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Access to finance by SMEs and EU financial instruments

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Presentation on theme: "Access to finance by SMEs and EU financial instruments"— Presentation transcript:

1 Access to finance by SMEs and EU financial instruments
Joint Venture Association Conference Budapest, 12 October 2004 Jean-François AGUINAGA Enterprise Directorate-General SME financing policy Unit

2 Challenges for New Member States and Candidate Countries
Conclusions of the 4th Round Table of Bankers and SMEs Difficult for SMEs to get (sufficient) credits Banks lack experience and skills for SME lending Lack of guarantee mechanisms in some NMS and CC or insufficiently developed Banks also suffer from economic situation Leasing often underdeveloped, but growing fast Banks ask for high collateral Early stage finance still rather limited

3 Bank intermediation in New Member States and Candidate Countries
Domestic Credit 2000 as % of GDP Source: ECB (2002): Financial Sectors in the EU Accession Countries

4 Financing stages Equity Formal venture capital Bank loans
HIGHER RISK Financing needs Equity Formal venture capital Bank loans Business angels Entrepreneur, friends, family LOWER RISK Seed Capital Start-up phase Early growth Expansion Financing stage

5 SME’s access to finance
Bank lending Most important source in Europe But under pressure: Basle II Different banking cultures in the MS Equity finance Becoming more important Business angel market needed VC funds not enough active at early-stage

6 Valley of Death 1 Enterprise’s revenue Enterprise’s development stage
Seed phase Start-up phase Emerging growth Expansion Enterprise’s development stage Valley of Death

7 The Valley of Death 2

8 MAP Financial Instruments
Budget of EUR 317m (+ 74m) for three financial instruments : SME Guarantee Facility ETF Start-up Facility Seed Capital Action European Investment Fund (EIF) operating on behalf of the European Commission Open to EU Member States, Candidate Countries + Norway, Iceland and Liechtenstein See for detailed MAP guidelines

9 European Investment Fund
Created in 1994 EU and EIB Group’s specialised financial institution for SMEs, acting through : Venture Capital (fund of funds) Guarantees for SME portfolios  of banks Statutes: To contribute to Community Objectives To generate an appropriate return on resources

10 Implementation SMEs SMEs Provides funds Co-Guarantees Invests Invests
European Commission budget Provides funds Co-Guarantees Invests Guarantee Society Venture capital Fund Bank Invests SMEs Lends SMEs

11 ETF Start-up: early-stage financing for high tech start-ups
European Commission Returns, Losses Fundraising EIF other investors Fundraising Returns, Losses Dedicated VC Funds Cash Equity Early stage technology SMEs with high growth potential

12 Seed Capital Action What? Complements ETF Start-up
Aims at the long-term recruitment of qualified investment managers Reinforces the capacity of the VC industry to invest in seed capital How? For each eligible staff member, the maximum grant available is €100,000 For funds into which EIF already invests

13 SME Guarantee Facility
Four windows: SME Loan guarantee Growth potential, up to 100 employees For investments, including intangibles Microcredit guarantee Particularly for start-ups, up to 10 employees Loans up to € 25,000 Information technology (ICT) guarantee For investments, up to 100 employees Equity guarantee Expanding existing programmes

14 Microcredit Guarantee
Example: KfW (Germany) StartGeld: loans for start-ups, € 50,000 max. Model of resulting default risk for a start-up loan 50% of Kfw‘s risk 100% of the risk 80% of bank‘s EIF 40% KfW Bank 20% Start-up

15 Impact of Guarantees High leverage effect of guarantee schemes
for €1 of EC budgetary resources utilised by the financial intermediaries a loan volume of approx. € 45+ is guaranteed under the Facility

16 Experience 1998-2000: lessons Loan guarantees Venture capital
EC budget contribution: €199m €10bn worth of loans guaranteed SMEs benefited from guarantees Venture capital EC budget contribution: €168m 200 SMEs benefited

17 2004 and beyond... Looking for a successor to Phare SME Finance Facility… …Preparatory action in 2004 for Eur-10 financial institutions: technical assistance; focus on local/regional financial institutions; microcredit to small businesses To be included in the MAP successor programme, if test appears positive.

18 Innovation and Competitiveness Programme (ICP)
ICP period: End of current MAP: Dec 2006 ICP public consultation 2004 Q4 Proposal of the Commission in 2005 Co-decision procedure: 18 months Financial instruments: outsourced management, mainly to EIF Positive evaluation: BUDG, ENTR

19 Forthcoming SME financial instruments
Open ETF Start-up to companies with more than 5 years (expansion) and focus on high growth potential rather than on high tech Based on EIF’s own experience, provide support to the securitization of SMEs loans portfolio: incremental credit to SMEs requested with extra cash received by credit institutions.

20 See more on… Thank you.

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