0 The role of cooperative banks and smaller institutions for the financing of SMEs and small midcaps in Europe Presentation at the EACB Academic Conference – EP, Brussels, Frank Lang Senior Manager, Research & Market Analysis (RMA) European Investment Fund (EIF)

Content 1 → European Investment Fund (EIF) → EIF’s Research & Market Analysis (RMA) → SMEs’ access to finance → Cooperative banks and smaller institutions → New instrument for cooperative banks and smaller institutions (EREM CBSI) → Concluding remarks → Annex You can download the report here:

We provide risk financing to stimulate entrepreneurship and innovation in Europe “ ” OBJECTIVE To support smart, sustainable and inclusive growth for the benefit of European SMEs. HOW By offering a wide range of targeted products to support SMEs and mid- caps, ranging from venture capital to guarantees and microfinance. WHERE Working with financial intermediaries across the EU-28 and EFTA countries, candidate and potential candidate countries. 2 European Investment Fund (EIF) What is the EIF?

3 “ ” Shareholders  61.2% European Investment Bank (EIB)  26.5% European Commission  12.3% 30 public and private financial institutions We are a value-driven institution with over 400 staff, committed to EU policy objectives and financial sustainability AAA-rated by the three major rating agencies Strong capital base of EUR 4.5bn Over 20 years of market experience in SME financing European Investment Fund (EIF) EIF in a nutshell

4 We manage resources on behalf of various stakeholders European Investment Bank  Risk Capital Resources (RCR)  EIB Group Risk Enhancement Mandate (EREM) European Commission  COSME  InnovFin – EU Finance for Innovators  SME Initiative (Spain, Malta, Bulgaria)  WB EDIF**  ERASMUS + National and Regional Funds  Fund of funds including in the Balkans, Germany, Poland, Portugal, Spain, Turkey, UK  Holding funds supported by structural funds (JEREMIE) **WB EDIF: Western Balkans Enterprise Development & Innovation Facility  EaSI / Progress Microfinance  EFSI “ ” European Investment Fund (EIF) Resources

We work with a wide range of counterparts to support SMEs “ ” Micro- enterprises, PMEs et les small mid-caps micro- enterprises, SMEs and small mid-caps Resources and mandators  European Investment Bank  EIF own resources  European Commission  Member States/regions  Managing authorities  Corporates/private  Public institutions  Other third parties Intermediaries and counterparts  Fund managers  Commercial banks  Development and promotional banks  Guarantee institutions  Leasing companies  Corporates  Business angels  Microfinance institutions 5 European Investment Fund (EIF) EIF’s counterparts

6 “ ” We are the prime provider of SME financing in Europe Overall commitments  EUR 3.3bn (2014)  EUR 7 bn (2015) in equity, guarantees, securitisation and microfinance * Partners  600 private equity funds  400 banks, guarantee and promotional institutions Mobilised resources  EUR 13.9bn (2014)  EUR 26.9bn (2015) SMEs supported  over 1.8 million since 1994  110,000 in 2015 European Investment Fund (EIF) EIF’s impact

7 7 SME Development Stages DEVELOPMENT HIGHER RISKLOWER RISK Technology Transfer Microcredit VC Seed & Early Stage PRE-SEED PHASESEED PHASESTART-UP PHASEEMERGING GROWTH Leasing, Factoring & Export Credit Loans / Credit Lines / Guarantees / Credit Enh. Formal VC Funds & Mezzanine Funds SME Cashflows Business Angels European Investment Fund (EIF) Supporting SMEs in their financing needs at every stage of their development

8 Who are we and how do we work? “  EIF's specialist for applied research and market analyses (incl. impact assessment).  Supporting the strategic decision making and the development of mandates/products.  Contribute to the external positioning of the EIF.  Collaboration with EIF mandate management, front office and other teams.  Cooperation with numerous stakeholders in the field of SME / innovation finance.  Work with external researchers and consultants.  Active in internal and external committees, working groups, etc.  Publications (Working Papers, etc.): ” EIF’s Research & Market Analysis (RMA) EIF’s Research & Market Analysis: Tasks and Outputs

SMEs’ access to finance SMEs are the backbone of the economy …on average 9  22.3m SMEs  SMEs: 99.8% of all companies (by number)  90m people employed by SMEs (67% of total employment)  Inter-country differences  There is not «THE» SME, financing needs depend on various parameters (size, age, sector, growth phase (and ambition), etc.) Source: ESBFO Dec-2015, based on European Commission (2015)

SMEs’ access to finance Reliance on bank financing by NFCs 10 Sources: Kraemer-Eis, Passaris, Tappi, Inglisa (2015), based on: left - based on IMF (2012) and updated data; right - Cour-Thimann and Winkler (2013) and updated data Reliance on bank financing by non-financial corporations (in %) Funding of non-financial corporations in the euro area and the United States (shares in accumulated debt transactions)

SMEs’ access to finance Outstanding loans and cost of borrowing 11 Outstanding loans and composite cost-of-borrowing indicator for non-financial corporations in the Euro Area Source: ESBFO Dec-2015, based on ECB Data Warehouse

Cooperative banks and Smaller institutions Asset breakdown of euro area banks in different size groups 12 Note: 2014; all domestic banks; % of total assets. Source: ECB.

13  Cooperative banks’ business model is usually conservative and follows a simpler structure than that of “shareholder banks”.  Cooperative banks’ funding policy, but also their capital base, is regarded as being comparably stable.  Main funding source = deposits from customers (to a large extent identical with members/owners).  Typical capital sources of local cooperative banks:  Membership contribution of owners/members,  Retained profits. Cooperative banks and Smaller institutions Cooperative banks’ business model

14  Cooperative banks are of particular importance for SME financing.  They typically have a high market share in SME business (in particular in countries with high importance of cooperative banks).  However, the differences between cooperative banks are quite large.  Cooperative banks are considered to be particularly strong in the very small SME, self-employed and household segments, due to their proximity to the local markets.  During the crisis, SMEs have benefitted from the relative stability of cooperative banks. Cooperative banks and Smaller institutions Cooperative banks’ role in SME financing

European Risk Enhancement Mandate (EREM)  an EIB Group mandate of up to EUR 6bn, being a concrete measure responding to the June 2013 European Council call for an increase in EIF’s credit enhancement capacity (together with the EIF capital increase) with the purpose to “support the impaired financing of European SMEs”.  comprise several individual instruments, including:  the ABS credit enhancement  Debt funds  Social impact  CBSI 15 New instrument for cooperative banks and smaller institutions (EREM CBSI) EREM CBSI: The background

EREM CBSI SME EIF lends 50% of the funds Loan Inter- mediary matches the funds for at least 50% Loan SME New instrument for cooperative banks and smaller institutions (EREM CBSI) Instrument structure

17  Long maturity  Typically unsecured  Reasonable pricing (competitive market price)  Flexible use of funding: Combination with EU/national schemes  Simple and straightforward application and decision-making process  Simple reporting  Covering almost all SME sectors (incl. agriculture)  Covering extensive SME financing purposes (investments, work.cap., overdrafts, leasing)  Creating/extending EIB Group relationship  Broadening the funding sources New instrument for cooperative banks and smaller institutions (EREM CBSI) Main advantages

18 New instrument for cooperative banks and smaller institutions (EREM CBSI) Main characteristics (FI level) Eligible Intermediary cooperative banks, small banks with local or regional focus, non- bank entities and SME focussed leasing entities (provided that any such intermediary does not at the same time benefit, directly or indirectly [as part of a group] from EIB L4SME) Product Senior loan (with max. amounts, maturities and rating requirements such that overlap with EIB L4SME can be avoided) PurposeLoans to SMEs and mid-caps LeverageTypically 2:1 SecurityTypically unsecured PricingCompetitive market price

19 New instrument for cooperative banks and smaller institutions (EREM CBSI) Main characteristics (SME/mid-cap level) Eligible Final Recipients SMEs and small mid-caps with less than 500 employees (social enterprises, as defined by the EC, shall not be included) Products - Loans/leases to SMEs/small mid-caps of EUR 25k to EUR 500k - Loans/leases to SMEs/small mid-caps of less than EUR 25k (only if any such loan/lease is covered by an EaSI guarantee from EIF and does not at the same time benefit from EaSI funding) Target sectors All sectors, including agriculture (Compliance with EIB/EIF excluded sectors) PurposeInvestments, working capital, overdrafts, leasing SMEs loan maturityMin. 2 years

20 … for your attention! Frank Lang Research & Market Analysis, EIF Thank you …

21 Backup slides Annex 1

SMEs’ access to finance Sources of external financing of euro area SMEs 22 Source: ESBFO Dec-2015, based on ECB data

23  Customer-owned entities.  Democratic member control.  Profit allocation.  Local rootedness.  Social impact.  Customer Cooperative banks and Smaller institutions Cooperative banks’ are special

24 EIF Research & Market Analysis (RMA): Main publications (authored, co-authored, and/or edited by RMA) Annex 2

EIF Working Papers (1/2) 25 No.DateTitle 2016/35ForthcomingThe role of cooperative banks and smaller institutions for the financing of SMEs and small midcaps in Europe 2016/3401/06/2016The European venture capital landscape: An EIF perspective; Vol.I: The impact of EIF on the VC ecosystem 2016/3311/01/2016Evaluating the impact of European microfinance. The foundations. 2015/3214/12/2015European Small Business Finance Outlook, December /3102/12/2015SME Securitisation – at a crossroads? 2015/3016/11/2015Financing pattersn of European SMEs: An Empirical Taxonomy 2015/2920/07/2015The Economic Impact of EU Guarantees on Credit to SMEs - Evidence from CESEE Countries 2015/2830/06/2015European Small Business Finance Outlook, June /2727/05/2015Bridging the University Funding Gap 2014/2618/12/2014European Small Business Finance Outlook, December /2521/10/2014Institutional non-bank lending and the role of debt funds 2014/2419/06/2014European Small Business Finance Outlook, June /2305/06/2014Pricing Default Risk: The good, the bad, and the anomaly 2014/2208/04/2014Guidelines for SME Access to Finance Market Assessments (GAFMA) 2014/2120/01/2014Financing the Mobility of Students in European Higher Education 2013/2012/12/2013European Small Business Finance Outlook, December /1931/10/2013SME Loan Securitisation 2.0: Market Assessment and Policy Options 2013/1803/06/2013European Small Business Finance Outlook, June 2013

EIF Working Papers (2/2) 26 No.DateTitle 2013/1727/05/2013Forecasting distress in European SME portfolios 2012/1612/12/2012European Small Business Finance Outlook, December /1522/08/2012The importance of leasing for SME finance 2012/1429/05/2012European Small Business Finance Outlook, May /1320/01/2012Progress for microfinance in Europe 2011/1209/12/2011European Small Business Finance Outlook, December /1108/11/2011Business Angels in Germany - EIF’s initiative to support the non-institutional financing market 2011/1010/06/2011European Small Business Finance Outlook, June /917/05/2011The performance and prospects of European Venture Capital 2010/812/11/2010Impact of Legislation on Credit Risk. How different are the UK and Germany? 2010/707/10/2010SME Loan Securitisation – an important tool to support European SME lending 2010/619/08/2010Drivers of Private Equity Investment Activity: are Buyout and Venture Investors Really So Different? 2010/501/06/2010Private Equity Market Outlook- a summary of the macroeconomic outlook and current issues. 2010/429/04/2010Private Equity and Venture Capital Indicators: A research of EU-27 Private Equity & Venture Capital Markets 2010/324/02/2010The Private Equity market in Europe. Rise of a new cycle or tail of the recession?” 2009/210/12/2009Financing Technology Transfer 2009/123/11/2009Microfinance in Europe - A market overview

Joint publications 27 YearTitle 2015Tackling SMEs’ asymmetric risk: the EIB Group approach, by Revoltella, D. and Kraemer-Eis, H. In: European Economy, Who takes the risks for funding SMEs? October 27, 2015, pp. 131ff. 2015SME Securitization in Europe, by Kraemer-Eis, H., and Passaris, G., in: The Journal of Structured Finance, Vol. 20, No. 4, Winter 2015, pp SME finance in Europe, by Kraemer-Eis, H., Lang, F., Gvetadze, S., in: Investment and Investment Finance in Europe 2015: Investing in Competitiveness, an European Investment Bank (EIB) publication, March 2015, pp. 97ff. 2014A Practical Approach to the Market Analysis Part of SME-Related Ex-ante Assessments, in: European Structural and Investment Funds Journal (EStIF) 2014/3, Lexxion, Nov. 2014, The importance of leasing for SME financing, by Kraemer-Eis, H. and Lang, F. in: Euromoney’s World Leasing Yearbook Bottlenecks in SME financing, by Kraemer-Eis, H., Lang F., Gvetadze S., in: Investment and Investment Finance in Europe, an EIB publication, pp. 277ff. 2012Improving the funding landscape for entrepreneurs by Pelly, R. and Kraemer-Eis, H., in: SMEs in the single market. A growth agenda for the 21st century, a Lisbon Council Publication. 2011EIF & EVCA: the European Private Equity Market Outlook. 2011Creating a Better Business Environment for Financing Business, Innovation and Green Growth, by Pelly, R. and Kraemer-Eis, H., in: Financial Market Trends, Volume 2011 – Issue 1, OECD Journal. 2011Microfinance in Europe by Eriksson, P.-E., Kraemer-Eis, H. and Conforti A., in: Occasional Papers, n. 10, APS Bank, pp