enterprise directorate general european commission access to finance by smes and eu financial...

Enterprise Directorate General

European Commission

Access to finance by SMEs and EU financial instruments

Jean-François AGUINAGAEnterprise Directorate-General

SME financing policy Unit

Joint Venture Association ConferenceBudapest, 12 October 2004


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


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


European Commission

Financing stages

Entrepreneur, friends, family

Business angels

Formal venture capital

Equity

Seed Capital Start-up phase Early growth Expansion

HIGHER RISK

LOWER RISK

Bank loans

Fin

anci

ng

nee

ds

Financing stage


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


European Commission

En

terp

rise

’s r

even

ue

Enterprise’s development stageValley of Death

Seed phase Start-up phase Emerging growth Expansion

Valley of Death 1


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The Valley of Death 2


European Commission

MAP Financial Instruments

• Budget 2001-2005 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 www.eif.org for detailed MAP guidelines


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


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Implementation

Bank

Venture capital Fund

European Commission

budget

SMEs

SMEs

Invests

Invests

Lends

Provides funds

Guarantee Society

Co-Guarantees


European Commission

ETF Start-up: early-stage financing for high tech start-ups

Dedicated VC Funds

Early stage technology SMEs with high growth potential

EquityCash

Fundraising Returns, Losses

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EIF other investors

Fundraising

Returns, Losses


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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


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


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

EIF40%

KfW40%

Bank20%

Start-up


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

Budget Euro Loan Euro


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Experience 1998-2000: lessons

• Loan guarantees EC budget contribution: €199m €10bn worth of loans guaranteed 112 000 SMEs benefited from

guarantees

• Venture capital EC budget contribution: €168m 200 SMEs benefited


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.


European Commission

Innovation and Competitiveness Programme (ICP)

• ICP period: 2007-2013

• 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


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.


European Commission

See more on…

• http://europa.eu.int/comm/enterprise/entrepreneurship/financing/index.htm

• [email protected]

• Thank you.

enterprise directorate general european commission access to finance by smes and eu financial...

Documents

startup slide

facility slide

limited slide

employees equity guarantee

venture capital fund

smes difficult

banks risk eif

financial sectors