aecm and the different european guarantee models berlin, 5 may 2006m. sousa branca

AECM and the Different European Guarantee Models

Berlin, 5 May 2006 M. Sousa Branca


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AECM – European Mutual Guarantee Association

Founded in 1992

International non-profit organisation based in Brussels

Open, democratic, politically independent association

Main objectives:

Representing the interests of membersPartner of the European CommissionReflects the economic role of Guarantee EntitiesExchange of information for the benefit of SMEs


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Own funds € 3 845 million

Outstanding commitments € 38 210 million

Guarantees granted € 14 970 million

Number of beneficiary SMEs 2 million

(data: 2003 annual reports of AECM members)

AECM Members’ Main Figures


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25 countries455 million inhabitants 23 million businesses 99% of which are Micro and SMEs 75 million jobs on average, between 3 and 4 employees per business 57% contribution to GDP

European Union and SMEs


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Some general beliefs: SMEs require special attention to assure their

access to finance Finance is better supplied by banks and other

financial entities SME intrinsic risk is often very high in the

viewpoint of lenders / Even higher in the case of agriculture SMEs

Guarantee Schemes help overcome this SME problem

European Guarantee Environment


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Private / public initiatives

National / regional schemes

Entrepreneurs and SME directly or indirectly involved in the shareholding credit decision making process scheme or MGS daily / strategical management

European Credit Guarantee Schemes


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Public support provides equity and protection

higher leverage and efficiency

Counter guarantee national / supra national provided and funded by the EU Commission and managed by the

European Investment Fund (EIF)

European Credit Guarantee Schemes


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Guarantee Funds Initiative taken by Public Authorities (State, Region...)

Mainly public shareholding

Management selected by public majority

Solvency related to public umbrella

European Different Models


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Mutual Guarantee Schemes Initiative of SMEs and SME representative organisations

(such as Chambers of Commerce, Industry and Regional SME Associations...)

Mainly private shareholding

Management as a partnership betweenSME representatives and bankers

Mutualism as a core idea

Self protected solvency with public support

European Different Models


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SMEs Banks

State

GuaranteeSheme

Guarantee Triangular Relationship

Guarantee

Guarantee commission (fee)

Counter GuaranteeFinancial Support

Bank loan

Legal environment and framework


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Access to finance and

Access to better credit conditions:

lower interest rates and better maturity terms

Thanks to the compensation of SME collaterals shortage

Promotion of entrepreneurship (start-ups, take-overs)

Provision of instruments for SME and their product life cycles

Availability of advice and coaching

Benefits for SMEs


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Partial outsourcing of credit risk

Guarantee as a clear instrument for risk mitigation

Guarantees may be combined with several financial products

Reduction of banks’ capital requirements on SME loan portfolio (importance of guarantee quality)

Reduction of banks’ provisions on SME loans

Possibility for the bank to leverage its assets

Benefits for Banks


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Guarantee Schemes are used as a vehicle for

SME economic policy and SME support

Possibility to design instruments for macroeconomicstrategy and SME needs

Subsidy of SME cost of capital (guarantee fee below market levels…)

Possibility to sit at the Scheme Board (being a Scheme stakeholder)

Usually responsible for financial funds availability orScheme solvency assurance

Benefits / Relevance for Public Authorities


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General Improve SME access to finance in countries with relatively low rate of financial intermediation

Particularly within industries with stronger acess to finance difficulties

Product diversification in order to guarantee: start-ups innovative instruments internationalization micro-guarantees…

Challenges to Guarantee Schemes


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Basel II Increase SME credit worthiness

Strengthen SME equity base (together with venture capital)

Qualify guarantee so that it may reduce bank capital requirements

Improve / develop internal rating (scoring) methodologies

Challenges to European Guarantee Schemes


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Market Relevance

Additionality

Effectiveness

Leverage

Efficiency

Sustainability

Performance Indicators


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Portuguese Mutual Guarantee Scheme

COUNTER

GUARANTEE

FUND

(FCGM)

Mutual Guarantee Societies (MGS)

-NORGARANTE

- LISGARANTE

- GARVAL

- AGROGARANTE

Banks and other guarantee

beneficiaries

SME

Automatic Counter Guarantee

Counter Guarantee fees

Guarantees

MGS shares - mutualism

Guaranteed loans

Counter Guarantee Counter Guarantee --held by public entities held by public entities

Mutual Guarantee Societies Mutual Guarantee Societies --mainly privately heldmainly privately held

SPGMScheme “holding”

- Counter Guarantee Fund Management- Portuguese Mutual Guarantee Scheme development and

marketing (“umbrella”)- Several Back-Office services to Mutual Guarantee Societies- First level control of the Scheme- Minority Participations in the MGS share capital

Guarantee fees

Interest

and loan repayments

All MGS apply a homogeneous credit assessment, according to principles and rules discussed and approved by all entities of the scheme

EIF


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M. Sousa BrancaSPGM – Sociedade de Investimento, S. A.

Porto, Portugal

Managing Director

AECM – European Mutual Guarantee AssociationBrussels, Belgium

Vice President

Thank you very much for your attention.

aecm and the different european guarantee models berlin, 5 may 2006m. sousa branca

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