Maxi Future for Mini Bonds

Policy Measures taken by the Monti government concerning credit to firms are starting to yield their first results. It took a long time, but we have to keep in mind that true structural reforms take years before making their impact felt. It is a major reform, because according to the new framework, banks no longer have a monopoly on business loans. By having the possibility of issuing mini-bonds that can be bought by institutional investors, firms can now raise money while eschewing banks. Mini-bonds are a long-established form of financing in the US and UK, and anche in France and Germany, traditionally bank-centric countries, they are undergoing a fast evolutionary process.

Can we expect rapid quantitative development of mini-bonds in the United States in the short run? I think we can expect growth in our country, too, but I think it will proceed at a slower peace due to various factors.

First of all, the biggest problem is Italian banks themselves. Although constrained by stringent capital requirements in a phase of overall economic weakness, banks will strive to be competitive on the best clients, which are also those are of interest to institutional investors. However, the introduction of mini-bonds will have a beneficial effect, already starting to be exerted, by increasing the quantity of credit to the economy and thus reducing cost.

The second factor is the sluggishness of the Italian economy, which is posting growth rates too low for investment demand by firms to be strong, which is a precondition for issuing mini-bonds. Investors are unwilling to buy mini-bonds to fund financial restructurings, but are willing to do so if they are financing an expanding business.

The third factor is the difficulty that non-banking financial Intermediaries have in dealing with credit profitably, since they have a limited stairs and run into significant information and management costs while managing and vetting firms their investments. For non-banking credit to be available, you need operators that know how to do what banks have always done, but do not yet have the economies of scale enjoyed by incumbents banking.
This does not mean that mini-bonds are of little use in Italy. They represent a fundamental innovation, since the new instrument augments the sources of funding available to firms and expands the demand for credit. But it is likely that it will take a few years before a sizable non-banking credit market Develops in Italy.

However the micro-firms that dot the country's manufacturing landscape are unlikely to benefit from mini-bonds. These businesses for the fixed costs of opening a non-banking credit line are very high, a thing that could be compensated by very high interest rates, Which would then discourage resorting to a financial instrument longer available.

For micro-firms, we need to devise instruments that do not require sophisticated case-by-case analyzes solvency but can profit from the securitization of their debt, so to apportion risk across a wide specturm of investors.