1. European Investment Bank (EIB)
Evaluation of Intermediated Lending to SMEs ( , EU27) DG Regio, 10 March 2014
Ivory YONG-PROTZEL, Head of EV Division
René-Laurent BALLAGUY, Evaluation expert
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European Investment Bank

2. European Investment Bank
This presentation
Evaluation in the EIB context
The importance of SME support
EIB Group SMEs support
Mandate and scope of the evaluation
Intermediated SME lending:
Portfolio perspective
Policy context
EIB intervention and objectives
Structuring of the evaluation
SME Survey
Main evaluation findings
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European Investment Bank

3. Mandate and objectives of EV within the EIB
EV is mandated to carry out ex-post evaluations of the EIB Group’s activities based on three principles / objectives:
Independence – EV operates independently (direct reporting line to the EIB Board of Directors), is free to undertake, report and publish
Accountability/transparency – EV assesses whether the Bank’s activities have been in line with our policy mandates and the strategies that derive from them and whether these activities have delivered as expected (“backward looking”),
Lessons-learned – EV identifies possible areas of improvement in order to increase the Bank’s performance (“forward looking”).
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4. EV’s methodological approach
EV work is carried out mainly at a thematic level, for instance by:
Sector – EIB’s Energy Efficiency (Oct. 2012)
Mandate / Facility / Joint initiative – JEREMIE, JASPERS, RSFF
Financial product – Framework loans, Loans for SMEs
Other theme of relevance from the perspective of EIB stakeholders
Thematic evaluations normally include:
Analysis of the Bank’s relevant policies and strategies
Analysis of the portfolio of projects
Interviews with relevant parties
In-depth evaluation of a sample of individual operations (below)
Preparation of a thematic synthesis report including recommendations
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5. Recommendations and Follow-Up
Synthesis reports contain recommendations for implementation
Quaterly, EV follows up to what extent recommendations have been implemented by the Bank’s services
Reporting on the implementation of EV recommendations
Quaterly to the Management Committee (President + VPs)
Annually to the Board through the EV Annual Activity Report
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6. European Investment Bank
The SME evaluation: mandate, timeframe and scope
Evaluation response
(Activity Report 2010 and
Work Programme for )
Take account of evolving policy context ( )
Systematic approach through site visits and SME survey
Board of Directors Request to EV (02/10) to carry out an evaluation that :
‘reflects on the implementation of new strategies with respect to SMEs’
‘provides insights into the benefits accruing to SMEs’
Timeframe of the evaluation process: 11/11(kick off) – 04/13 (final report)
Focus on intermediated lending to SMEs
Commercial, co-operative, promotional banks, leasing…
From Global Loans (“GLs”) to “Loan for SMEs” (“L4SMEs”) (two EIB products)
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European Investment Bank

7. The importance of SME support
99.8% of firms in the euro area are SMEs
They account for 70% of employment in the private sector
SMEs are also considered a driving force of Europe’s growth, accounting for 60% of its turnover, generating innovation and enhancing competitiveness
In addition, they are seen as a key factor of local and social integration
12/11/2018
European Investment Bank

8. European Investment Bank
EIB Group SME support
European Investment Bank (EIB) – EUR 72bn signed in 2013, >25% of which allocated to SME support (18,5bn)
European Investment Fund (EIF) – EUR 3.4 bn allocated to SMEs and Midcaps (in which EUR 1898m in Guarantees for SMEs, venture capital / private equity investment funds…)
L4SMEs are the largest volume among the SME instruments and represent currently about loans p.a. to SMEs
The European Investment Bank (EIB)
EU’s long-term lending bank
Set up in 1958 by the Treaty of Rome
Shareholders: 27 EU Member States at that time, now 28
EUR 72bn signed in 2013 (90% in EU, 10% external) > 25 % of which allocated to SMEs support (18,5bn)
The European Investment Fund (EIF)
Established in 1994
Shareholders: EIB, EC, other financial institutions
Main lines of business: VC and Guarantees
EU only
EUR 1898 m in Guarantee for SMEs
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European Investment Bank

9. European Investment Bank
Evolution of EU / EIB SME policy/strategy
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European Investment Bank

10. Intermediated SME lending: EIB intervention logic
Targeted (eligible) investments:
Growth
"improve access to finance"
Tangible assets
Development, planning, financing costs
R&D expenses
Transmission
Working capital
Distribution networks …
Financial Intermediaries
SMEs
(Revised Lisbon Strategy : 2005)
Competitiveness
Funding
Funding
Employment
GLs, L4SMEs
bps, tenor, volume…
Inputs
Activities
Outputs
Outcomes
Impact
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European Investment Bank

11. European Investment Bank
Intermediated SME lending: identified objectives
Operational objectives:
to extend finance to eligible SMEs (signed, disbursed, “allocated”)
Intermediate objectives:
to provide such funding at improved conditions
to improve access to finance
Global objectives:
to enhance the competitiveness of SMEs, ultimately, generating a positive impact on economic growth and employment.
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European Investment Bank

12. European Investment Bank
Mandate and scope of the evaluation
The aim was to assess ALL links within the intervention logic (EIB, FI, SME, wider economy), and each preferably with multiple methods.
A sample of 20 individual operations in 11 Member States and with 18 different financial intermediaries (FI).
Through these operations, at the time of evaluation, some SMEs had been reached.
Of these, 19 operations were evaluated in-depth.
FI comparative portfolio analysis & other desk research
Interviews with FI HQ & front office personnel
Final beneficiaries analysis through:
74 independently chosen SME site visits and interviews
Large scale survey by Gallup Europe among 1003 SMEs
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European Investment Bank

13. European Investment Bank
Evaluation criteria
CRITERION
ISSUE
Relevance
Adaptation to national contexts / policy mixes
Eligibility criteria & scoping of operations
Choice of Financial Intermediaries
Effectiveness
Types of SMEs reached
Types of products proposed by FI
Intermediary objectives – FI vs SME level
EIB visibility and communication
Additionality requirement
Efficiency
Timeliness and absorption capacity
Maturity (mis)matches and reutilisation of funds
Cost effectiveness for FIs and SMEs
Sustainability
Limits to assessing FIs’ financial sustainability
Environmental/Social aspects of SME investments
EIB Contribution
FVA level and FVA/ToFA ratios
Diversification of advantages to SMEs
Counter-cyclicality
EIB Management
Information requested by EIB to FIs
Internal reporting by CAU
Allocation extensions
Reporting tools / interfaces
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European Investment Bank

14. European Investment Bank
Evaluation of the SME Lending Portfolio
Over 2005‐2012, the EIB signed EUR 64bn in loans to around 370 FIs within the EU27.
By end 2012, EUR 53bn of this was disbursed to those FIs, which in turn had on‐lent nearly EUR 48 billion to SMEs through around sub‐loans (allocations).
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European Investment Bank

15. European Investment Bank
Geographical distribution (2005/2011–EU27)
75% of signatures directed to 7 Member States (MS)
Three MS (Italy, Spain and France) represent 60% of signatures
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European Investment Bank

16. Overall results of the evaluation (19 in-depth reports)
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European Investment Bank

17. Main evaluation findings - What works
High consistency with EU/EIB objectives:
increased relevance due to the crisis)
operations need better alignment with national policies/needs
The L4SME is effective: ‘it does what it says and says what it does’.
Most FIs made substantial efforts to create EIB product, set up IT systems, train front office staff, make publicity…
The contractual Transfer of Financial Advantage (ToFA) principle works: funds are passed on to SMEs at improved conditions
The L4SME is effective: it allows the Bank, through contractual and reporting requirements and the definition of specific eligibility criteria, to better understand and control – and potentially better target or steer – the advantages transferred to SMEs and the types of SMEs financed.
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European Investment Bank

18. Main evaluation findings - Issues
By design L4SME leads FIs to select stronger and less risky firms to be financed under “EIB portfolios”.
No significant impact on growth and employment creation, and highly variable between countries, sometimes keeping the SME economy afloat (but these were not explicit objectives of the isntrument)
Awareness is not a sufficient factor to transfer benefit, but visibility and transparency strongly enhance its control
By design L4SME leads FIs to select stronger and less risky firms to be financed under “EIB portfolios”: EIB intermediated SME lending does not primarily improve access to finance for those SMEs which are un- or underserved by banks due to their risk profile, except if operations are carried out within the framework of national programmes, implemented by, for instance, promotional banks.
12/11/2018
European Investment Bank

19. European Investment Bank
Recommendations
R1 Clarify the objectives of intermediated SME lending
R2 Adjust EIB Group product offering better to national needs and policy mixes
R3 Prepare for smart targeting
R4 Additionality: in order to avoid confusion, choose a more appropriate term
R5 Optimise the benefits passed on to SMEs:
a) Undertake a regular internal review of the actual benefits passed on to SMEs. Such analysis should be performed for a representative sample of operations. It should inform the future decisions about the level of FVA and ToFA, in view of optimising and possibly maximising the benefits passed on to SMEs.
b) Undertake a review of the underlying principles on the topics of reuse of funds and maturity mismatch, and following that a clarification of the related contractual clauses and a better enforcement of such clauses.
R6 Promote visibility and transparency even more
R7 Assess clients’ adherence to environmental and social regulations
R8 Reinforce Central Allocation Unit’s role
R9 Improve internal and external SME reporting
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European Investment Bank

20. European Investment Bank
Thank you for your attention!
12/11/2018
European Investment Bank