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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
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
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
Enterprise Directorate General
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
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
Enterprise Directorate General
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
Enterprise Directorate General
European Commission
The Valley of Death 2
Enterprise Directorate General
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
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
Enterprise Directorate General
European Commission
Implementation
Bank
Venture capital Fund
European Commission
budget
SMEs
SMEs
Invests
Invests
Lends
Provides funds
Guarantee Society
Co-Guarantees
Enterprise Directorate General
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
European Commission
EIF other investors
Fundraising
Returns, Losses
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
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
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
EIF40%
KfW40%
Bank20%
Start-up
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
Budget Euro Loan Euro
Enterprise Directorate General
European Commission
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
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.
Enterprise Directorate General
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
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.
Enterprise Directorate General
European Commission
See more on…
• http://europa.eu.int/comm/enterprise/entrepreneurship/financing/index.htm
• Thank you.