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.