Understanding the SME funding gap in the CEE

Understanding the SME funding gap in the CEE

Understanding the SME funding gap in the CEE

Over the past 12 months, we have been fortunate enough to visit nearly every continent in the world (closing the small business funding gap in Antarctica, anyone?).

Whenever we’re away from our London offices, we will always take the opportunity to learn about three particular areas:

  • The small business funding gap - what’s the relationship between banks and small businesses?
  • What does the regulatory landscape look like?
  • What does the fintech industry look like?

Our time in Central and Eastern Europe

Although some of the shortest flights in the world are within Europe, it is an old continent home to very different countries which have their own rich history, values and traditions that impact the financial culture of each country, too.

Currently, there is a huge demand for small business funding across Europe. As the PSD2 legislation goes live across Europe, changes to the financial ecosystem have begun which will positively impact European small businesses. This article focuses on what we saw from our time in Central and Eastern Europe (CEE), where technological progression has picked up over the last few years.

Czech Republic

Last year, we were invited to attend a regulatory roundtable in the very picturesque Prague, on how Czech regulators (Czech National Bank) can mimic the FCA Sandbox currently running in the UK. Banks such as Erste Group, Societe Generale and KBC Group were keen to hear about our experience in the fourth FCA regulatory sandbox cohort.

Adding to that, this year we participated in an interesting roundtable discussion on banking and regulation at the London Stock Exchange with the Czech Department of International Trade (DIT).

Everyone in attendance agreed that the relationship between the Czech banks and their small business clients are strained.

According to the Small Business Association (SBA), small businesses account for 54.7% of value added to the Czech economy (EU average is 56.8%), and 67.2% of total employment (EU average is 66.4%).

For fintechs focused on helping small businesses in other regions, Bettina Molnarova, Senior Trade Adviser at the Department for International Trade tells us that the Czech market is ready for disruption, “There is certainly a good degree of interest around global fintechs from banks in the Czech Republic. Furthermore, UK expertise in the financial industry is well-recognised here”.

In January 2018, the Czech Republic implemented the PSD2 legislation mimicking the successful initiative here in the UK. This will give fintechs the opportunity to work with banks, and empower them to improve the Czech small business banking experience.

As for the progression in the Czech fintech industry, Bettina tells us, “The sector is definitely growing. It is good to note that there are a significant number of Czech fintechs coming onto the small business banking scene now to help close the small business funding gap we’re experiencing today”.


Last November, we visited the very cosy Croatia, to attend Shift Money to pitch (we won!) and to understand more about the Croatian small business banking market.

At the event, it was incredible to see how the mainly European audience were placing big bets on businesses using technologies such as blockchain, cryptocurrencies and AI. Many fintechs were talking about expanding into Croatia, and the banks were eager to work with them to help vastly improve their offering.

At Shift Money, throughout a panel discussion on Open Banking, Miljenko Graovac, Head of Digital Channels at Raiffeisen Bank International, said: “PSD2 is the first stepping stone to the new global banking ecosystem”. Although Open Banking is yet to be implemented into legislation in Croatia, we were told that there are hopes that it will happen around late 2019, early 2020.

According to the SBA, small businesses contribute 60.8% to the Croatian ‘non-financial business economy’ (EU average is 56.8%), and that 68.1% of employment is generated by small businesses (EU average is 66.4%).

Everything we heard about, on the topic of fintech, from the people living, working and visiting Croatia was very positive - everyone is very open to embracing technological innovation that could positively impact the economy.

Furthermore, it was apparent that there have been major advancements in creating a cashless society in Croatia, which coincided well with Daniel R Doderlein, Founder of AUKA’s talk on how the tech giants have started to change the world: “Years back, people laughed when I said that banks and financial services will be challenged by Apple, Google and Facebook”.

Although our focus in this article was on the Czech Republic and Croatia, we have noticed the surge in interest within the growing fintech industry in Central and Eastern Europe across technologies such as blockchain and AI to improve the archaic banking processes small businesses have to deal with today.