Joseph Darmanin is chief Business Development officer at Malta Development Bank
The Covid-19 pandemic is, thankfully, largely behind us. As those years recede from collective memory, we are now able to not only assess the successes of the Malta Development Bank’s Covid-19 Guarantee Scheme (CGS) but, more importantly, to reflect on its design, implementation and effectiveness
Fiscal responsibility, prudence and accountability with public funds necessitate an ex-post evaluation of the effectiveness of the public guarantee managed by the MDB. This review aims to assess whether the guarantee was utilised in a way that maximised its intended value while also supporting long-term economic stability. The CGS was designed, implemented and issued by the MDB in record time, and in the midst of the biggest economic shock experienced in living memory.
The MDB tailored a response mechanism that respected emergency European legal and financial frameworks, but designed in such a way to address the life-and-death matters faced by Maltese businesses. The scheme was intermediated by practically all banks in Malta, which was both a first, and a testament to the gravity of the economic situation.
The CGS, as issued by the MDB, remains the single, largest intermediated guarantee scheme ever implemented in the history of the Maltese financial system. A government guarantee of €350m was used by the MDB, that in turn allowed commercial banks to issue close to half a billion euros in loans. The scheme’s design not only made it the largest of its kind but also one of the most innovative, blending a grant component through an interest subsidy. The government allocated an additional €40m to fund this interest subsidy on qualifying loans, providing crucial support beyond the guarantee itself. A key feature in the scheme’s structure was the 50% portfolio guarantee cap, which generated leverage of more than double the original amount – enabling us to achieve more with fewer resources. This design also heightened lenders’ “skin-in-the-game”, fostering prudent lending practices. Overall, the scheme represents a strategic shift, one that maximises impact through unlocking private investment while protecting the taxpayer.
During the past months, the MDB conducted an ex-post assessment of the CGS aiming to identify lessons learned, providing valuable insights to enhance future decision-making by pinpointing areas for improvement in both scheme design and implementation. The full assessment is published on MDB’s website. While firm-level micro data, which would allow us to carry out better ex-post policy impact measurement remains unavailable to us, the MDB still carried out an extensive assessment of the impact of the CGS. Through a partnership with the Malta Chamber of SMEs, beneficiaries of the scheme were surveyed, while a methodology applied by other development banks and the European Investment Bank was used to benchmark the impact of the support provided by the scheme against the country’s gross value added.
The targeted survey, executed in December 2023, received 60 responses (representing 11.7% of CGS beneficiaries), with the largest cohort comprising businesses within the retail, transport and tourism-linked sectors (62.3%). These sectors were disproportionately impacted by the pandemic, underscoring the scheme’s alignment with sectoral needs. Key motivations cited for CGS loan uptake included maintaining liquidity (31.7%) and supporting wage payments (38.3%), while other uses comprised rental and utility payments, as well as counterbalancing losses from deferred contracts. Beneficiary satisfaction was notably high, with 78.3% of respondents expressing approval of the scheme’s rapid loan processing, while 55% regarded access to financing as its chief benefit.
Survey feedback further underscored the importance of the scheme, with 51.7% of businesses stating that without CGS support, they would have reduced operations, while 22% would have sought shareholder or family assistance, and 7% anticipated full closure. These findings affirm CGS’s substantial contribution to economic stability during a period of unprecedented uncertainty, with beneficiaries additionally highlighting the importance of benefiting from low interest rates (21.7%) and preferential credit terms (16.7%).
The CGS effectively met business financing needs, with 71.7% of respondents expressing satisfaction with the loan amounts provided. Interest rates and repayment terms were also well-received, with around 52% of respondents satisfied, even though guarantee fees were required under EU state aid rules. Over two-thirds of respondents found the CGS beneficial or highly beneficial in supporting business continuity post-restrictions, and 28.3% reported that it significantly enhanced their competitiveness following the pandemic.
The MDB also undertook a robust assessment of CGS’s economic impact through a Gross Value Added (GVA) benchmarking methodology, underpinned by data from Malta’s National Statistics Office. MDB estimated CGS support at €1.7bn in GVA, equating to 13.2% of Malta’s pre-pandemic 2019 GVA. Particularly notable was the GVA contribution within retail, transport and tourism, where CGS support amounted to €849.6m or 34.3% of sectoral GVA. While this methodology offers an accessible and prudent impact estimate, it relies on certain limiting assumptions regarding employment retention and sector-average productivity, that require careful interpretation.
Overall, MDB’s CGS emerged as a critical financial instrument that sustained key sectors and safeguarded value-added during an unprecedented economic downturn in Malta. It follows that, when applied effectively, these same tools can address other pressing challenges facing our society, such as advancing Malta’s green and digital transitions and stoking the competitiveness of our businesses.