Financing SMEs and Entrepreneurs 2020

47. Turkey

Key facts on SME financing

SME lending grew steadily over the whole 2007-2018 period, with the exception of a minor decline of 1.6% in 2009. SME loans grew by 19% in 2018. The share of SME loans in total business loans remained broadly stable, at 32.3%, slightly below the Scoreboard median (38%).

Venture and private equity investments show an erratic pattern. After reaching a peak in 2011, investments remained subdued in the years after, until 2017, when new investments surpassed 2011 levels for the first time. In 2018, a 108% increase from 2017 was observed. Non-performing loans (NPLs) ratio for both business loans and SME loans rose significantly in 2018, to 4.01% and 6.69%, respectively. Nevertheless, these levels remains lower than the previous peak levels in 2009.

The number of bankruptcies decreased from 131 firms in 2017 to 105 in 2018. Company closures, including sole proprietorships, totalled 38 698 enterprises in 2018, decreased from 42898 enterprises in 2017, highlighting that bankruptcies (upon court verdict) constitute a relatively uncommon phenomenon in Turkey.

In 2012, the Turkish Government enacted a law to stimulate the development of the business angel industry. A secondary legislation came into force in 2013. The purpose of the law and the secondary legislation was the establishment of a legal framework and the provision of generous tax incentives for licensed angel investors.

The government also introduced regulation regarding fund of funds, which enables the Ministry of Treasury and Finance to transfer capital to a fund of funds under certain conditions in 2014. In 2017, the fund of funds law, which regulated capital contribution of the Ministry of Treasury and Finance (Turkish Treasury) to funds of funds was changed. With this change Ministry of Treasury and Finance has the authority to invest not only fund of funds but also venture capital funds. Secondary legislation of Direct Investment to Venture Capital Funds came into force on 5 June 2018.

KOSGEB constitutes the main body for executing SME policies in Turkey. It provides 11 different support programmes and supports collateral costs for SMEs with considerable outreach throughout Turkey.

In 2018, KOSGEB made some changes in its support programmes with a vision to give priority to SMEs that produce innovative, technological and high value-added products, who want to carry these products to international markets and who are export-oriented. In this direction, KOSGEB made innovations in its support models in order to extend the technology to the base through SMEs, strengthen the manufacturing industry, support domestic and national production for the production of imported products domestically, increase internationalization and enable large and small business cooperation. Additionally, in the field of entrepreneurship, KOSGEB has established a new entrepreneurship model with a focus on medium-high and high-tech fields.

At the end of 2018 KOSGEB has introduced a new loan interest support programme. The new model provides resource efficiency, facilitates access to finance for enterprises in high value added sectors and is easily accessible throughout the year. SMEs can be classified as Entrepreneurial Enterprises, Project Oriented Enterprises, Technology Based Enterprises and Enterprises in Strategic Priority Sectors. Classified SMEs can benefit from investment, working capital, export and emergency support loan types with subsidised loan rates. In 2016, Turkey passed a bill on movable collateral in commercial transactions. The goal of the reform is to increase access to finance against valuable tangible and intangibles assets such as receivables, machinery, inventory and stock, which comprise 78% of SMEs' total assets. This reform led to the creation of 22 361 security rights in 2017, 2018 and the first six months of 2019, amounting for security right to TRY 526.3 billion, USD 41.6 billion US Dollars and EUR 30.2 billion Euros and actual financial amount is TRY 51.1 billion Turkish Liras, USD 8.2 billion, and EUR 1.03 billion. The most used assets are receivables, machines and inventories respectively.

Table 47.1. Scoreboard for Turkey

Indicator	Unit	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Debt
Outstanding business loans, SMEs	TRY billion	76.5	84.6	83.3	125.5	162.8	199.7	271.4	333.3	388.7	420.5	513.2	611.3
Outstanding business loans, total	TRY billion	190.6	250.3	262.7	353.2	459.0	528.8	715.5	884.6	1 100.1	1 314.4	1 609.8	1 890.2
Share of SME outstanding loans	% of total outstanding business loans	40.14	33.80	31.70	35.52	35.47	37.77	37.94	37.67	35.34	32.00	31.88	32.34
Government loan guarantees, SMEs	TRY billion	0.1	0.3	0.6	0.9	1.1	1.1	1.1	1.4	1.6	5.3	236.7	94.5
Government guaranteed loans, SMEs	TRY billion	0.1	0.4	0.8	1.3	1.6	1.6	1.5	1.9	2.3	7.2	262.6	107.9
Direct government loans, SMEs	USD million	552	842	997	855	1 174	928	2 632	1 709	1 764	1 749	284.5.	457
Non-performing loans, total	% of all business loans	3.8	3.7	4.91	3.43	2.61	2.82	2.69	2.64	2.68	2.9	2.81	4.01
Non-performing loans, SMEs	% of all SME loans	3.62	4.79	7.64	4.49	3.1	3.17	3.12	3.27	3.92	4.9	4.71	6.69
Non-bank finance
Venture and growth capital*	TRY million	13.7	0.9	6.3	47.6	373.2	110.1	335.5	124.4	135.3	343.2	435.1	904
Venture and growth capital (growth rate)*	%, year-on-year growth rate	..	-93.76	639.58	652.9	684.82	-70.5	204.78	-62.93	8.77	153.64	26.79	108
Leasing and hire purchases	TRY billion	11.7	14.4	11.1	10.7	15.1	17.2	25.0	29.5	36.7	44.0	52.0	60.7
Factoring and invoice discounting	TRY billion	6.2	5.6	8.4	12.4	14.2	16.3	20.1	24.7	25.0	31.0	41.6	31.4
Other indicators
Bankruptcies, total	Number	52	47	50	68	72	141	69	99	108	222	131	105
Bankruptcies, Total (growth rate)	%, year-on-year growth rate	..	-9.6	6.4	36.0	5.9	95.8	-51.1	43.5	9.1	105.6	-41.0	-19.8

Source: See Table 47.9.

* The data presented in this section do not refer to outstanding values but show the new investments each year.

In Turkey, an enterprise is a legal unit or a combination of legal units. The Turkish SME definition has been prepared in line with the EU definition, even though the financial thresholds applied are lower (see Box 47.1). As illustrated in Table 47.2 micro-enterprises accounted for more than 93.4% of all firms in 2017, whereas only 0.2% of all enterprises employ more than 250.

Table 47.2. Distribution of firms in Turkey, 2017

Firm size (employees)	Number of firms	%
All enterprises	3 100 412	100
SMEs (0–249)	3 095 037	99.8
Micro (0-9)	2 896 357	93.4
Small (10-49)	170 088	5.5
Medium (50 -249)	28 592	0.9
Large (250+)	5 375	0.2

Note: Data excludes financial and insurance enterprises. Non-employer enterprises are included. The figures have been measured by the Annual Industry and Service Statistics, 2017 through administrative records and include data such as income generated, purchases, gross value added and employment costs of businesses within this part of the economy.

Source: Turkish Statistical Institute, Annual Industry and Service Statistics, 2017. http://www.turkstat.gov.tr/PreIstatistikTablo.do?istab_id=2786

SME lending

Total outstanding business loans and SME loans increased by 294% and 218% respectively over the period of 2007-18, considering inflation-adjusted figures. In 2018, outstanding SME loans increased by 19.1% compared to 2017, reaching TRY 611.3 billion. In 2018, the growth in SME loans was higher than the growth in total business loans. Total business loans grew by 17.4%, reaching TRY 1.890 billion. Therefore, the share of SME loans in total business loans increased as well, from 31.9% in 2017 to 32.3% in 2018.

Alternative sources of SME financing

The data provided in Table 47.1 includes information on venture capital, private equity investments by venture capital and private equity investment companies, and venture capital and private equity portfolio management companies, which are managers of VC&PE Investment Funds reporting to the Capital Markets Board (SPK). Comparing the years 2017 and 2018, new investments in venture capital or private equity increased significantly by 108 % in 2018, amounting to TRY 904 million.

After the enactment of the new Capital Markets Law in December 2012, secondary legislation regarding venture capital/private equity investment companies was passed in October 2013, and the secondary legislation regarding venture capital/private equity investment funds entered into force on 1 July 2014 in the Official Gazette. Currently, 15 VC&PE Investment Funds have a total of TRY 1.5 billion worth of investments in 2018.

Other indicators

The share of SME non-performing loans out of total SME loans stood at 3.6% in 2007, peaked at 7.6% in 2009, but then rapidly declined to 3.1% in 2011. The NPL ratio for SME loans remained roughly constant between 2011 and 2014, but began to rise after 2014. The rise in NPL ratio was relatively small in 2015and rose sharply in 2016, reaching 4.9% for SME loans, and 2.9% for all business loans. The increase in NPL ratio can be explained by both SMEs having difficulties to repay their debts and the amount of new SME loans granted in 2016 having decreased considerably comparing to 2015. NPL ratio for SMEs leapt to 6.9% in 2018, the second highest level and a relatively high level compared to throughout the 2006-2018 period. Bankruptcies are declared in a number of ways in Turkey. A debtor firm or its creditors can directly apply to a commercial court to start bankruptcy procedures. When the liabilities exceed the assets, the authorised representatives or the managers of capitalised companies and cooperatives are obliged to inform a commercial court. A creditor can request the commercial court to begin proceedings if the creditor has been sent a payment order which has not been paid. The court can then resend the payment order to the debtor and it should be paid within five days, along with the court costs. If there are no objections, the payment order becomes final. However, the debtor can object and the proceedings are then halted. In addition, the creditor can also file a bankruptcy case with the commercial court. These legal proceedings can be lengthy, resulting in a low number of bankruptcies. Article 35 of the Turkish Code of Commerce orders amendments to the trade registry to be published in the Turkish Trade Registry Gazette, including announcements on bankrupted firms. According to the Turkish Trade Registry Gazette database, there were a total of 131 firms ruled as bankrupt in 2017.

A more detailed look at company closures illustrates that bankruptcies constitute an uncommon way to close companies in Turkey. The closing of companies in Turkey takes place in three ways; liquidation (voluntary), dissolving without liquidation (mergers-demerges) and liquidation due to bankruptcy (upon court verdict). The number of closed commercial companies in Turkey in 2017 amounted to 14 701, while 28 197 sole proprietorships were also closed in the same year, amounting to 42 898 companies in total. This is a 2.4 percent increase year-on-year (see Table 47.3).

Table 47.3. Number of company closures in Turkey

	2011	2012	2013	2014	2015	2016	2017	2018	2017-2018 (%)
Joint Stock Company	1 399	1 624	1 822	1 713	1 603	2 277	2 322	2436	4.9
Limited Company	11 548	12 433	13 645	12 187	10 309	8 700	11 127	10067	-9.6
Unlimited Liability Company	147	132	74	130	89	82	65	57	-12.3
Commandite Company	10	6	3	8	6	4	3	4	33.3
Cooperative Company	1 896	1 899	1 866	1 841	1 632	1 297	1 184	1029	-13
Sole Proprietorships	41 129	31 906	65 298	71 526	42 960	29 537	28 197	25105	-10.9
TOTAL	56 129	48 000	82 708	87 405	56 599	41 897	42 898	38698	-9.7

Source: The Union of Chambers and Commodity exchanges of Turkey.

Government policy response

KOSGEB

In Turkey, KOSGEB, the organisation affiliated to the Ministry of Industry and Technology, is the main body for executing the policies regulating SMEs. For this duty KOSGEB is implementing the “Regulation Concerning Support Programmes of KOSGEB”. The purpose of the Regulation is to set out the principles of works and proceedings related to support programmes to be implemented by KOSGEB. These programmes aim at improving SMEs productivity, competitiveness, achieve integration in the industry in accordance with economic development, increase their share of exports, promote research and development, innovation and cooperation activities and develop entrepreneurship culture and support establishing successful enterprises to meet the economic and social needs of the country.

The Regulation includes the code of practice for the support programmes. Eleven different support programmes (generally project based) are offered to SMEs by KOSGEB:

• R&D Innovation and Industrial Implementation Support Programme

• Entrepreneurship Development Support Programme

• Cooperation and Collaboration Support Programme

• SME Development Support Programme

• Emerging Companies Market SME Support Programme

• KOBİGEL-SME Development Support Programme

• TEKNOPAZAR-Technological Product Promotion and Marketing Support Programme

• International Incubator and Accelerator Incentive Support Programme

• New Loan Interest Support Programme

• SME Technological Product Investment Support Programme and

• Strategic Product Support Programme

These programmes are designed to take into consideration the basic needs of SMEs, with the goal of disseminating a culture of entrepreneurship in society.

By the end of 2018, the number of SMEs registered in the KOSGEB database had reached 1 402 595, and 165 209 of these enterprises had been directly supported by KOSGEB between 2010 and 2018 via different incentive schemes, for a total amount of TRY 4 335 million (excluding credit interest support payments by KOSGEB).

KOSGEB’s services are accessible across the whole country. It provides its services to SMEs and entrepreneurs via different kinds of KOSGEB Directorates. At the end of 2018, there were 92 KOSGEB Directorates in 81 provinces of Turkey, 8 KOSGEB laboratories (7 metal laboratories and 1 plastic and rubber laboratory) in 5 provinces, 4 Technology Development Centres in 15 provinces, 103 R&D Innovation Cooperations, and 99 representatives in 35 provinces.

As of July 2018, a unit responsible for monitoring and evaluating of support programmes was established in KOSGEB. This unit has established a support programme monitoring and evaluation system by building the legislative and technological infrastructure. As a consequence, the implementation of KOSGEB support programmes is expected to improve in the near future.

The Turkish Government considers access to finance as one of the major priorities for Turkey’s SME policy. To overcome the banking system’s apparent inability to provide funds to support SMEs and related infrastructure investments, a number of targeted investment credit interest support programmes have been introduced by KOSGEB since 2003. These programmes were identified in accordance with the main priorities in the respective areas where gaps are thought to exist.

Within these programmes, KOSGEB pays loan interests of SMEs that obtain loans from banks contractual with KOSGEB, allowing SMEs to access and utilise bank loans at more favourable conditions. More than 500 000 SMEs have benefited from KOSGEB’s credit interest support programmes and used EUR 4.4 billion worth of credits between 2003 and 2018 from banks, both public and private, who signed protocols with KOSGEB.

The adverse effects of the global crisis on SMEs continued in 2017. For that reason, KOSGEB continued to support SMEs accessing bank credits. For this purpose, by the end of 2016, KOSGEB initiated another interest free credit model for SMEs and allocated an important budget for it. In 2017, both the number of beneficiary firms as well as the allocated credit increased dramatically.

Table 47.4. The KOSGEB credit interest support programme in Turkey

Year	Number of beneficiary firms	Total amount of allocated credit (in EUR)1
2003	556	10 128 666
2004	2 840	65 661 209
2005	3 753	100 211 510
2006	2 787	71 642 404
2007	9 679	224 348 013
2008	23 886	397 653 221
2009	69 264	621 933 529
2010	43 310	425 028 172
2011	48 218	578 396 030
2012	7 408	103 804 897
2013	343	6 666 555
2014	3 143	30 567 170
2015	593	6 321 722
2016	1 060	32 444 503
2017	290 379	1 730 568 871
2018	160	8 578 685
Total	507 379	4 413 955 157

Note As of the 29 December 2017, TRY/EUR conversion rate of 4.5.

Source: KOSGEB, Activity Report, 2017.

KOSGEB is also making efforts to increase the effectiveness of financial and stock market instruments, both individually and through other endeavours and partnerships. In this context, KOSGEB built partnerships with financial structures such as the Credit Guarantee Fund (KGF), the KOBI Venture Capital Investment Trust Inc. Co. (KOBI VCIT) and the Turkish Investment Initiative (TII). In addition to these initiatives, KOSGEB also carried out a project named “G 43 Anatolian Venture Capital Fund Project” which was finalized by the end of 2017.

Credit Guarantee Fund (Kredi Garanti Fonu A.Ş.)

The Credit Guarantee Fund (KGF) was founded in July 1991. As a non-profit guarantee institution, KGF provides access to finance for SMEs that cannot benefit from bank loans due to insufficient collateral. Its shareholders include KOSGEB (29.2%), TOBB - The Union of Chambers and Commodity Exchanges - (29.2%), TESK - The Confederation of Turkish Craftsmen and Tradesmen - (0.1%), and 27 Turkish banks with equal shares of 1.5%. Those 27 banks represent almost the whole Turkish banking sector in terms of loan volume (98%).

Along with the guarantees backed with its own equities, the Turkish Treasury provides counter-guarantees for KGF. In return, KGF issues guarantees for banks which provide loans to SMEs. Moreover, the KGF benefits from counter-guarantees from foreign institutions, such as the European Investment Fund (EIF). KGF’s cooperation with the EIF has been productive, with projects such as the Instrument for Pre-Accession (IPA), the Competitiveness and Innovation Programme (CIP), the Multiannual programme for enterprises and entrepreneurship (MAP), focusing in particular on small and medium-sized enterprises. In 2017, KGF increased the number of participating financial institutions under IPA, by issuing a uniform protocol with additional banks.

In late 2016, KGF took part in The Union of Chambers and Commodity Exchanges of Turkey (TOBB) Nefes Project, which involves two Turkish banks and TOBB along with KGF. Under this project, related banks extended KGF guarantee-backed loans to TOBB-member SMEs with lower interest rates compared to current market rates. The interest rate difference has been covered by TOBB by keeping deposits equal to the volume of loans issued by participating banks. As of 2016 at year-end, 12 193 loan applications (TRY 1.2 billion) had been approved by KGF under this project.

While KGF used to apply a portfolio guarantee system (PGS) only in equity-backed guarantees, the TOBB Nefes Project has been the first application of Treasury-backed KGF portfolio guarantees. As discussed previously, there was a much more rapid increase in loan guarantee volumes in 2017, as the PGS was implemented under Treasury-backed KGF guarantees (see below Table 47.5).

Upon publication of the Decree regarding the Amendment on the Treasury Support provided to Credit Guarantee Institutions in the Official Gazette on March 2017, the related protocol between KGF and Undersecretariat of Treasury has been amended enabling KGF to issue loan guarantees up to an amount of TRY 200 billion.

As of 2017 year-end, the utilized portion of the TRY 200 billion Treasury-backed KGF guarantee limit has been exceeded by TRY 195 billion. The undersecretariat of the Treasury extended additional guarantee authorisations for KGF in January 2018 and in May 2018 amounting to TRY 55 billion and TRY 35 billion, respectively for the purpose of covering market demand and maintaining the support provided. These additional guarantee limits were decreased to TRY 52.5 billion TL and TRY 32.5 billion. While the cumulative guarantee volume issued by KGF under Treasury-backed State support programme during the period of 2010-2018 reached 280 billion TL, the outstanding risk of those guarantees equalled 199 billion TL as of 2018 at year-end. Along with banks, KGF signed a uniform guarantee protocol with 12 leasing companies, in which KGF shareholder banks are holding major share, representing almost eighty percent of the sector.

Table 47.5. KGF guarantees and credit volumes in Turkey

Year	No. enterprises	No. guarantees	Guaranteed amount (in TRY million)	Credit volume (in TRY million)
2007	249	305	52.9	75.4
2008	914	1 138	284.5	402.5
2009	1 905	2 605	565.3	790.6
2010	1 933	3 090	938.9	1 302
2011	2 256	3 207	1 123	1 622
2012	5 012	5 517	1 114	1 553
2013	2 462	2 760	1 061	1 467
2014	4 233	5 262	1 392	1 888
2015	6 015	6 667	2 446	3 324
2016	23 365	26 595	7 375	9 580
2017	314 239	390 905	238 774	264 982
2018	123 931	216 171	95 010	108 469

Note: Above figures represent approved KGF equity backed and KGF Treasury backed guarantees.

Source: KGF.

In addition, international financial organisations such as the World Bank, the European Commission, the European Investment Bank and the Council of Europe’s Development Bank provided direct loans to SMEs, which were guaranteed by the Turkish Treasury.

Table 47.6. International financial institutions’ direct loans with treasury guarantee in Turkey

In USD million

	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Direct loans	552	842	997	855	1 174	928	2 632	1 709	1 764	1 749	284.5	457

Source: Turkish Treasury.

Support for start-ups

Start-ups in Turkey have very limited access to start-up capital since they lack financial records and collaterals required by banks.

KOSGEB is in charge of intervening in this field, by giving grants (up to TRY 50 000) and loans (up to TRY 100 000) to new entrepreneurs. Eligible costs are registration costs, capital equipment and operating expenses. The support rates range between 60% and 70% of total expenses, depending on the region’s development priority state. Entrepreneurs who are women, war veterans, handicapped persons or relatives of martyrs, receive support at a 20% higher support rate. An entrepreneur can submit an application to KOSGEB for this support after or just before setting up his/her business, following the completion of a 32-hour start-up training implemented by either KOSGEB or a KOSGEB-approved public or civil organisation, or following the completion of an entrepreneurship lecture dispensed by an approved university and high school. Mandatory 32 hour training is not required for those type of lectures and courses..

Between 2010 and 2018, 1 099 473 participants completed start-up training programmes, of which 46.9% were women. From this population, 57 677 participants set up their businesses (approximately 46.9% were women) and used KOSGEB start-up capital support in varying amounts up to TRY 150 thousand. The total amount disbursed by KOSGEB for this purpose was approximately TRY 1 452 million.

Energy efficiency programmes

KOSGEB considers energy efficiency an important issue and therefore introduced a support programme for pre-energy audits, audits, training, consultancy and application services to be offered to SMEs. These services aim to increase energy efficiency services, offered by accredited energy efficiency companies which are subsidised under the “Energy Efficiency Supports” programme.

With this support, depending on the level of development of the region, between 50 and 70% of energy efficiency expenses of SMEs are covered by KOSGEB within the fields of pre-energy audits, audits, consultancy for productivity enhancement projects, energy manager training, machinery/equipment, installation equipment/materials and labour up to TRY 75 000. As of 2018, 44 SMEs had benefited from the Energy Efficiency Support Programme. The total amount disbursed by KOSGEB for this purpose was TRY 225 393.

COSME

KOSGEB is also responsible for the national coordination of the European Commission’s Programme for the Competitiveness of Enterprises and SMEs (COSME). One of COSME’s main objectives is to provide enhanced access to finance for SMEs in different phases of their lifecycle: creation, expansion or business transfer. In order to achieve this objective, the EU will mobilise loans and equity investments for SMEs:

• Through the Loan Guarantee Facility: the programme will provide guarantees and counter-guarantees to financial institutions (e.g. guarantee societies, banks, leasing companies) so that they can provide more loans and leases to SMEs.

• Through the Equity Facility for Growth, the programme will provide risk capital to equity funds investing in SMEs mainly in the expansion and growth-stage phases.

As a result of KOSGEB’s coordination activities such as guidance, leading and publicizing regarding the access to finance component of COSME, QNB Finansbank and EIF signed guarantee agreements which will allow QNB Finansbank to provide TRY 750 million (ca. EUR 228 million) of loans to over 37 000 small businesses in Turkey over three years.

In addition, KGF applied to Credit Guarantee Support within the scope of COSME Programme. As a result of the application, a counter-guarantee agreement was signed with the European Investment Fund. With the guarantee support to be provided according to the agreement, each SME will be able to use a credit of up to TRY 1 million with a term of 60 months and with a guarantee period of 12 months. With this project, SMEs are expected to use approximately TRY 3 billion.

Turkish Investment Initiative (TII)

Entrepreneurs in Turkey have great difficulties in obtaining the financial resources they require for putting their business ideas into practice. In addition to financing the companies in which they invest, venture capital funds offer managerial and strategic support, which in turn make a significant contribution to the funded company’s growth perspective.

For this purpose, TII was founded in 2007. TII is Turkey’s first and only dedicated Fund of Funds, which brings together a selected group of investors to capitalise on Turkish risk capital opportunities by providing access to finance to new, established and experienced funds.

The flexibility of the structure chosen (an umbrella structure) allows sub-funds to be conveniently added.

TII consists in two sub-funds;

• Sub Fund A: Istanbul Venture Capital Initiative (iVCi);

• Sub Fund B: Turkish Growth and Innovation Fund (TGIF)

Sub Fund A: Istanbul Venture Capital Initiative (iVCi)

KOSGEB and EIF are the two main investors of iVCi, with EUR 50 million worth of commitments. The remaining investors are the Technology Development Foundation of Turkey (TTGV), the Development Bank of Turkey (TKB), Garanti Bank and the National Bank of Greece Group (NBG), amounting to a total commitment of EUR 160 million. EIF is the advisor to iVCi.

Total funds raised by iVCi portfolio funds reached EUR 1.5 billion. Investments under iVCi are the product of a disciplined, multi-step due diligence process. The Investment Committee relies on the Advisor’s team to conduct a rigorous qualitative and quantitative analysis in making investment decisions. The final decision as to whether or not to make a commitment is taken by the Investment Committee, acting independently.

KOSGEB has had a considerable impact on the market. When iVCi was established, there were only two independently managed VC/PE funds on the Turkish market. iVCi stimulated the market and enabled several first-time teams to establish funds. In addition to the capital, these funds are crucial in maintaining financial discipline and efficient corporate governance within SMEs, two key traits for international competitiveness.

iVCi has signed ten commitments including a co-investment amounting to EUR 160 million. By December 2018, iVCi’s net aggregate investments reached EUR 129.5 million, targeting 74 companies. Most of the iVCi committed funds goes to innovative and early stage firms including 39 SMEs and 12 hydro, wind and biomass small-scale clean energy projects. By December 2018, iVCi’s net aggregate investments in SMEs reached EUR 61.5 million, leveraging EUR 504 million of investment of the portfolio funds into these SMEs.

According to the investment guidelines of iVCi on SMEs, “funds which iVCi commits to shall undertake investments in SMEs to an amount of at least two times iVCi’s initial investment in the Fund”. The portfolio funds under iVCi had already invested 8 times more than iVCi investments in SMEs.

Sub-fund B: Turkish Growth and Innovation Fund (TGIF)

Debt financing is not the most suitable source of finance for innovation-driven fast growing firms. Given the higher risk/return profile of these enterprises, their growth crucially depends on the well-functioning of growth capital markets and less on the conditions of the credit market.

For that reason, it is critical to continue supporting the Turkish venture capital market during its evolution from a nascent market. KOSGEB and EIF indicated early on their commitment to this end with EUR 60 million each for the next fund-of-funds initiative. In parallel, by undertaking legislative measures to enable investments in fund-of-funds, the Ministry of Treasury and Finance also underlined its strong commitment towards supporting equity investments. All these efforts and collaboration among the three institutions resulted in announcement of iVCi’s successor and Turkey’s next generation fund-of-funds, the Turkish Growth and Innovation Fund (TGIF), in October 2015 with a strong private partner, the Industrial Development Bank of Turkey (TSKB).

Following this announcement, TGIF was established as sub-fund B under TII in March 2016 and held its first closing in May 2016 with EUR 200 million total commitments by KOSGEB (EUR 60 million), the Ministry of Treasury and Finance (EUR 60 million), EIF (EUR 60 million) and TSKB (EUR 20 million).

In line with market needs, TGIF, as the next generation fund-of-funds, is expected to dedicate 40% of its investment to funds focusing on early stage and start-up businesses, suitable technology transfer accelerators or investments involving business angels. Due to the developing nature of the Turkish market, TGIF is expected to continue supporting growth investments.

As it is still developing, TGIF has signed five commitments since its establishment, and there is still little investment in TGIF. The amount invested by the underlying funds reached EUR 34 million as of the end of 2018, through 12 investments.

TGIF will further advance the vision of iVCi for Istanbul to become a crossroads location for the venture capital industry in South East Europe and Central Asia by 2020, and contribute to the broader project of the government to make Istanbul an international financial centre while fostering growth and innovation in Turkish enterprises.

G-43 Anatolian Venture Capital Fund

The G43 Anatolian Venture Capital Fund (G43 VC Fund) is a project developed under the IPA (Instrument for Pre-accession) funds, under the Measure 1.2 “Creation and Development of Financial Instruments” of the Competitive Sectors Programme (Regional Competitiveness Operational Programme - RCOP) (2007-2013).

Its mission is to improve the alternative investment market in Turkey, focusing especially on SMEs, primarily in South-eastern Anatolia Region. The Ministry of Industry and Technology is the Operating Structure and the Contracting Authority for IPA funds allocated to the RCOP. The European Investment Fund (EIF), through a Contribution Agreement, is the trustee administrator of the EIF-IPA Commitment and acting as an implementing body for the creation of a new SMEs risk capital fund targeting Turkey’s most disadvantaged regions. KOSGEB is the End Recipient of Assistance and is responsible for the management and performance of the Operations.

The project has been accepted by European Commission and activated in 2011 through bilateral and multilateral agreements. In total, 43 provinces of Turkey, defined as Target Regions, fall into the geographical scope of the fund. Regions targeted by the G43 Fund Project are characterised by having per capita income lower than 75% of the Turkish national average according to 2001 statistics. 85% of the Instrument for Pre-Accession Assistance (IPA) funds are provided by the European Union, and the remaining 15% by the Republic of Turkey.

iVCi is utilised for the G43 Anatolian VC Fund project as it is an established investment platform, created both by public and private actors for the benefit of the development of venture capital in Turkey. The fund started its activities in 2012, and a fund management company was selected for running it. Completing the selection process, the Fund performed its first close in November 2013 and the Fund Manager was introduced to the region through a publicity event.

In December 2017, operations were split into two, namely G43 Anatolian Venture Capital Fund Financial Engineering Instrument Project (G43 VC-FEI) and Technical Assistance dedicated to G43 Financial Engineering Instrument Project (G43 VC-TA). Budgets were modified accordingly. By 31 December 2017, the project came to an end and the fund had invested in 3 companies.

KOBI Venture Capital Investment Trust Inc. Co. (KOBI VCIT)

KOBI VCIT is a venture capital company which was jointly established with the commitments of TOBB, Halkbank, KOSGEB, TESK and 16 Chambers of Commerce and Industry to meet the financing and management needs of innovative SMEs. KOBI VCIT is subject to the provisions set by the Capital Markets Board, namely the Communique Serial III No. 48-1., and is operating within the regulations of this Communique.

KOBI VCIT tries to invest in innovative SMEs with promising market potential. Companies who possess an advantageous and creative position, as well a strong upwards potential compared to their market peers may receive an investment from KOBI VCIT in in the form of capital and managerial support.

To this day, with the support of its shareholders, KOBI VCIT has successfully made several investments in Turkish SMEs. It has built a top-performing track record and has proven that the Turkish SMEs market has lot to offer and is very investable. Along with increasing the sales and profit margins of some of its SME subsidiaries, KOBI VCIT has also made profitable exits from other investments. KOBI VCIT, along with its public and private partners, has made considerable contributions to the establishment of rules and regulations within the venture capital market. As a result, the SME and investment ecosystem of Turkey has prospered. KOBI VCIT has proven to other funds and sector players that investing in the Turkish SMEs market is profitable and yields profitable results.

With its local and foreign partners, KOBI VCIT is consistently seeking to invest in new promising Turkish SMEs with the intention of adding value and increasing the size of these companies, thus contributing to the growth of the Turkish economy. KOBI VCIT is looking to invest between USD 0.5 and 5 million, by obtaining a minority share in the related companies. During the partnership, which might last for an average of 5 years, KOBI VCIT plans to grow the companies faster, stronger and also in a much more efficient and transparent fashion.

TÜBİTAK Technology and Innovation Programmes for SMEs

TÜBİTAK-Technology and Innovation Funding Programmes Department (TEYDEB) runs support programmes which focus on allocating resources to private sector R&D. They also support cooperation between firms, between firms and universities or research institutions, and the development of scientific and technological know-how, which is considered to be the most important source of transforming economic development into social benefits. The allocation of resources to innovation based on R&D is promoted through incentives. Through its 13 support programmes, TEYDEB maintains its position as the centre of R&D, innovation and entrepreneurship funding requirements of the private sector, from the individual entrepreneurs to SMEs and to major Turkish companies. Some of these programmes support technological projects while some of them support the entrepreneurial ecosystem of Turkey.

Projects which apply to funding programmes managed by TEYDEB are evaluated and approved through six Technology Groups of TEYDEB:

• Machinery, Manufacturing Technologies Group (MAKITEG)

• Materials, Metallurgical and Chemical Technologies Group (METATEG)

• Electrical, Electronic Technologies Group (ELOTEG)

• Information Technologies Group (BILTEG)

• Biotechnology, Agriculture, Environment and Food Technologies Group (BIYOTEG)

• Transportation, Defence, Energy and Textile Technologies Group (USETEG)

All technological projects that are supported by the programmes under Technology Groups aim to:

• Develop or improve new products,

• Develop new techniques to diminish the cost and/or raise the quality and standard of a product,

• Develop new production technologies.

TEYDEB also has four Support Groups dealing with programmes for the development of Turkish entrepreneurship ecosystem projects:

• Entrepreneurship Support Group (GIRISIMDES)

• Technology Transfer Mechanisms Support Group (TEMEG)

• Venture Capital Support Group (GISDEG)

• Priority Areas Support Group (ONDEG)

1501 – Industrial R&D Projects Grant Program

1501 is TEYDEB’s main support programme. The programme allows applications throughout the year to companies in all sectors. The maximum support period for each project is 36 months. . There is no budgetary limit. The objective of the programme is to support companies’ R&D activities in order to increase their capacity for research and for the development of technology, to promote a culture of innovation and to and to foster the competitiveness of companies established in Turkey. The programme originally targeted small and medium-size enterprises (SMEs) as well as large enterprises. However, since July 2019, only SME companies can apply to the programme. SME companies can benefit from the grant with a ratio of 75% of approved expenses. Eligible costs are personnel, travel, machinery and equipment, material, software and hardware purchase expenses, consulting and other service procurement, and so forth.

1507 – SME RDI (Research, Development & Innovation) Grant Program

1507 is a similar programme to 1501, with a smaller scope. The programme aims that SMEs become more competitive by developing their technology and innovative sides and their capacity to run systematic projects. It also encourages the development of research and technology, the development of high quality products, and activity in national and international projects. The maximum amount of support is TRY 600 000. SME companies benefit from the grant with the ratio of 75% of approved expenses. Eligible costs are the same as for 1501.

1509- International Industrial R&D Projects Grant Program:

The programme supports Turkish companies that conduct R&D activities. It aims to increase technical quality and knowledge in Turkey, to improve companies’ access to technological knowledge at the international level, to help them with technology transfer processes and to contribute to the participation of Turkish companies in international markets. Under this programme, international collaborative R&D projects which have been submitted to international programmes such as EUREKA, EUROSTARS, Collaborative Technology Initiatives, ERA.NET’s and EU-FP 7 will be supported. SME companies benefit from the grant with a ratio of 75 % of a project’s approved expenses. Large enterprises benefit from a ratio of 60 %.

1511- Research Technology Development and Innovation Projects in Priority Areas Grant Program

The objective of the programme is to support and coordinate result-oriented, observable, national R&D and Innovation projects that are well-matched with priority fields. SME companies benefit from the grant with a ratio of 75%; large enterprises benefit from a ratio of 60% of the project’s approved expenses. Eligible costs are the same as for 1501.

1512- Techno Entrepreneurship Programme (BiGG)

The purpose of the programme is to support individual entrepreneurs’ activities from the business idea to the market in order to allow them to turn their technology and innovation-focused business ideas into enterprises with high potential for creating added value and qualified employment. . The programme includes entrepreneurship training and technical, commercial and administrative support from coaches with industry knowledge. Firm are provided with TRY 200 000 seed capital, aiming at technology validation of the proposed idea within 18 months. Eligible costs are the same as for 1501.

Establishment and Execution of Mentoring Mechanisms (BiGG+)

As a part of BİGG programme, a call named “Call for Establishment and Execution of Mentoring Mechanisms for Increasing Business Development and Innovation Capacities of SMEs” is planned to open under the 1601 Capacity Building for Innovation and Entrepreneurship Grant Programme in 2019. The aim of this call is to increase the competitiveness of SMEs by introducing innovative products to the market with a qualified mentoring mechanism.

SMEs receiving mentoring services are expected to develop in the following areas:

• Increase in turnover

• Increase in current market share

• Introduction to new markets

• Increase in exports.

• Mentoring is expected to have a two-dimensional impact on SMEs:

• Increase in commercial maturity of SMEs

• Increase in R&D and innovation capacity of SMEs.

The upper limit of the project budget is TRY 750 000 (100% grants). Eligible costs are personnel, travel, machinery-equipment, material, software and hardware purchase expenses, consulting and other service procurement, and so forth.

Industrial Innovation Networks Mechanism (SAYEM)

With this mechanism, private sector firms, especially those that contain an R&D and product design centre, will form a network with other firms that have a place in the value chain of the targeted high-tech product together with end-users, technology development zones and universities. As a whole, the network will have the opportunity to take centre stage in the innovation system, with the aim of co-creating high-value-added products and technologies for the market.

The networks will be established in two phases. In the first phase, the support grant will be directed to establishing models of cooperation and networks based on a “product/commercialisation roadmap” that includes a business model. In the second phase, the support grant will be provided for the implementation of R&D and innovation activities that take place in the product/commercialisation roadmap based on the strategic milestones that have been put forward by the network’s actors.

The targeted Technology Readiness Level will be between TRL 5-6 and 9, thereby targeting technological innovation that is closer to the market. The total budget of the SAYEM phase 1 Call for 2018 is approximately TRY 2.4 million. A total of 47 applications were received on three different NACE Rev. 2 high technology codes such as 21, 26 and 30. Of them, 28 were supported and started to build their technology maps.

1514-Tech-InvesTR Venture Capital Support Programme

The Tech-InvesTR Venture Capital Support Programme was established in order to create a sustainable venture capital ecosystem that will provide resources for early-stage technology-based initiatives. With Tech-InvesTR Program, it aims to i) create a high value-added production environment through the commercialization of R&D and innovation products of early-stage technology-based enterprises ii) create a sustainable venture capital ecosystem to support early-stage technology-based initiatives iii) Provide experience and resources in venture capital in Technology Transfer Offices (TTOs), Technology Development Zones (TDZs) and the qualified Research Infrastructure (RIs).

The programme will be carried out in cooperation with the Ministry of Treasury and Finance to encourage university TTOs, TDZs and RIs to participate in venture capital funds which invests to early stage technology based firms. TTOs, TDZs and RIs will participate as limited partners of venture capital funds. These venture capital funds will invest in early-stage technology-based enterprises in order to support commercialisation. 50% of the contributed capitals of TTOs, TDZs, and RIs for the funds' investments to early-stage technology-based Turkey resident enterprises will be supported by TÜBİTAK as grants. In addition, TTOs, TDZs, and RIs will be provided with general expense support up to 10% of their contribution.

The Fund term will be 12 years, with an investment period for the first five years. The remaining period will be the exit period. Funds will be managed by independent fund managers as General Partner (GP). The amount of support for each Institution is minimum TRY 2 million and maximum TRY 20 million. Within the scope of the Tech-InvesTR 2018 Call 34 project proposals from 23 institutions including; 13 TDZs, 9 TTOs and 1 RIs were found suitable for support. These institutions have proposed projects to participate in 10 different VC funds. The conditional support decisions on TTO/TDZ/RIs that will participate in 10 funds is sent to Ministry of Treasury and Finance. Within the framework of Cooperation Agreement, the Ministry of Treasury and Finance published its announcement to resource transfers to venture capital funds and began to evaluate 10 Funds. Considering the TÜBİTAK-TEYDEB programmes mentioned, the total amount of grants for SME’s provided by TÜBİTAK TEYDEB has reached over EUR 778.8 million during the 2007-18 period (Table 47.7).

Table 47.7. TÜBİTAK – TEYDEB Supports* for SMEs

Year*	Number of beneficiary firms	Funds allocated in the given year (in EUR million)
2007	401	33.9
2008	539	37.7
2009	1 033	67.9
2010	1 016	59.4
2011	1 044	54.4
2012	1 099	59.9
2013	1 458	77.5
2014	1 707	91.8
2015	1 823	99.1
2016	1 715	63.7
2017	1 783	66.9
2018	2 009	66.6

Note: * For 1501, 1507, 1509, 1511, 1512 and SAYEM programmes.

Angel investments regulations

The law regarding the regulation and promotion of business angel investments was enacted in 2012, and secondary legislation came into force on 25 February 2013, authorising the Ministry of Treasury and Finance to implement policies on the matter. This legal framework provides a mechanism for licensing business angels, which will ease access to finance for entrepreneurs, increase professionalism and improve business culture and ethics in the angel investment market. In this respect, the licensing mechanism provides a new instrument for those enterprises which have funding difficulties with conventional financing in their early stages. Furthermore, it makes business angel investments an institutionalised and trustworthy financial market and eligible for state support.

Licensed business angel investors can deduct from their annual income tax base 75% of the capital they invest in innovative and high growth SMEs whose shares are not traded at the stock market. The 75% deduction rate will be increased to 100% for those investors investing in SMEs whose projects were supported by the Ministry of Industry and Technology, the Scientific and Technological Research Council of Turkey (TÜBİTAK) and the Small and Medium Enterprises Development Organisation (KOSGEB) in the last five years. The issued licenses will be valid for five years and the tax deduction will be applied until 2017 with the option to extend it for another five years.

Moreover, the acquired shares must be held by investors for at least two years in order to benefit from the tax incentive. The maximum annual amount which can be deducted from the income tax base is TRY 1 million. SMEs must meet certain criteria set by the Ministry of Treasury and Finance to be eligible to receive business angel investment, such as having maximum annual net sales of TRY 5 million and not having more than 50 employees.

Between February 2013 and March 2019, 476 business angels have been licensed, and 35 investments amounting to approximately TRY 12 million have been approved by the Ministry of Treasury and Finance for tax support.

As a general problem of the global entrepreneurship ecosystem, insufficient data regarding business angel investment is a critical issue at both the national and international level. Licensing will improve data collection regarding business angel operations due to the fact that the Ministry of Treasury and Finance has a database which aggregates the data.

Regulation regarding fund of funds

The law regarding capital contribution of the Ministry of Treasury and Finance to funds of venture capital funds (fund of funds) was enacted by the Parliament on April, 3rd 2013. A secondary legislation came into force on 14 March 2014. The purpose of the secondary legislation is to regulate the selection criteria, investment areas, auditing, the upper limits of all fees and expenses pertaining to the resources committed, and other related issues regarding received resources from the Ministry of Treasury and Finance.

The fund of funds are structured to support venture capital funds and other legal persons providing financing to full-fledged taxpayer companies in Turkey through equity injections via sub-funds formed under this fund of funds as well as co-investment funds, which provide co-financing to target companies along with angel investors.

The Ministry of Treasury and Finance will commit funds to a fund of funds under several conditions:

• The amount committed to the fund of funds by the Ministry of Treasury and Finance shall not exceed 70% of the total amount committed to the fund of funds.

• The amount committed to a venture capital fund approved by a fund of funds funded by the Ministry of Treasury and Finance, shall not exceed 20% of the total amount committed to the fund of funds.

• A venture capital fund requesting resources from the fund of funds is obliged to find at least twice the amount that is committed to it by the fund of funds.

• The total amount of the resources committed to the fund of funds by the Ministry of Treasury and Finance until the end of 2018 shall not exceed TRY 500 million, excluding charges and fees to be paid to the fund of funds. The Ministry of Treasury and Finance may pay this amount at once or in instalments.

The total amount to be injected into the financial ecosystem according to the above stipulations is expected to exceed TRY 2 billion. The law aims to strengthen the financial ecosystem together with the funds of venture capital funds and the business angel programme. Moreover, as a new financial instrument, the fund of funds programme aims to improve the ecosystem via co-investments with angel investors, as co-investment funds will invest together with the angel investors into early-stage companies. In that respect, a substantial increase in the volume of venture capital and angel investments can be expected, which would eventually support early stage companies not only financially but also in terms of institutionalisation and corporate governance. These mechanisms are expected to accelerate the establishment of innovative start-ups, increase the dynamism of the economy and contribute to stronger and more sustainable economic growth. Furthermore, the fund of funds mechanism is expected to attract foreign investors, as well as ease the exit process of angel investments.

In addition, the Ministry of Treasury and Finance committed EUR 60 million to the Turkish Growth and Innovation Fund (a “fund of funds” that was established by European Investment Fund in May, 2016). This is expected to create approximately EUR 400 million of investment by venture capital funds, mostly by foreign funds investing in Turkey and also directly by venture capital firms founded in Turkey with business angels via co-investment funds investing in Turkey.

Regulation regarding Direct Investment to Funds

The law regarding direct investment to venture capital funds from the Ministry of Treasury and Finance was published in the Official Gazette on 5 December 2017, and the secondary legislation came into force on 5 June 2018. The purpose of secondary legislation is to regulate the selection criteria, investment areas, auditing, the upper limits of all fees and expenses pertaining to the resources committed, and other related issues regarding received resources from the Ministry of Treasury and Finance.

As a result, it is expected that foreign investment funds will be encouraged to invest in Turkey. Additionally, a new fund is planned to be established with participating banks, with the aim to encourage the access to alternative financing instruments. For the purpose of funding early stage companies which exist in the structure of Technology Transfer Offices (TTO), Incubator Centers and Accelerators located in the Universities, the government will support the establishment of a seed fund. In this system, the seed fund will be put into place by universities, while the Ministry of Treasury and Finance and other public institutions will commit to provide resources.

These funds will have to fulfil specific conditions:

• The amount committed to the funds by the Ministry of Treasury and Finance shall not exceed 30% of the total amount.

• For new funds, the amount committed by the Ministry of Treasury and Finance shall not exceed 50% of the total amount committed. The Minister may increase these ratios by at most 50%.

• The total amount of the resources committed to the funds by the Ministry of Treasury and Finance until 12/31/2023, shall not exceed TRY 2 billion, excluding charges and fees to be paid to the funds.

The law aims to strengthen the financial ecosystem together with the fund of venture capital funds and the business angel programme. Moreover, as a new financial instrument, the Direct Investment to Funds programme aims to improve the ecosystem via Banks, Chambers Of Commerce, Participation Banks and the Government institution: the Scientific and Technological Research Council of Turkey (TÜBİTAK).

In that respect, a first project has been started with TÜBİTAK named “Tech – InvesTR”. A partnership agreement was signed between the two institutions on June 14. This agreement is set to encourage early-stage technology-based projects, R&D and innovation-oriented initiatives that have the potential to develop and produce innovative products, processes, information and technology that can provide added value to the country's economy and encourage the creation of venture capital funds. On January 14th, 2019 the Ministry of Treasury and Finance issued a press release on resource transfers to venture capital funds within Tech-InvesTR programme which is executed in cooperation with TÜBİTAK. With this press release it has been announced that Ministry may invest maximum of TRY 400 million within next 5 years to the funds which are found eligible as a result of due diligence process of the Ministry.

Borsa Istanbul Emerging Companies Market (BIST ECM) SME Support Programme

The Emerging Companies Market (ECM) was established as a distinct market within the Borsa Istanbul, operating as a platform where securities are issued in order to raise funds from the capital market for companies with development and growth potential.

In the process of trading on ECM, KOSGEB offers consultancy service, independent audit, Central Registry Agency costs and some registration fees. The upper limit of the support provided within the scope of the programme is TRY 500 000.

Between 2011 and 2018, 19 of the SMEs that applied to this programme completed their public offering and from them 15 SMEs were supported by KOSGEB. The total amount of the support is TRY 861 679.

Borsa Istanbul Private Market Platform

Borsa Istanbul’s Private Market is a web-based platform initiated in November 2014, which brings together companies and investors in order to buy or sell shares without going public. It offers liquidity for company partners intending to sell their shares and offers investors the chance to find buyers to liquidate their investments.

Development agencies

Development Agencies (DAs) are designed as coordinating, organising and catalyst bodies that support regional development, ensure its sustainability and help reduce intra- as well as interregional development disparities in accordance with the principles and policies set out in the National Development Plans and Programmes.

Revenues of DAs come from various resources, mainly from central budget and transfers from the budgets of local partners such as special provincial administrations, municipalities, chambers of commerce and industry. DAs are in charge of planning, programming and managing support schemes that are similar to the EU type of implementation. Each DA has prepared regional plans for its region with the active participation of regional and local actors.

In accordance with the priorities in their regional plans, DAs have provided financial grants and technical support to the private sector, public institutions, local authorities, universities, and NGOs in their regions. In addition to direct financial grants to SMEs, more emphasis will be placed on supporting regional and local ecosystems through common infrastructure, innovation and entrepreneurship structures in the future.

The total amount of grants for SME’s provided by Development Agencies has reached over TRY 1.27 billion during the 2008-18 period, through 5 058 projects. As Table 47.7 below shows, the total volume of resources devoted to regions added up to some TRY 2.71 billion, up to the end of 2018, including co-financing.

Table 47.8. Development Agencies’ Support to SMEs in Turkey

Year	2008	2009	2010	2011	2012	2013	2014	2015	2016	2018*	Total
Number of Supported Projects	133	224	895	941	479	430	874	570	284	228	5 058
Amount of Support (TRY thousand)	31 220	51 386	199 806	218 820	126 672	88 080	247 268	155 057	77 840	76 055	1 272 203
Total amount with co-financing (TRY thousand)	74 302	117 918	446 038	463 997	266 938	183 263	514 988	323 369	160 354	159 369	2 710 536

Note: * There was no Financial Support Programme for SMEs in 2017

Source: Ministry of Industry and Technology

Leasing, Factoring and Financing Companies Law

The parliament enacted a new Leasing, Factoring and Financing Companies Law in November 2012 which streamlines previous leasing, factoring and financing company regulation. This new law is expected to help the non-banking financial sector growth and improve SMEs’ access to finance, especially by expanding the variety and size of the leasing instruments available to them.

This law supports two secondary regulations which entered into force in late 2013, namely the “Regulation on Establishment and Activities of Leasing, Factoring and Financing Companies”, and the “Regulation on the Provision and Accounting Practices of Leasing, Factoring and Financing Companies and the Format and Content of Financial Statements Disclosed to Public”. The former sets the principles and conditions for establishment and operations of the companies at hand and the latter sets the principles of accounting, financial statements to be disclosed and provisioning requirements.

Claims from leasing transactions increased significantly over the last six years, indicating progress achieved since the law was enacted. Leasing companies’ claims from leasing transactions reached TRY 60.7 billion from TRY 17.2 billion, with a 254% increase in the 2012-2018 period. On the other hand, in the same period factoring companies’ claims from factoring transactions increased from TRY 16.3 billion to TRY 31.4 billion implying a limited growth rate of 92%, mainly because of considerable decrease in 2018.

Box 47.1. SMEs in Turkey

The regulation on the SME definition entered into force on 18 November 2005 and was amended on 24 June 2018. According to that regulation, an SME is an economic entity employing less than 250 persons and having an annual turnover or an annual balance sheet that does not exceed TRY 125 million. The characteristics of micro, small and medium enterprises are illustrated below.

Table 47.9. Definition of SMEs used in Turkey's scoreboard

	Micro Enterprise	Small Enterprise	Medium Enterprise
Employees	< 10	< 50	< 250
Annual turnover	= TRY 3 million	= TRY 25 million	= TRY 125 million
Annual balance sheet	= TRY 3million	= TRY 25 million	= TRY 125 million

Source: Regulation on the SME definition, 24 June 2018.

Figure 47.1. Trends in SMEs and Entrepreneurship finance in Turkey

Source: See Table 47.9.

Statlink

Table 47.10. Definitions and sources of indicators for Turkey’s scoreboard

Indicator	Definition	Source
Debt
Outstanding business loans, SMEs	Bank and financial institution loans to SMEs, amount outstanding (stocks) at the end of period; by firm size using the national definition of SME. Includes non-employer firm data, overdrafts, business mortgages and business cards. Excludes lines of credit, leasing and factoring.	Supply side data from financial institutions, consolidated data from Turkish Banking Regulation and Supervision Agency (BDDK)
Outstanding business loans, total	Bank and financial institution business loans to all non-financial enterprises, amount outstanding (stocks).	Supply side data, consolidated data from Turkish Banking Regulation and Supervision Agency (BDDK)
Government loan guarantees, SMEs	Guarantees available to banks and financial institutions, outstanding.	Supply side data, consolidated data from Credit Guarantee Fund (KGF) and Ministry of Treasury and Finance
Government guaranteed loans, SMEs	Credit volume supported by loan guarantees.	Credit Guarantee Fund (KGF) and Ministry of Treasury and Finance
Direct government loans, SMEs	The amount of loans acquired from international financial institutions (IFIs) under Treasury guarantee which are transferred by state banks to the SMEs for investment financing.	Supply side data, consolidated data from Ministry of Treasury and Finance and KGF.
Non-performing loans, total	Loans that are overdue by more than 90 days out of total loans.	Supply side data, consolidated data from Turkish Banking Regulation and Supervision Agency (BDDK)
Non-performing loans, SMEs	SME non-performing loans out of total SME loans.	Supply side data, consolidated data from Turkish Banking Regulation and Supervision Agency (BDDK)
Equity
Venture and growth capital	Seed, start up, early stage and expansion capital (including buy outs, turnarounds and replacements of venture capital investment companies).	Administrative data from Capital Markets Board of Turkey (SPK)
Leasing and hire purchases	Claims of leasing institutions	Turkish Banking Regulation and Supervision Agency (BDDK)
Factoring and invoicing	Claims of factoring institutions	Turkish Banking Regulation and Supervision Agency (BDDK)
Other
Bankruptcies, total	Number of enterprises ruled bankrupt. All enterprises.	The Union of Chambers and Commodity Exchanges of Turkey (TOBB)

References

Capital Market Law, Official Gazette, No: 28513, 30.12.2012, http://www.cmb.gov.tr/Sayfa/Dosya/87.Decree of the Council of Ministers on Transferring Resources to the Fund of Funds, Official Gazette, Number: 28941, 14.03.2014.

KOSGEB Activity Report (2017), KOSGEB

Regulation Regarding Angel Investment, Official Gazette, Number: 28560, 15.02.2013.

Regulation Regarding Venture Capital/ Private Equity Investment Companies (III-48.3), Official Gazette, Number: 28790, 09.10.2013.

Regulation Regarding Venture Capital/ Private Equity Funds (III-52.4), Official Gazette, Number: 28870, 02.01.2014.

TOBB, The Union of Chambers and Commodity exchanges of Turkey, Company Establishment and Liquidation Statistics.