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European Investment Bank Group (Bank & Fund) Which financing instruments are offered to project promoters in the Danube Region? Hubert Cottogni, Deputy Director & Head of Regional Business Development, EIF 1 Overview of future EU-EIF financial instruments Central EU instruments Research, Development, Innovation Horizon 2020 Pilot Equity Facility for Tech Transfer (GIF successor) SME and Small Mid Caps Guarantee Facility for RI (RSI successor) (700m) EUR 3bn Min. 1/3 (EUR 1bn) for SME/small mid caps Jobs, Growth and Social Cohesion Structural/Cohesion Funds Competitiveness & SME (COSME) Instruments under Structural and Cohesion Funds Creative Europe Cultural and Creative Sector Guarantee Facility 121m Social Change & Innovation (contribution of Member State (MS) funds from Operational Programmes to centrally managed EU programs) Off-the shelf instruments EUR 1.4bn Equity Facility for Growth EUR 690m Loan Guarantee Facility EUR 700m EU level instrument Erasmus for all Tailor-made instruments Student Loan Guarantee Facility 517m Significantly higher amounts than currently, but to be decided by each MS Progress Microfinance II Social enterprise investing EUR 192m Source: EC, adapted 2 Financial fragmentation FINACIAL CRISIS = banks are hesitant to lend in ‘risky’ countries meaning that funding became expensive in these places. (E.g. on average loans cost 1.6% more in Italy and Spain than in Germany) • In the Danube Region bank lending remains the main source of funding for SMEs (with Venture Capital and other alternative forms of financing remaining largely underdeveloped) • Due to the fact that the majority of banks in this region are largely owned by Eurozone banks, the financial crisis has had severe knock-on effects. Greek banks in particular continue to own a significant share in economies in the Danube Region. This means that SMEs with similar risk profiles are not able to borrow the same amounts in different countries, simply because one country is perceived to be more ‘risky’ and thus the SMEs in that country are not eligible for the same interest rates – this causes financial fragmentation. Financial fragmentation = credit rationing in the SME market 3 How to improve access to finance for SMEs in the region? In an environment where banks have become more risk averse and are concentrating on recapitalisation and deleveraging, access to finance for SMEs has dried up. At the same time, precisely due to the financial crisis, SMEs have lost the capacity to self-sustain and now need to seek external sources of funding For example in the Western Balkans region, over 45% of micro and SMEs perceive access to finance as a moderate to severe obstacle when doing business*. The solution therefore, is to make risks & rewards acceptable to banks and in parallel to build up new sources of finance such as venture capital and mezzanine markets *OECD et al. (2012) SME Policy Index: Western Balkans and Turkey 2012: Progress in the Implementation of the Small Business Act for Europe, OECD Publishing 4 European Investment Bank & Fund: instruments offered • EIB is strongly committed to the implementation of the Danube Strategy • Out of the total EIB lending in 2012 (EUR 52bn) EUR 7.5bn was allocated to the Danube region LENDING, BLENDING AND ADVISING EIB offers a wide range of financial products, including traditional loans to banks, cofinancing of EU grants, structured finance products (PPPs), specialised instruments such as JESSICA and TA facilities such as JASPERS & ELENA. The EIB has also set up the Budapest Danube Contact Point together with Hungary. EIF offers: • • • • multi product umbrella funds such as WB Enterprise Development and Innovation Facility, JEREMIE in countries like Romania and Bulgaria European programmes such as CIP, RSI, PROGRESS in future COSME, HORIZON 2020 direct support to regional equity and mezzanine funds co-investment facilities 5 Guarantee Instruments Development 2013 and beyond Portfolio Tranche Form Leverage SMEG First Loss Direct guarantee Counter - guarantee = 14 First Loss + Second Loss Direct guarantee = 5 to 7 Second Loss (mezzanine) Direct guarantee = 6 to 8 Blended (uncapped) Direct guarantee Counter-guarantee FLPG* Credit Enhancement Risk Transfer Product RSI ABS wrap Funding Risk tolerance Deal rationale Financial Institutions Senior Direct guarantee Pricing = 5 (on EC FLPG) Leverage = 2 to 3 Target Beneficiaries Self-sustainability *First loss product guarantee Expected Loss SMEG (First Loss) Expected Loss FLPG (First + 2nd Loss) Expected Loss Credit Enhancement (Second Loss) Expected Loss RSI (uncapped) Expected Loss ABS wrap (Senior) 6 EIF crisis response toolbox Equity Instrument Development 2013 and beyond Social Impact Fund Mezzanine Facility for Growth Cohesion Policy Corporate Innovation Platform Structural Funds / ESIF & JEREMIE EIF as entrusted entity for Horizon 2020 / COSME European Angel Co-Investment Fund COSME / Equity for Growth Horizon 2020 / Equity for Research and Innovation TT-POC-Start-up Tech Transfer Proof of Concept Business Angels Seed Stage European Commission Resources Early Stage EIB / EIF Resources Expansion/ Development Capital Lower Mid-Market Member States / Private Sector Resources 7 Western Balkan Enterprise Development and Innovation Facility Improving access to finance in the Western Balkans region WB EDIF Platform is managed by the EIF and is comprised of four different and scalable pillars Improving venture capital ecosystem Improving access to finance Enabling integration with EU Policy ENIF ENEF Enterprise Innovation Fund A VC fund focusing on innovative SMEs Enterprise Expansion Fund EIF is currently in the process of selecting a Fund manager Supporting established SMEs with high growth potential Managed by the EBRD with EUR 50m co-investment facility Target size: EUR 40m Target size: EUR 100m Guarantee Facility Guarantees are provided to FIs to incentivise them to build up new SME loan portfolios Generating a loan volume of over EUR 110m Technical Assistance Beneficiary governments can obtain support in implementing policy reforms to foster a favourable regulatory environment for SMEs Supporting innovation Promoting the visibility of region as a market player Backing regulatory reforms 8 Example: JEREMIE Bulgaria A portfolio approach EUR 392m Guarantees EUR 350m Holding Fund EUR 60m Mezzanine EUR 300m Funded Products 5 different financial products are being deployed Co-investment Product – negotiations underway Via 12 different financial intermediaries Producing a leveraging effect of x 2.5 EUR 20.3m Venture Fund EUR 22.6m Accelerator/Seed Fund PRE-SEED PHASE Allowing for a revolving nature to HIGHER RISK the funds SEED PHASE START-UP PHASE EMERGING GROWTH DEVELOPMENT SME Development Stages Debt products Equity products Product under development LOWER RISK 9