44. Türkiye
SME lending grew sharply, by 88.6%, in 2021-2022 period. In the same period, the share of outstanding SME loans in outstanding total business loans rose to 33.6%, below the Scoreboard median (47%).
Venture and private equity investments show an erratic pattern. In 2020, venture and private equity investments increased sharply by 506% from 2019. By 2021, these investments increased 225.96% year-on-year amounting to TRY 17.86 billion. That growth momentum continued into 2022. In 2022, new venture capital investments increased 47.07% year-on-year basis and exceeded TRY 17 billion marking a record high. Such impressive growth in the last years can be explained by the change of the legal framework in order to support entrepreneurship in Türkiye. Similarly, tax incentives for investors who invest in venture capital and private equity funds also supported the growth of the VC industry.
The share of non-performing loans (NPLs) for both total business loans and SME loans decreased significantly in 2022, to 2.18% and 2.81%, respectively. This was mostly the result of some temporary regulation changes in the definition of NPLs and of the increase in the total amount of SME loans.
The number of bankruptcies did not change much in 2021 and 2022. Company closures, including sole proprietorships, totalled 55 835 enterprises in 2022, lower than the figure in 2021.
In 2014, the government introduced a law regarding funds of funds, which enables the Ministry of Treasury and Finance (MoTF) to transfer capital to a fund of funds under certain conditions. In 2017, this law was changed to enable the MoTF to invest also in venture capital funds. The total amount of resources committed to the funds by the MoTF as of 3/6/2022 is TRY 3 billion, excluding fees and charges to be paid to the funds.
Moreover, a renewed Crowdfunding Communiqué has been prepared and issued in October 2021 in order to bring the debt-based crowdfunding model into the capital markets legislation, in addition to already existing equity-based crowdfunding model.
KOSGEB is the main body for executing SME policies in Türkiye. It provides 17 different support programmes and support for SMEs with considerable outreach throughout Türkiye.
Technology-oriented and industry-oriented supports are among KOSGEB’s most prominent supports offered in recent years. KOSGEB has played an important role in the R&D, innovation and entrepreneurship ecosystem with technology-oriented support since its establishment. Products in medium-high and high technology areas and products that will contribute to the current account are localized and commercialized with these support programmes. Thanks to the incubation centers established by KOSGEB, it has pioneered the transformation of startups.
In 2022, KOSGEB launched the Living Cultural Heritage Business Support Programme to strengthen businesses operating in traditional, cultural and vanishing professions, to ensure that their experience is passed on to future generations and to revitalize traditional crafts.
The criteria used to identify SMEs in Türkiye have been updated with the SME Regulation published in the Official Gazette of Türkiye dated May 25, 2023. Under this Regulation, the SME definition has changed to include more enterprises within the scope of support. The annual turnover or annual balance sheet limit, which is one of the criteria for becoming an SME was increased from TRY 250 million to TRY 500 million.
Like most Mediterranean countries, Türkiye is highly vulnerable to the impacts of climate change. In recent decades, flooding, heatwaves, droughts, wildfires, landslides and extreme windstorms have affected the country with increasing frequency and intensity. To support Türkiye’s climate action, “Türkiye Green Industry Project” was initiated in partnership with the World Bank which will provide USD 450 million of financing. With this project through KOSGEB, SMEs’ renewable energy and green transformation investments will be supported and R&D projects aimed at circular economy and carbon emission reduction will be supported through TÜBİTAK.
Economic activity remained strong in the first quarter of 2021 on the back of domestic and external demand despite the restraining effects of the pandemic. With the easing of restrictions in early March, economic activity revived in services and related sectors. Although economic activity lost some momentum in the second quarter of the year following the pandemic restrictions and the tightening in financial conditions, it remained above its long-term trend. In the third quarter, domestic demand and net exports continued to contribute to growth. The widespread vaccination of the domestic population facilitated the recovery in services, tourism and related sectors and led to a more balanced composition in economic activity. In the last quarter of the year, economic activity remained strong. Against this background, GDP increased by 11% in 2021, remaining above its long-term trend.
Annual consumer price inflation was on the rise throughout 2021, except for May, when economic activity was interrupted due to the lockdown, and stood at 36.08% at the end of the year. The main determinants of the increase in inflation were demand and cost factors, supply-side factors such as disruptions in supply chains, increases in international food and other commodity prices, exchange rate developments and increases in administered prices.
In 2022, despite the lingering impact of the pandemic, a new set of challenges emerged due to the Russian-Ukrainian war in Türkiye's immediate region. Supply constraints resurfaced, leading to a swift and significant rise in energy prices, as well as global commodity and food prices. The Turkish economy continued to grow uninterruptedly despite global supply shocks and unfavourable geopolitical developments. Economic activity was particularly strong in the first half of 2022 and maintained its robust outlook in the second half despite the decline in external demand. Accordingly, the Turkish economy grew by 5.6% in 2022.
Annual consumer price inflation increased sharply in the first half of 2022 due to the depreciation of the Turkish lira and geopolitical developments. However, it decelerated in the second half on the back of largely waning effects of negative global supply shocks and stood at 64.3% at the end of the year. The increase in inflation was mainly driven by pricing behavior shaped by price formations in the FX market that were detached from economic fundamentals as well as the sharp rise in global commodity and food prices caused by geopolitical developments.
In Türkiye, 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 in terms of number of employees, even though the financial thresholds applied are lower.
The regulation on the Small and Medium-sized Enterprises entered into force on 25 May 2023. 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 500 million. The characteristics of micro, small and medium enterprises are illustrated below.
As illustrated in Table 44.2 micro-enterprises accounted for more than 90.8% of all firms in 2021, whereas only 0.3% of all firms were large enterprises.
In 2022, outstanding SME loans increased by 88.6% compared to 2021, reaching TRY 2026.5 billion. This is mainly because of TRY basis new lending such that 86% of the mentioned amount is comprised of TRY loans while only 14% is comprised of FX loans. As of 2022, 58% of the total amount of SME loans belongs to medium and long-term loans (which means that the original term is equal to or greater than 1 year). In addition, TRY 1954 billion of new loans were provided to SMEs throughout the year 2022. . The increase in the loans could be related to decrease in interest rates, some credit support packages which can be used under the Treasury-Backed Guarantee System and high inflation rate. In 2022, the growth in SME loans was higher than the growth in total business loans. Total business loans grew by 54.1%, reaching TRY 6033.9 billion. Therefore, the share of SME loans in total business loans increased as well, from 27.4% in 2021 to 33.6% in 2022.
Bank loans stand out as the financing method most used by SMEs of all sizes in Türkiye. Among Turkish SMEs however, micro sized enterprises have lower access to bank loans compared to small and medium ones. 2019-2021 averages calculated from Survey on the Access to Finance of Enterprises survey (SAFE)1 indicates 48 percent of medium scale enterprises use bank credits, where this ratio is 44 percent for small sized and 26 percent for micro sized enterprises. According to survey responses, the prominent reasons why SMEs that do not use bank loans are high interest rates and insufficient collateral.
In recent years in Türkiye, as a result of policies aimed at facilitating SMEs' access to bank loans, an improvement has been observed in SME’s position compared to large-scale companies. The table below shows the answers to the question; “how your bank’s credit standards applied to the approval of loans or credit lines to enterprises changed over the past three months”. Since the end of 2021, credit standards applied to the approval of loans or credit lines improved every quarter for SMEs in comparison to large enterprises. As the figures suggest, the lending conditions for SMEs have been generally accommodative.
Thanks to the supportive measures of CBRT that have started to be implemented in April 2022, loan growth of SMEs has differentiated positively from the loan growth of large-scale companies. Besides export loans, investment loans and agricultural loans, SME loans were included in the targeted loan segment until May 2023 to support financing of smaller companies. However, in order to slow-down the strong domestic demand and improve the inflation outlook, starting from May 19, 2023, SME loans have been subjected to monthly growth limits similar to large-scale companies (the monthly growth limit for TL commercial loans excluding investment, export, agricultural and tradesmen loans were lowered to 2.5% from 3% in July.) Following this restriction, the gap between SME and large-scale cumulative loan growth compared to the week of May 19th narrowed gradually. TL SME loans, which accounted for 46.4% of TL commercial loans in March 2022 before the announcement of the targeted lending policy, increased its share to 53.9% in May 2023, when they became subject to credit growth restrictions. As of November 2023, the share declined slightly to 52.5%, but continued to constitute the majority of TL commercial loans.
The data provided in Table 46.1 includes information on venture capital, private equity investments by venture capital and private equity investment companies and venture capital investment funds, which are regulated and monitored by the Capital Markets Board (CMB). Comparing the years 2019 and 2020, new investments in venture capital and private equity companies and venture capital investment funds increased significantly by 506% in 2020, amounting to TRY 3.6 billion. By the year 2021, these investments increased 225.96% year-on-year, amounting to TRY 17.86 billion. By the year 2022, new venture capital investments increased 47.07% year-on-year and exceeded TRY 17 billion. Such an impressive growth in last years can be explained by the change of the legal framework in order to support entrepreneurship in Türkiye. Similarly, tax incentives for investors who invest in venture capital and private equity funds also supported the growth of the VC industry.
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. By the end of 2022, the net asset value of 174 venture capital and private equity investment funds reached TRY 46 billion.
Within the scope of equity-based crowdfunding which was legalized in 2017 by an amendment to Capital Markets Law and as the secondary legislation Crowdfunding Communiqué was published by the CMB in 2019, several companies obtained licences from the CMB. As of March 2023, nine companies obtained a licence to operate as equity-based crowdfunding platforms and, among the total number of campaigns conducted, 63 campaigns have been completed and funded successfully by equity-based crowdfunding model. In addition to equity-based crowdfunding model, after additional amendments of Capital Markets Law, a renewed Crowdfunding Communiqué has been prepared and issued in October 2021 in order to bring the debt-based crowdfunding model into the capital markets legislation. Currently, both equity and debt-based crowdfunding activities must be executed according to this Communiqué.
The increase of factoring receivables in 2022 was approximately 114% when compared to the previous year. Looking at the evolution in 2020, the growth rate was seen mainly in second quarter of 2020 when pandemic restrictions relatively eased. In this period, interest rates declined which could have boosted the use of short-term factoring finance from companies.
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 2015 and rose sharply in 2018 and 2019, reaching 9.2% for SME loans, and 5.96% 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 compared to 2015. NPL ratio for SMEs leapt to 9.2% in 2019, the highest level between the period 2007-2022. In 2022, the NPL ratio declined sharply because of the increase in the amount of SME loans. Due to the pandemic conditions between March 2020 and September 2021, the past due days criteria was changed from 90 days to 180 days for categorizing a loan as non-performing. Also, the past due days criteria was changed from 30 days to 90 days for categorizing a loan as Stage 2.
Company closures (dissolution) in Türkiye can be carried out in 3 ways: liquidation (voluntary), dissolution without liquidation (merger-division) and bankruptcy liquidation (by court decision). Figures for "number of companies closed as a result of liquidation (deleted from the trade registry)" according to company types for 2021 and 2022; Joint Stock Companies 2,919, Limited Companies 13,298, General Partnerships 13,298, Limited Companies 8 34, Real Person Commercial Enterprises 48,061, Cooperatives 960, for 2022; Joint Stock Company 3,549 Limited Company 19,579 Collective company 51, Real Person Commercial Enterprise 31,519, Limited Liability Company 2, Cooperative 1135. On the other hand, the total number of bankrupt companies is 108 for 2021; 109 for 2022.
A more detailed look at company closures illustrates that bankruptcies constitute an uncommon way to close companies in Türkiye. The closing of companies in Türkiye 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 Türkiye in 2022 amounted to 24 316, while 31 519 sole proprietorships were also closed in the same year, amounting to 55 835 companies in total. This is a -14.5 percent decrease from 2021 (see Table 44.3).
KOSGEB
In Türkiye, 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” and “KOSGEB SME Loan Interest Support Regulation”. The purpose of the Regulations is to set out the principles of works and proceedings related to support programmes to be implemented by KOSGEB. These programmes aim at helping SMEs improve their productivity and competitiveness, achieve integration in the industry in accordance with economic development and increase their share of exports. The SME programmes also promote research and development, encourage innovation and the production of high value-added products, promote product development and cooperation activities, develop entrepreneurship culture and assist in establishing successful enterprises to meet the economic and social needs of the country.
The Regulations include the code of practice for the support programmes. Support programmes (generally project based) are offered to SMEs by KOSGEB;
These programmes are designed to take into consideration the basic needs of SMEs, with the goal of disseminating a culture of entrepreneurship in society.
From the above programmes of KOSGEB the most recent programmes are classified with respect to their considerable supporting amounts:
At the end of 2022, on-call support model was integrated to the Advanced Entrepreneurship Support Programme with a budget up to TRY 1 million.
R&D, Innovation and Product Development Support Programme: KOSGEB provides support for R&D, innovation projects of entrepreneurs and SMEs and also provides support product development projects only SMEs up to TRY 1.1 million (up to TRY 6 million under via calls for specified sectors).
SME Technological Product Investment Support Programme: KOSGEB supports SMEs’ technological investments based on research activities in order to create added value up to TRY 10 million, grant ratio is 60% and maximum project duration is 36 months.
Strategic Product Support Programme: KOSGEB supports investment projects of enterprises to increase production of high value-added products in medium-high and high technology sectors and the products with high importance for development of this sectors through Strategic Product Support Programme up to TRY 6 million. The programme offers 60% grant ratio for projects up to 36 months aiming production of the privileged products mentioned in the calls for proposals of Technology Oriented Industry Action Program (a special programme carried out by the Ministry of Industry and Technology, KOSGEB and TUBITAK). Machinery-equipment, software, personnel, reference sample, knowledge transfer, test, analysis, calibration, training-consultancy, design and other service procurement costs are eligible for granted projects of SMEs.
ISGEM Support Programme: Within the scope of ISGEM/TEKMER Support Programme, KOSGEB supports the establishment and activities of ISGEM and TEKMERs which is incubators in Türkiye up to TRY 3.8 million.
TEKMER Support Programme: The main objective of the programme is to enable entrepreneurs and start-ups with new ideas and inventions based on science and technology. Businesses with high added value are supported with up to TRY 6 million. The duration of the programme is 5 years. Themes that TEKMER support includes energy/renewable energy, aviation, defence, medicine, medical device, medical, biotechnology, genetics, robotics, machinery, chemistry, information and communication technologies, digitalization and similar subjects. Moreover, TEKMERs can also organize acceleration programmes.
International Accelerator Support Programme: Targetstart-ups doing R&D and innovation activities of technological products or technology and innovation-based ideas realized in Türkiye. KOSGEB try to insert them in international markets, increase their export level and be in the developed entrepreneurship ecosystems. According to the international accelerator support programme, a start-up or a scale-up enterprise can apply an accelerator programme individually or by joining an organization. Participation to the accelerator programmes is supported by KOSGEB. The support for the SMEs includes up to USD 50 000 plus participation in an accelerator programme . Employees are supported with up to USD 25 000.
SME Development Support Programme: KOSGEB provides support for SMEs’ projects which is determined in line with national industry and economy targets up to TRY 2 million. Project calls for proposals are prepared by taking into account the targets set in the development plans, government programmes and annual programmes and priorities in the strategic documents.
Cooperation Support Programme: KOSGEB provides support for SMEs’ project to enhance co-work culture among SMEs or between SMEs and large-sized enterprises up to TRY 10 million.
International Market Support Programme: KOSGEB provides support for SMEs’ project for entering the foreign markets up to TRY 300.000.
SME Energy Efficiency Support Programme: Among the components of the programme are energy survey services, engine replacement and efficiency-enhancing expenses support and support can be provided up to TRY 930.000.
614 473 SMEs had been directly supported by KOSGEB between 2007 and 2022 via different incentive schemes, for a total amount of TRY 18,7 billion (excluding credit interest support payments by KOSGEB). The number of SMEs benefiting from KOSGEB supports in 2022 increased by 39,5 % compared to 2021, reaching 102.828; The payment amount made by KOSGEB to SMEs increased by 324,8 % compared to 2021 and reached TRY 9,1 billion. The reason for the jump in the number of SMEs supported and support payments in 2022 is the support payment of TRY 7,5 billion to 48.943 SMEs within the scope of the "Rapid Support Program for Micro and Small Enterprises" financed by the World Bank project. However, the majority of the payments of the support in question will be completed in 2023 and the support program offered within the scope of the project will be terminated at the end of the year.
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 2022, there were 88 KOSGEB Directorates in 81 provinces, 21 TEKMERs in 4 provinces and 107 representative offices in 36 provinces of Türkiye .
All support programmes have been systematically evaluated since 2019, when a monitoring and evaluation system was established in KOSGEB. Also the logic models of all the support programmes are available on Support Programme Monitoring System (SPMS) of KOSGEB. Summaries of completed 9 evaluation reports are listed in the KOSGEB website. Currently, KOSGEB is carrying on 9 more evaluation studies planned to be completed by the end of 2023. KOSGEB’s evaluation reports include findings, results, lessons learned and recommendations.
In 2019, using the data received within the scope of its legislation from institutions and organizations, KOSGEB started Enterprise Assessment Report service. The Enterprise Assessment Report is set to be delivered through Findeks, which is a financial service platform created for people and the real sector, as of the beginning of 2023.
Another programme of KOSGEB includes loan interests subsidies for SMEs that obtain loans from banks contractual with KOSGEB, allowing SMEs to access and utilise bank loans at more favourable conditions. 541.029 SMEs have benefited from KOSGEB’s credit interest support programmes and used TRY 22,48 billion worth of credits between 2003 and 2023 (as of Nov.2023) from banks, both public and private, who signed protocols with KOSGEB. . These support programs provide very useful results for SMEs that have difficulty accessing finance or whose workplaces are damaged due to natural disasters to continue their activities. For example, thanks to the program implemented to support SMEs affected by the major earthquake disaster in February 2023, 6,920 SMEs whose workplaces were damaged or destroyed were provided with the opportunity to use interest-free loans. The entire TRY 565 million interest amount of these loans was covered by KOSGEB on behalf of SMEs.
KOSGEB continued to support SMEs accessing bank credits through the finance support programme to increase the production, quality and standards of SMEs by providing financial support in order to solve their financing problems.
designed to contribute to the interest/profit share rate borne by the SMEs;
and helps the interest / profit share expenses of the loans provided by banks and financial institutions to SMEs are covered.
Treasury Backed Guarantee System
The Treasury backed Credit Guarantee System launched in 2009 is aimed to facilitate and improve the access opportunities of enterprises with limited access to finance due to lack of collateral, especially SMEs.
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 and leasing finances due to insufficient collateral. Its shareholders include KOSGEB (28.3%), TOBB - The Union of Chambers and Commodity Exchanges - (28.3%), TESK - The Confederation of Turkish Craftsmen and Tradesmen - (0.1%), and 29 banks with equal shares of 1.5%. Those 29 banks represent almost the whole Turkish banking sector in terms of loan volume (99%).
Along with the guarantees backed with its own equities, the MoTF provides counter-guarantees for KGF. In return, KGF issues guarantees for banks which provide loans to SMEs. Moreover, the KGF benefits from counter-guarantees of 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), Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME) focusing in particular on SMEs.
After the reopening of the economy due to implementation of lockdown, the Treasury backed guarantees are planned to be supplied on a selective base to induce investment in specific areas and support the additional employment. As a result, three packages were announced recently to support; companies providing additional employment, companies producing import substitution goods based on manufacturing companies, and companies producing refrigerated systems to stabilize supply chain of non-durable food. In these packages, guarantee coverage rates were set between 80% and 90%, and fee rates were between 0.35% and 0.5%. Also, the guarantee limit of beneficiaries vary between TRY 400 000 and TRY 250 million in this period. In this context, guarantees would be utilized with maturity of 24 -120 months, a maximum 6 months grace period has been applied as well. For these packages the upper limit of compensation ratio was set at 7%-9%. The deadlines for the packages vary between 2022 and 2023 depending on the package.
Moreover, the Turkish Economy Model (TEM) packages entered into force in February 2022 and guarantees have been supplied from three different packages. The Export Support Package, with the aim of increasing the export volume of existing exporters and increasing the number of exporting companies, offers guarantees with a limit of TRY 25 billion and is targeted at SMEs operating in exporting and foreign exchange earning sectors, and SMEs that are not currently exporters but have export potential. The Operating Expenditures Support Package with a guarantee limit of TRY 11 billion to meet the working capital needs of SMEs and Non-SME companies through card payment systems and Investment Support Package with a guarantee limit of TRY 25 billion was put into effect, with the aim of using SMEs and non-SME enterprises that plan to invest, primarily enterprises operating in the manufacturing industry and exporting enterprises, in investment and operating expenses related to the investment.
In these packages, guarantee coverage rates has been set between 75% and 90%, and fee rates 0.35%. Also, the upper limit of guarantees changes between TRY 11 billion and TRY 25 billion. In this context, guarantees have been utilized with maturity of 24-120 months, and a maximum 6 months grace period is also applied. In this period, the upper limit of compensation ratio is set at 7% and the deadlines for the packages vary between 2022 and 2023 according to the packages.
To support tea producers by facilitating access to finance for SMEs and non-SME companies that purchase unprocessed fresh tea crop from tea producers in return for their producer's receipts, the Tea Production Support Package has been launched in June 2022. Under the assumption that the entire TRY 2 billion guarantee limit allocated to the support package will be used.
TRY 20 billion worth of the guarantee limit was announced on July 2022 in line with the selective credit policy. The focus of the programme is to support SMEs and non-SME construction companies that projects have not been completed entirely however, at least 30% of their projects have been completed during the application of loan. In this framework, credits have been supplied with a maximum maturity of 12 months and an average guarantee rate of 75% to support operational expenses of the relevant companies. Moreover, beneficiaries will be provided with a cash or card loan facility not exceeding 10% of the total amount regarding documented purchases of the related firms in addition to this amount.
TRY 8 billion worth of the guarantee limit was announced on August 2022 in line with the selective credit policy. The focus of the programme is to support natural and legal entity farmers and irrigation unions so that financing of agricultural electricity bills.
All the programmes presented above are financed in virtue of doubling of the national budget spared for Treasury Backed Credit Guarantee System from TRY 50 billion to TRY 100 billion and increasing the guarantee portfolio volume from TRY 500 billion to TRY 1 trillion by the same token.
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 continue to provide direct loans to SMEs, which were guaranteed by the Turkish Treasury.
Support for start-ups
Start-ups in Türkiye have very limited access to start-up capital since they lack financial records and collaterals required by banks.
In early 2019, KOSGEB has radically changed the model of supporting entrepreneurs via 4 different support programmes and also enriched the start-up trainings offered for entrepreneur candidates.
Start-up trainings are digitalized and specialized for the entrepreneurs according to the general scope of the business idea of an entrepreneur, such as entrepreneurs whose business idea is based on production and software-based or on service and commerce area.
By Traditional Entrepreneurship Support Programme, KOSGEB provides up to TRY 65 000 for the Establishment Support, Performance Support and Certificate Support. By Advanced Entrepreneur Support Programme, not only the same support items on Traditional Entrepreneur Support Programme are provided but also extra machinery, equipment and software support related with the technology level and mentoring, coaching & consultancy support are provided, whose upper limit of this programme is TRY 375 thousand. An entrepreneur who is young (≤30 years old), female, disabled, veteran or first-degree relative of the martyr is specially supported in both programmes. In addition, businesses can receive grants up to TRY 1 million in calls made within the scope of the Advanced Entrepreneur Support Programme.
At the end of 2022, on-call support model was integrated to the Advanced Entrepreneur Support Programme with a budget up to TRY 1 million.
While these two support programmes are related with establishing and sustainability of a start-up, the other support programmes are designed to boost the entrepreneurship ecosystem. Examples such as ISGEM Support Programme and TEKMER Support Programme that aim to promote entrepreneurship by supporting the foundation of Technology/Business Incubators and develop an entrepreneurship culture. For this reason, KOSGEB provides TRY 6 million for TEKMERs. In addition to them; start-ups are supported up to USD 50.000 within the scope of the International Accelerator Support Programme.
In June 2022 a new support programme is modelled by KOSGEB. The aim of the Living Cultural Heritage Support Programme is to provide support for the transfer of unique professions that require mastery/craftsmanship skills as a cultural heritage element to future generations. A 12-month employment priority programme, with an upper limit of TRY 250 000 has been introduced in order to ensure that the traditional master-apprentice relationship is not interrupted by training new apprentices for masters operating in professions that are on the verge of disappearing, and that people who will continue their professions are trained.
Energy - efficient electric motors replacement support
The programme which was started in early 2020, has the objective to foster the efficiency of energy use by businesses through electric motors. For the enterprises operating in various organized industrial zones selected as pilots within the scope of the project “Promoting Energy-Efficient Motors in SMEs in Türkiye (TEVMOT), to use energy - efficient motors support is provided within the framework of the protocol. In total 45 companies benefited from the support of TRY 2.47 million.
COSME
KOSGEB was 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 was to provide enhanced access to finance for SMEs in different phases of their lifecycle: creation, expansion or business transfer.
In 2021, the COSME Programme has been replaced by the Single Market Program (TPP)-SME Pillar. International Agreement between the European Union and the Republic of Türkiye on the participation of the Republic of Türkiye in the Union Programme Single Market Programme has been signed on 31 March 2023 and ratified after being published in the Official Gazette on 12 May 2023. KOSGEB is the national coordinator of Single Market Programme (TPP)-SME Pillar.
In order to be included again in the Enterprise Europe Network, which made significant contributions to the internationalisation of Turkish SMEs during COSME period, 10 new Turkish consortia has applied to the call opened under the Single Market Programme and has been accepted in the first round evaluation.
Sub Fund A: Istanbul Venture Capital Initiative (iVCi)
KOSGEB and EIF are the two main investors of iVCi. The remaining investors are the Technology Development Foundation of Türkiye (TTGV), the Development and Investment Bank of Türkiye (TKYB), 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.
As of total funds raised by iVCi portfolio funds reached approximately EUR 1.7 billion. Investments under iVCi are the product of a 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 the end of December 2022, iVCi’s net aggregate investments reached EUR 155,2 million, targeting 79 companies. Most of the iVCi committed funds goes to innovative and early stage firms including 44 SMEs and 12 hydro, wind and biomass small-scale clean energy projects. By December 2022, iVCi’s net aggregate investments in SMEs reached EUR 77 million, leveraging EUR 681 million of investment of the portfolio funds into these 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.
The Turkish Growth and Innovation Fund (TGIF). TGIF works in partnership with the private sector, and the Industrial Development Bank of Türkiye (TSKB). EIF is the adviser to TGIF.
TGIF has signed eleven commitments since its establishment and completed its investment period in May 2021. Total funds raised by TGIF portfolio funds reached EUR 902 million as of the end of 2022, through 116 investments.
Türkiye Development Fund (TDF)
TDF, founded in 2019 by the Development and Investment Bank of Türkiye (TKYB), aims to invest in companies and funds which support Türkiye’s sustainable development. TDF has 6 sub-funds with a total committed capital of around TRY1,6 billion. The funds are:
Through these sub-funds, TDF supports the development of strategically important economic sectors as well as the nascent VC ecosystem of Türkiye. As of May 2023 EUR 10,87 million has been committed to five pioneer venture capital funds through TDF’s sub-funds. Also, TDF’s sub-funds have directly invested circa USD 9 million in 12 startups.
Technology and Innovation Fund (TIF)
Technology and Innovation Fund was founded by TDF to ensure the healthy functioning of venture capital ecosystem of Türkiye. TIF can make investments to the funds through "fund of funds" mechanism, in which TIF commits resources to other VC funds in the ecosystem and to startups that carry out technology and innovation-based activities. Ministry of Industry and Technology and KOSGEB are the investors of TIF and their total commitment is TRY 475 million.
Regional Development Fund (RDF)
TDF established Regional Development Fund to provide finance to SMEs operating in prioritized development sectors that can potentially increase high value-added exports and/or decrease current account deficit. The fund’s total commitment is 525 million TL for a 5-year period and the investors of fund are MoIT, Directorate General of Development Agencies and KOSGEB. RDF aims to support enterprises in need of finance in 26 NUTS 2 regions of Türkiye. Regional Development Fund, a private equity fund, will support to the growth of SMEs with equity financing and bring managerial expertise, ensure corporate governance and enhance competitiveness by help of RDF’s experienced management team.
Innovative and Advanced Technologies Participation Fund (IATF)
IATF focuses on direct equity investments in companies targeting high technology products and applications that can also be used by the defense industry. SSTEK is the main investor of this fund along with other major defence industry companies like Aselsan, Roketsan etc. The fund’s total commitment is TRY 235 million. This fund helps defence industry companies to scale up by expand their main business areas into civilian area.
Development Participation Venture Capital Investment Fund (DPF)
DPF ensures better utilization of the funds in the participation banking system by direct equity investments in compliance with Islamic Finance principles. Vakıf and Ziraat Participation Banks are the main investors of this fund and their total commitment is TRY 125 million.
Development and Investment Bank of Türkiye (TKYB) Capital Fund (DIBT CF)
DIBT CF was founded to support venture capital funds in the ecosystem via commitments and co-investment of technology-focused startups with high growth potential across a wide range of sectors. The only Limited Partner (LP) of this fund is TKYB and its commitment is TRY 200 million. The Fund focuses on creating synergies between its main business area like fintech and sustainability.
Invest101
Invest101 is established by TDF and ODTÜ Teknokent to make investments in early-stage technology startups. The main LPs of this fund are TKYB, Istanbul Development Agency, ODTÜ Teknokent and more than 50 private sector companies. The target total commitment of the fund is USD 10 million.
1507 – SME R&D Start-Up Support Programme
1507 is a similar programme to 1501, with a smaller scope to introduce and encourage SMEs for R&D activities. 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 project budget is TRY 1.2 million. SME companies benefit from the grant with the ratio of 75% of approved expenses. Eligible expense items are the same as for 1501. The applications to the programme is accepted with two calls in a year.
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 Programme, 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 is carried out in cooperation with the MoTF encourage university TTOs, TDZs and RIs to participate in venture capital funds which invests to early stage technology based firms. TTOs, TDZs and RIs participate as limited partners of venture capital funds. These venture capital funds 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 Türkiye resident enterprises are supported by TÜBİTAK as grants. In addition, TTOs, TDZs, and RIs will be provided with general expense support up to 10% of their contribution.
Within the scope of Tech-InvesTR Programme, The MoTF negotiated with 5 funds for the protocol and signed fund participation protocols between 5 venture capital funds as of May 2023. Project agreements have been signed between 4 TDZs and 1 TTO participating in the funds and TUBITAK. It is aimed that the funds to be established with domestic and foreign sources will reach TRY 1.7 billion final target size. It is expected to allocate approximately TRY 27 million by TÜBİTAK and approximately TRY 330 million by the MoTF to the funds established within the scope of Tech-InvesTR Programme. Along with the amounts committed by national and international investors participating in the funds, the programme will mobilize a resource of TRY 1.7 billion to invest in technology-based initiatives in Türkiye. It is aimed that this amount will return to 150 early stage technology-based initiatives in Türkiye in the next 5 years. 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). These 5 funds invested approximately TRY 974.5 million in 73 start-ups.
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 MoTF 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 Türkiye (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 2032 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 2.5 million. SMEs must meet certain criteria set by the MoTF 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 May 2023, 927 business angels have been licensed, and 59 investments amounting to approximately TRY 28.3 million have been approved by the MoTF 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 MoTF has a database which aggregates the data.
Regulation regarding fund of funds
The law regarding capital contribution of the MoTF 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 MoTF.
The fund of funds are structured to support venture capital funds and other legal persons providing financing to full-fledged taxpayer companies in Türkiye 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 MoTF will commit funds to a fund of funds under several conditions:
The amount committed to the fund of funds by the MoTF 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 MoTF, 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 MoTF until the end of 2027 shall not exceed TRY 3 billion, excluding charges and fees to be paid to the fund of funds. The MoTF 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 MoTF 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 1 billion of investment by venture capital funds, mostly by foreign funds investing in Türkiye and also directly by venture capital firms founded in Türkiye with business angels via co-investment funds investing in Türkiye.
Regulation regarding Direct Investment to Funds
The law regarding direct investment to venture capital funds from the MoTF 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 MoTF.
As a result, it is expected that foreign investment funds will be encouraged to invest in Türkiye. 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 MoTF 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 MoTF shall not exceed 30% of the total amount.
For new funds, the amount committed by the MoTF 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 MoTF 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 Türkiye (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 MoTF 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 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. It also informs and offers access to third party events and organizes B2B events for start-ups. Since its establishment in 2014, Borsa Istanbul’s Private Market has so far mediated 15 deals between start-ups and investors, be it individual investors or institutional investors such as Venture Capital Funds or Private Equity’s. The deal size so far is USD 11 million. Though Borsa Istanbul’s Private Market had a direct effect on 15 deals, it indirectly affected many other deals as well. Borsa Istanbul’s Private Market currently has 348 members, 206 of them are start-ups (145) and pre-IPO (61) companies. 108 of them are investors, both individual (75) and institutional (33). In addition to its member companies and investors Borsa Istanbul’s Private Market has also 35 intermediary and service providing members such as Law firms that can provide due diligence services and can assist on agreements between start-up companies and investors. Another aim of Borsa Istanbul’s Private Market is to introduce start-ups to the capital market ecosystem and prepare them for IPO’s. An example for that is Smartiks Yazilim A.Ş. who became a member of Borsa Istanbul’s Private Market in 2016 and went public in 2019, which is the outcome and main goal that Borsa Istanbul’s Private Market is aiming to achieve.
Borsa Istanbul Venture Capital Market
There have been recent works for establishing a new market in Borsa Istanbul, called as "Venture Capital Market" through which the shares of non-publicly held companies to be issued only through capital increase will be sold to qualified and institutional investors without going public. With this new market targeting especially those companies that are not yet ready for public offering but wish to do so in the future, such companies will be able to get the earlier financing they need for growth. Then, such shares will also be traded only among qualified and institutional investors on the BIST’s Venture Capital Market. When the shares of company are started trading on this market, the company will become a publicly traded one and will be subject to the relevant capital market and exchange regulations. Later on, those companies that have completed the necessary institutionalization steps and have grown by making their investments will be ready for public offering and thus will be able to apply to offer their shares to the public.
In this regard, in May 2023, CMB issued a Communiqué (No. II-16.3) on the “Principles Regarding Companies whose shares will be Traded on the Stock Exchange’s Venture Capital Market”. The Communiqué mainly regulates the procedures and principles regarding the sale of those companies’ shares without public offering through capital increase, issues to be complied by them after the sale as well as financial reports and independent auditing, disclosure of material events, exemptions and other liabilities of those companies.
Development agencies
26 Development Agencies (DAs) operating under the coordination of Ministry of Industry and Technology (MoIT), 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.
The total amount of grants for SMEs provided by Development Agencies has reached over TRY 1.74 billion during the 2008–22 period, through 6 067 projects. As shown in Table 47.8, the total volume of resources devoted to regions has exceeded TRY 3.86 billion, including co-financing. Up to the end of 2022, the support figures have increased to TRY 14 billion and TRY 30 billion at constant prices.
Development Agencies Support Entrepreneurship
DAs in Türkiye provide financial and technical support to develop entrepreneurship infrastructure and ecosystem. This includes establishing and strengthening entrepreneurship centers, incubators, and accelerators, as well as providing training and consultation services to entrepreneurs on various issues such as business plans, internationalization, marketing, and finance. DAs also offer entrepreneurship training to primary and secondary school students to cultivate entrepreneurial talent from a young age. DAs are currently focusing on assisting angel investment and networks through awareness-raising, capacity-building activities, and the promotion of existing and new networks.
Istanbul International Entrepreneurship Programme
The Ministry of Industry and Technology (MoIT) has identified strengthening the entrepreneurship ecosystem as a key priority. Istanbul has been recognized as a global hub for innovation and technology-based startups, and efforts are being made to provide suitable conditions for their growth and international expansion. The National Technology Entrepreneurship Strategy and Turcorn 100 Program have set targets for technology entrepreneurship, including special measures for Istanbul and international collaborations with EU countries. The draft 2024-2028 Istanbul Regional Plan has identified entrepreneurship as one of its five strategic priorities, aiming to establish Istanbul as a leading global entrepreneurship center. The Istanbul Development Agency (İSTKA) will implement the Entrepreneurship Result Oriented Program to strengthen the city's entrepreneurship ecosystem, with a focus on technology, innovation, and creativity.
Ankara Development Agency Regional Venture Capital Program for Impact Investing
The Ankara Development Agency is implementing the "Regional Venture Capital Financial Support Program for Impact Investing" in Ankara and the provinces affected by the 2023 earthquake. This program aims to provide financial support to initiatives with the potential for rapid growth and positive social and environmental impact. The venture capital fund focuses on social and environmental impact, in addition to financial returns, and aims to strengthen the entrepreneurship and innovation ecosystem in this area. It is designed as a "Fund of Funds" and is the first of its kind in Türkiye. The program has received 26 applications and has garnered great interest from funds. A total commitment of 250 million TL has been made with the selected funds, aiming to create a total impact investment of 1 billion TL.
Bursa Eskişehir Bilecik Development Agency (BEBKA) Regional Venture Capital Programme
BEBKA launched Regional Venture Capital Programme to provide financial support to start-ups having high growth potential and creating high value added in the region. With this programme venture capital funds will be supported with a total of TRY 100 million budget. Through these funds, it is aimed to strengthen the entrepreneurship ecosystem in this region by increasing access of companies and start-ups to finance. The programme is under implementation phase and attracted high interest from various venture capital funds and private equity funds.
ISTKA Regional Venture Capital Programme
ISTKA launched Regional Venture Capital Programme to provide financial support to start-ups having high growth potential and creating high value added in İstanbul. Venture capital funds will be supported with a total of TRY 400 million budget in the scope of this program. Through these VC funds, it is aimed to increase the access of startups to finance and strengthen the entrepreneurship ecosystem by ensuring investments in technology-based startups that produce high added value. A total of 28 fund applications were made to the program, and as a result of the evaluation and negotiation process, investment agreements were signed with 10 funds.
Leasing, Factoring and Financing Companies Law
The parliament enacted the Leasing, Factoring and Financing Companies Law in November 2012 which streamlines previous leasing, factoring and financing company regulation. This 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.
Claims from leasing transactions increased significantly over the last two years. Leasing companies’ claims from leasing transactions reached TRY 118 billion from TRY 83.2 billion, with a 42% increase in the 2021-2022 period. Although claims had a relatively sharp fall in 2019 (decreased to TRY 48.7 billion), it was recovered in 2021, increased by 45% and reaching TRY 83 billion which the highest amount since 2012. On the other hand, in the same period factoring companies’ claims from factoring transactions increased from TRY 59.5 billion to TRY 127.3 billion, with a 114% increase in the 2021-2022 period.
Source: See Table 44.2.
References
Capital Market Law, Official Gazette, No: 28513, 30.12.2012, http://www.cmb.gov.tr//data/6281521a1b41c617eced0ee8/35501a16ea1501aeb2ba04106c407c4b.pdf
Decree of the Council of Ministers on Transferring Resources to the Fund of Funds, Official Gazette, Number: 28941, 14.03.2014.
KOSGEB Activity Report (2022), 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.
Communiqué (No. II-16.3) on the “Principles Regarding Companies Whose Shares will be traded on the Stock Exchange’s Venture Capital Market”, Official Gazette, Number: 32194, 18.05.2023.
TOBB, The Union of Chambers and Commodity exchanges of Türkiye, Company Establishment and Liquidation Statistics.