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Enterprise Directorate General European Commission Access to finance by SMEs and EU financial instruments Jean-François AGUINAGA Enterprise Directorate-General.

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Presentation on theme: "Enterprise Directorate General European Commission Access to finance by SMEs and EU financial instruments Jean-François AGUINAGA Enterprise Directorate-General."— Presentation transcript:

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

2 Enterprise Directorate General European Commission 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 Enterprise Directorate General European Commission 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 Enterprise Directorate General European Commission Financing stages Entrepreneur, friends, family Business angels Formal venture capital Equity Seed Capital Start-up phaseEarly growth Expansion HIGHER RISK LOWER RISK Bank loans Financing needs Financing stage

5 Enterprise Directorate General European Commission 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 Enterprise Directorate General European Commission Enterprise’s revenue Enterprise’s development stage Vall ey of Death Seed phase Start-up phase Emerging growth Expansion Valley of Death 1

7 Enterprise Directorate General European Commission The Valley of Death 2

8 Enterprise Directorate General European Commission 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 guidelineswww.eif.org

9 Enterprise Directorate General European Commission 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 Enterprise Directorate General European Commission Implementation Bank Venture capital Fund European Commission budget SMEs Invests Lends Provides funds Guarantee Society Co-Guarantees

11 Enterprise Directorate General European Commission ETF Start-up: e arly-stage financing for high tech start-ups Dedicated VC Funds Early stage technology SMEs with high growth potential Equity Cash FundraisingReturns, Losses European Commission EIFother investors Fundraising Returns, Losses

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

15 Enterprise Directorate General European Commission 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 Enterprise Directorate General European Commission Experience : lessons Loan guarantees  EC budget contribution: €199m  €10bn worth of loans guaranteed  SMEs benefited from guarantees Venture capital  EC budget contribution: €168m  200 SMEs benefited

17 Enterprise Directorate General European Commission 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 Enterprise Directorate General European Commission 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 Enterprise Directorate General European Commission 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 Enterprise Directorate General European Commission See more on… nterprise/entrepreneurship/ financing/index.htmhttp://europa.eu.int/comm/e nterprise/entrepreneurship/ financing/index.htm Thank you.


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