the sme initiative: improving access to finance for smes
TRANSCRIPT
The SME Initiative: improving access to
finance for SMEs
European Investment Bank Group 23 April 2015
The SME initiative ESIF + EU budget + EIF / EIB
Key objectives
Increased multiplier on public budget through participation of EIB/EIF and private
sector
Better access to finance for SMEs who benefit of reduced pricing
Capital relief, loss protection and potentially liquidity for the financial
intermediaries
Dedicated Optional Programme, at the discretion of each Member State
Resources: a blending of Structural Funds (ESIF), EU Budget
(COSME/H2020), EIB, EIF, and potentially National institutions
EIB and EIF participate via
Own funds (for guarantees and direct investments)
Expertise in deal structuring, execution, implementation and monitoring
throughout EU
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SME Initiative: Key Points
Two risk-sharing instruments endorsed by the European Council:
1. Guarantee facility for portfolios of new SME loans; new portfolios are a
multiple of the ESIF contributed by the Member State.
2. Securitisation instrument for portfolios of both new and existing SME loans.
Eligible assets: SME loans, leasing and guarantees
Any EU Country can join the SME Initiative, contributing up to 7% of its total ERDF
and EAFRD allocation
Timing: SME initiative is operational in Spain as of 1Q15, and will be in Malta in
2Q15
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EIB Group role
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Integral part of the SME Initiative, as it:
Has provided input to the ex-ante assessment to determine the estimated demand and SMEs’ debt
financing needs
Negotiates/determines with Managing Authorities the framework of the Initiative in each MS
Selects the financial intermediaries via which the initiative is implemented
Structures the underlying transactions. Originators and investors will benefit from EIF’s extensive
pan-European experience in Guarantees and Securitisations
EIF guarantees a mezzanine tranches of the structure whilst EIB participates in the senior risk
Due to EIF’s & EIB’s AAA rating and Multilateral Development Bank status, originators could benefit from
capital relief on the assets guaranteed
EIB Group’s participation in the securitisation structures (Option 2), acts as anchor for attracting third-
party investors and is intended to stimulate the re-opening of the European ABS SME market
Potential role of the National Development Institutions to be defined, as appropriate; may include acting as
financial intermediary (either under counter-guarantee or guarantee), providing a (co)guarantee on either a
mezzanine tranche or the senior tranche, cooperating with EIB Group on specific aspects of the
implementation
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The Member State’s (and
the Regions) perspective
Unlike traditional structural fund products, where Member States and/or Regions must
co-finance a percentage of the eligible expenditures, the SME initiative does not
require co-financing with national/regional funds and therefore saves
national/regional budget for other uses
The SME Initiative builds on an existing framework that allows to act fast and have
significant impact
The SME Initiative commits the participation of EIB and EIF with sizeable
contributions and their expertise in the structuring, execution, implementation and
monitoring of guarantees, securitisations and EU-level programmes
The SME Initiative relies on an ex-ante assessment which has already been
performed by the EC and the EIB Group
The SME Initiative permits and commits the joint use of ESIF, COSME and/or
Horizon funds in the participating Member States/Regions
Ad hoc GGE calculation for State aid already approved by the EC
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The Member State’s (and
the Regions) perspective
Additional flexibility on SME eligibility criteria in the context of the SME
Initiative: existing SME loans may be included (Option 2 – securitisation)
In return for all the benefits offered under the SME initiative and depending on
the credit quality of the guaranteed portfolios, the leverage of ESIF is
envisaged to be higher than that under the traditional ESIF programs
This would result in more funds available to SMEs
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Documentation Package
CPR Art. 39 lays down the basis for SME Initiative
Delegation Agreements (between the EC and EIF) of COSME and InnovFin
have already been amended to provide for contributions to SME Initiative
Model Funding Agreement has been approved by the Commission and
provided to Member States
The Common Provisions (coordinating the interaction between the different
legal bases) have already been agreed to
The Inter-creditor Agreement has been established and signed by the Parties
involved in SME Initiative in Spain
A model of Call for Expression of Interest has already been developed (and
published in Spain)
Governance Investors’ Board - set-up and powers
Set-up
The SMEI implementation is supervised by an Investors’ Board (IB)
The Model Funding Agreement gives an indication as to its composition but this
can be tailored to each MS needs (e.g. in Spain there’s a rotation system allowing
all stakeholders to participate)
Voting members include representatives of MA + EIF; observers include
representatives of EIB and EC services
IB’s powers
Approves terms to the Call for Expression of Interest
Issues opinions on strategic and policy matters related to SMEI implementation
Gives guidance on matters related to eligibility criteria
Reviews progress on implementation, including achievement of milestones and
pipeline on new operations
Reviews the treasury investment strategy
Proposes amendments to the Funding Agreement
Reviews regular reports, implementation evaluations, proposed adjustments,
treasury strategy
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Two risk-sharing instrument options may be followed:
1. A joint guarantee instrument for portfolios of new SME loans
2. A joint securitization instrument allowing for securitization of portfolios of both new and
existing SME loans
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SME Initiative Side-by-side comparison Option 1 vs Option 2
Option 1 and Option 2 will be compared
throughout the next pages
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EIB risk
ESIF + EU Funds + National
ESIF risk Uncovered
risk
(po
ten
tia
lly)
Thir
d-p
arty
ris
k
New SME loans
(Additional Portfolio)
Securitisation SME Loans
Financial
Intermediary
Risk
tranching
Beneficiaries S
ME
1
SM
E 2
SM
E n
EIF (Target Rating: Baa3)
MEZ
Z FL
P
SME Initiative Side-by-side comparison: Schematic
Option 2 Option 1
EIF guarantee
Guarantee
Rate up
to 80%
Loan by Loan
EIB risk
Mezzanine (ESIF, EU
Funds, EIF, potentially
promotional
banks)
Junior (ESIF)
Risk
tranching
Provides uncapped portfolio guarantees and
possibly partial capital relief to banks building up
new portfolios of loans
Description:
Originators (gradually) builds-up a portfolio of
new SME loans (which is a multiple of the ESIF)
EIF issues uncapped portfolio guarantees and
shares the risk (up to 80%) with banks
ESIF are used to cover the first-loss piece
EU funds from Horizon 2020 and/or COSME
and the EIF absorb, along with ESIF, the
second-loss piece.
EIB takes the risk on the senior tranche
National Institutions could also participate
In return the originators will have to transfer benefits
of the instrument to the SMEs in the form of reduced
pricing
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Option 2 Option 1 Securitisation instrument can be backed by portfolio of existing
SME loans with the objective of originating a portfolio of new
loans equal to a multiple of ESIF. Securitisation of new SME
Loans is also possible
Description:
A portfolio of (i) existing SME loans is identified, or (ii)
new SME Loans is agreed to be built
50% of the first-loss piece is covered by ESIF
The risk of the second-loss piece is covered by ESIF,
EU funds from Horizon 2020 or COSME and the EIF
National institution could participate
EIB takes the risk on the senior tranche
National Institutions could also participate
In return the originators undertake to provide new financing
(amounting to multiple of the EU Funds contribution) to
SMEs at reduced pricing
The SME initiative Side-by-side comparison: Description
Objective: Improve access to finance for SMEs by
addressing challenges that banks face and which
impede their credit appetite
More specifically:
May provide capital relief
Covers up to 80% of losses for defaulted loans
Improvement in access to finance is materialized
through:
Incentive for the financial intermediaries to
increase SME lending in light of the guarantee
cover they receive
Reduced pricing to SMEs due to ESIF, EU and
EIB competitive pricing
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Option 2 Option 1 Objective: Improve access to finance for SMEs by addressing
challenges that banks face and which impede their credit
appetite.
More specifically:
May provide capital relief
Helps banks selling (or buying credit protection on)
existing loans, therefore creating balance Sheet
availability for new loan commitments
ESIF cover of junior tranche and pricing of mezzanine
tranche may yield highly competitive cost of funding for
Financial Intermediaries
Improvement in access to finance is materialized
through:
Larger amount of funding and/or capital potentially
available to SMEs
For funded structures, diversification of funding sources
for FIs (via private investors purchasing ABS notes)
The SME initiative Side-by-side comparison: Description
Benefits of the SMEI
European Investment Bank Group
For SMEs Easier access to bank
financing in a context of
budget constraint
Significant Transfer of F.
Advantage: ESIF have a
zero cost on the equity
tranche
More opportunities
for innovative
SMEs and new
technology-based
firms
Helps to mitigate
financial market
fragmentation in the
EU in terms of credit
cost
For Member
States
No national co-financing
required.
State Aid is cleared, no
additional negotiation of
state aid schemes required
Ex ante assessment
already done by the EC
Clear governance
structure
Aligned to MS priority
objectives
SME credit growth
may drive economic
growth
More efficient use of
ESIF
Transition from a
subsidy culture to
revolving financial
instruments
For Financial
Intermediaries (FI) Credit protection Capital relief
Access to new
clients/segments
High visibility for SME
support
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Next Steps
Ex-ante – already completed
Approval of a single national dedicated OP
Signature of Funding Agreement & other related documents
Approval of Call by Investors’ Board
Publication of Call
Selection of financial intermediaries and signature of operations…
Conclusions
European Investment Bank Group
• The SMEI is an innovative instrument, replicable in all European
Member States
• EU-wide joint initiative. Cooperation among a wide range of parties
involved: EC, EIB Group, MS, Public Promotional Institutions and FIs
• Transfer of Financial Advantage to Final Beneficiaries (SMEs)
• The SMEI is expected to set the base for future financial instruments
to support SMEs
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Angel Ferrero
Head of Public Sector & Financial Instruments, Spain – Lending Operations, EIB
Email: [email protected]
Marco Marrone
Head of Regional Mandates, Guarantees Securitisations and Microfinance, EIF
Email: [email protected]
Piotr Stolowski
Head of Region, Regional Business Development, EIF
05/05/2015 16 16
Contacts
THANK YOU
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