by Paul V. Azzopardi, Chief Executive Officer, Malta Development Bank
Last February, the Malta Development Bank (MDB), in collaboration with AECM, the European Association of Guarantee Institutions and a member-based non-profit international association, hosted an event on the financing of digital projects.
Through MDB’s prized membership of this network, valuable insights were raised by participants from twenty European financial institutions, including guest participants from the three major Maltese commercial banks during sessions that discussed the challenges and opportunities faced by digital projects across Europe when seeking financing.
Several key points were highlighted during the event, shedding light on the current landscape and offering possible solutions to overcome these challenges.
From a Maltese perspective, while there is a growing interest in the digital transformation of industries, our digital ecosystem faces substantial hurdles in securing the necessary funding, especially funding to drive innovation and start-ups.
Funding for ongoing, commercially viable digital projects is more easily available, especially with MDB backing, but there are still challenges to be dealt with.
While a lack of available funds is often cited as the main obstacle, panellists from local commercial banks pointed to a more pressing issue: the shortage of “bankable” digital projects that are viable, scalable, and capable of generating sufficient returns to justify risk for lenders. The low number of such local projects is a major challenge for both startups and investors – a reality that also exists across Europe.
Additionally, there is a psychological barrier discouraging entrepreneurs from seeking financing. Many potential digital project promoters have internalised the belief that banks are unwilling to finance their initiatives due to past rejections. This sense of futility leads them to abandon their efforts before even approaching a bank.
The Importance of Equity over Loans
Equity financing is often better suited for digital startups than traditional loans. Given the high-risk nature and rapid growth potential of these ventures, equity investment provides a more flexible solution and unlike loans, which require fixed repayments, equity funding does not rely on predictable cash flows—something that’s typically difficult for startups to project accurately.
Experts emphasised that startups need a strong equity base when seeking bank financing. It signals promoter commitment, lowers perceived risk, and provides a buffer against cash flow volatility. A solid equity foundation improves the chances of securing support from banks.
Digital projects that have reached an advanced stage and are commercially successful could be strong candidates for loan financing especially with MDB’s support given MDB’s willingness to carry a calibrated additional risk on digital projects which fall within its strategy priority areas in line with Government’s policies and MDB’s remit.
Strategic Alliances with Larger Companies
Digital startups seeking financing should consider partnering with established companies. A reputable partner with a proven track record can provide equity, stability, and credibility, boosting the chances of securing bank support, even if the startup is in its early stages.
Beyond financing, these partnerships allow startups to pool resources and expertise, bridging the gap between innovation and commercialisation. In the digital sector, collaboration with larger players can be a crucial factor in bringing projects to fruition.
To note, however, that due to State Aid regulations, commercial ventures with groups which are not SMEs may limit the amount of assistance the MDB can provide.
Bridging the Knowledge Gap
The knowledge gap between technology developers and financial institutions was identified as a critical issue. Many innovators, particularly those with research backgrounds, may not be interested in or lack the business acumen to commercialise their work. Conversely, banks, accustomed to traditional risk assessment, often struggle to evaluate the potential of digital technologies. This disconnect prevents many promising projects from receiving the funding they need.
Better collaboration between financial experts and technology developers can address this gap. Initiatives like those led by the MDB, which integrate financial and technical expertise into funding schemes, are essential to overcoming this challenge.
The Role of an Ecosystem
A well-structured digital ecosystem is essential for innovation. Malta needs a more integrated approach to support digitalisation, rather than fragmented initiatives and small grants. SMEs currently face a maze of disconnected services, making a centralised “one-stop-shop” for financial and technical assistance highly beneficial.
The need for more intense training and qualifications in STEM subjects was also emphasised where students should be given special incentives due to the critical importance of STEM subjects in engendering innovation and intellectual property.
MDB’s Role in Closing the Gaps
The MDB is playing a crucial role in addressing the financial and knowledge gaps through its various schemes and collaborations.
Working with organisations like Xjenza Malta, MDB has developed initiatives such as the “Go-to-Market Loan Assistance Programme” to provide financial and advisory support to digital startups, ensuring that both their technological potential and financial viability are understood by banks. The MDB also recognises the important work being done by the Malta Digital Innovation Authority with whom it collaborates.
And while relationship banking remains vital to secure funding, many commercially successful startups lack the established connections needed to build trust with financial institutions. MDB’s support programmes, bank guarantees, and loans help bridge this gap by increasing startup credibility and improving their chances of securing financing.
While institutions like the MDB will continue to address the above challenges, continued collaboration between the public and private sectors remains necessary to bridge the gaps in financing, knowledge and cooperation. Only a concerted effort can help Malta fully realise the potential of its digital economy.
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