environment of the Nordic and Baltic countries. Additionally, it was noted that the Bank offers long-term loans and guarantees on competitive market terms to its clients in the private and public sectors.

Other models identified:

  • Argentina
  • Netherlands
  • Switzerland
  • Brazil
  • European Investment Bank
  • Luxembourg
  • Some US states
  • South Korea
  • Californian VC community
  • Switzerland
  • Sweden
  • Costa Rica
  • European capital fund/business growth fund
  • Japan
  • Australia
  • US CDFI Fund
  • Singapore Investment Bank

Summary

This section highlights that it is clear that there is no 'one size fits all' model for a development bank, as there is no consensus for a particular model which should be followed and that Scotland should establish a Bank that was aligned with its long-term economic needs. There are a number of suggested models to follow and these will be considered as principles for the Bank develop.


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