398. The Swiss delegation would like to thank Canada for introducing submission for the TRIPS Council's discussion. Switzerland is pleased to co-sponsor the agenda item, as well as the submission addressing the topic of microfinance as well as the access to the modalities and implications of IP-backed financing for micro, small & medium enterprises (MSMEs). This document highlights the challenges especially for MSMEs regarding access to conventional financing. This in turn can have an impact on innovation, business growth and the economy. The International Finance Corporation noted in a recent report that "access to finance is frequently identified as a critical barrier to growth for MSMEs". These interconnections and concerns lead to the increased attention regarding the financing opportunities for these types of enterprises, such as microcredits or IPbacked financing. We welcome the chance to exchange national experiences and hear about different approaches in the relevant topic of access to financial resources, innovation, and IP.
Role of Microcredits as a financing opportunity for MSMEs]
399. First, let us imagine for a moment that we want to start a new business. Among other aspects, finances are probably one of the most important issues that we need to address. In Switzerland, every year thousands of people take the chance to start their own business. If their business remains small, there is a large chance that they will be part of the 40% of microenterprises, which are exclusively self-funded. Before the COVID19 pandemic, this number was even higher, with 58% of micro-enterprises relying solely on their own funds.
400. This high degree of self-funding should not detract from the fact that there is an uncovered need for debt capital. In one survey, 14% of microenterprises reported needing outside capital. However, many of them do not apply for a bank loan, stating that they know they cannot provide the required collateral, the application procedure is too complicated or that they have access to cheaper and easier alternatives than bank loans. Such alternatives might include loans from family members or Crowdfunding.
401. In Switzerland, bank loans are the most common form of financing. Not surprisingly, the amount required and the probability of obtaining the loan decrease the smaller the company. Financial institutions often require collateral in order to grant loans. This reflects one of the main problems for the access of MSMEs in this form of financing. In an increasingly knowledge-based economy, MSMEs often lack tangible assets that can be used as collateral, as their enterprise value consists primarily of intangible assets such as IP rights (IPRs).
402. For companies unable to provide the required collateral, microcredits might be a solution. In Switzerland, the term microcredit does not have a unified definition. Usually, microcredits contain an amount of about CHF 30'000 and provide support in cases where the conventional financing path does not work.
403. In Switzerland the non-profit association, "GO! Mikrokredite!" offers microloans to entrepreneurs with a viable business project. They support the founder mainly in the early stages with financial and consulting services. As it is often the case with microcredits, the focus is on viable business projects. Although, GO! actively promotes innovative projects within the scope of the currently still tight financial possibilities. Many niche projects are based on an innovative idea and in this case the association even takes higher credit risks to support the further development. The association has a credit default rate of 3% since they started their business in 2009, whereby they have supported 392 projects from areas such as handicrafts, food, or personal services with a total amount of CHF 8.9 million.
404. Crowdfunding is an alternative source of funding for startups that do not have access to traditional financing. Inventors present their projects and companies on so-called crowdfunding platforms, where a large number of investors can contribute to their funding. Such platforms are active in the Swiss market, whereby the credit volumes can vary depending on the project. This financing mechanism can also help startups with already existing IPRs to bring their invention to innovation and thus achieve market entry. As with microcredits, the simple application procedure and the lower requirements are an advantage for small companies.
405. Another way to provide financial support for innovative projects is to raise awareness and opportunities for IP-based financing. This includes improving the process for measuring the value of patents, designs, trademarks, geographical indications, and copyright or emphasizing the importance of these IPRs as a signal of enterprises' value, attractiveness and prospects for success. In this context, IPRs also represent a great competitive advantage for young companies. However, not only the right management of the IP portfolio is important, but also the legal framework in which a company operates. A broader knowledge of IP-backed finance can benefit both public and private participants in the financing process.
406. Switzerland is currently finalizing a study, under the auspices of WIPO, to explore the possibilities for SMEs to use IP assets to access funding, including the opportunities and challenges that arise from the use of IP rights in the different financing channels.
407. Access to capital is key for companies and their business growth, which in turn can have a widespread impact on the economy as a whole. The still existing challenges, especially the access to debt capital to implement innovative projects requires action. Thus, the increased awareness and use of IP as collateral or the granting of microloans, which do not rely on traditional securities, could help to close a gap in the provision of capital. However, more research and analysis on the above topics is needed and could be undertaken with the support of international organizations such as the World Trade Organization (WTO) or World Intellectual Property Organization WIPO.