Joint SME Initiative European Commission, July 2013 1 Table of - PowerPoint PPT Presentation

Joint SME Initiative European Commission, July 2013 1

Table of content 1.Background 2.Commission's proposal 3.Opinion of the HLG 4.Commission's priorities 2

1. Background  EU / Commission long history in SME support schemes with EIB and EIF (more than 15 years)  In the current MFF, support to SMEs is provided by EU level financial instruments and by Member States through shared management  In preparation for the new MFF numerous studies and evaluations for new SME schemes have already been prepared (Commission, Parliament, EIB, EIF)  The Commission has acknowledged the findings of these studies and, as approved by the Council, has put more emphasis to support SMEs in the future 3

Current EU supported instruments Structural Funds provide financing to SMEs by  SME aid schemes (grants) managed by Member States and regions (EUR 23bn); additional EUR 22bn benefit SMEs indirectly  financial instruments managed by  the EIF (EUR 1.2bn);  national public and private financial intermediaries or fund managers (EUR 7.7bn). EU financial instruments , namely  the Competitiveness and Innovation Framework Programme (CIP);  the European Progress Microfinance Facility (EPMF), and  the Risk Sharing Instrument for Innovative Research oriented SMEs & Small Mid-Caps (RSI) contribute with some EUR 1.5 bn over the period 2007-2013 for lending to more than 350,000 SMEs. 4

Financial instruments in the new MFF Financial Instruments have been subject to numerous evaluations and audits, and lessons learnt have been taken into account in the design of the instruments for the next MFF . Structural and Cohesion Funds plan to scale up the use of financial instruments alongside grants in 2014-2020. Proposals for Horizon 2020 and COSME foresee scaling up of the use of financial instruments. This is backed by new clear rules that will guarantee sound financial management. 5

2. Commission's proposal  Take advantage of existing instruments - COSME and Horizon 2020 - which already can (and will do) support SMEs  Build on the already existing and politically agreed concept of Joint Instruments, to combine EU level financial instruments and European Structural and Investment Funds …. The SME Initiative is only linking these points  Combine and fully utilize the EIB and EIF and possibly National Promotional Banks' capacities Act fast and achieve significant impact to:  Stimulate SME financing and economic growth  Fight fragmentation  Develop non-banking financing for SME 6

COSME and Horizon 2020  The inter-institutional discussions on legal bases for COSME and Horizon 2020 are now closed and political agreement with the European Parliament has been reached.  This creates a major advantage in terms of speed and readiness of implementation as the EIB/EIF have implementation experience on these two programs.  These two agreed legal bases allow already for portfolio guarantees of existing loans and securitisation of existing and new loans SME loans and provide an effective and flexible basis on which the new SME initiative will be plugged in. 7

CPR – the new Joint Instruments Joint Instruments: financial instruments that bring together  resources from  Programmes managed by the Commission (EU level financial instruments) and  European Structural and Investment Funds for the achievement of the same policy objectives as EU and ESIF OP instruments, using the same delivery mechanism (i.e. involving the same counterparties) and applying consistent requirements (e.g. terms, reporting, audit, etc.). Differences apply only to eligibility criteria related to the final  beneficiaries, in particular the geographical criteria. 8

New SME Initiative Proposal : Pooling of resources from  European Structural and Investment Funds (ESIF)  COSME & Horizon 2020  EIB and EIF  National and Regional Promotional Banks (NPBs) … . in the form of Joint Instruments Why? : To increase access to finance for SMEs by offering products to banks that are beneficial in terms of  liquidity to finance new SMEs loans  number of SMEs supported, volume of SME financing  capital relief, to the extent necessary to support SME loans .. more value added, more financing to SMEs 9

New SME Initiative-assumptions ASSUMPTIONS for 2014-2020:  Member States may decide to voluntarily make available a designated amount of ESIF allocations to the Joint Instruments.  Minimum and broad participation are needed to create value added. The assumed amount is EUR 10bn from a EUR 336bn cohesion policy budget.  Contributions from EU's COSME (210 mil) and Horizon 2020 (210 mil)  Sizeable balance sheet contributions from EIF and EIB (providing guarantees or direct investment) covering Mezzanine and Senior risk  Possible contributions from national promotional banks and/ or private investors 10

1. Joint SME Guarantee and Securitisation Instruments for new loans  Pooling of COSME, Horizon 2020 and the ESIF and combined with the resources of the EIB and EIF to provide a combination of:  guarantees for new SME lending under a Joint Guarantee Instrument  guarantees for portfolios of new SME loans for the purposes of securitisation. Such portfolios would need to be built up by the banks in a specified time period (2-3 years) with a view to being securitised.  With a blend 75% of guarantees : 25% of securitisation, EUR 10bn from ESIF and EUR 420m from COSME & Horizon 2020 would generate lending to SMEs of an estimated EUR 55-58bn (a leverage ratio of roughly 1:5) , benefiting 580,000 SMEs. 11

2. Joint SME Securitisation Instrument for new and existing loans  ESIF, COSME, Horizon 2020, EIF, EIB, national promotional banks' funds would be combined for the securitisation of portfolios of SME loans , attracting private investors. Financial intermediaries would be required to finance new loans to SMEs proportionaly to the amount covered by the Joint Instrument. The securitisation of portfolios of existing loans would increase the impact and immediacy of this instrument compared with option 1.  EUR 10bn from the ESIF and EUR 420m from COSME & Horizon 2020 would be allocated to generate lending to SMEs of an estimated EUR 65 bn (a leverage ratio of roughly 1:6) , benefiting around 650,000 SMEs . 12

3. Joint SME Securitisation Instrument for new and existing loans, with risk pooling  Similar to Option 2 but would include the possibility to pool risks, allowing for a much higher leverage than under the previous options. Allows providing immediate capital relief and liquidity to banks which facilitates the swift provision of new loans to SMEs.  EUR 10 bn from the ESIF and EUR 420 m from COSME & Horizon 2020 would be allocated to generate lending to SMEs for an estimated amount of EUR 100 bn (a leverage ratio of roughly 1:10) , benefiting around 1,000,000 SMEs . 13

3. The HLG Opinion  The High Level Expert Group (HLG) brings together the ECB, EIB, EIF and around 12 market participants  The HLG has analysed each option against 12 policy criteria and presented its opinion on 16 July to the EFC  Final assessment depends on priority and relative importance assigned to the various policy criteria by EU Member States  Further work has been assigned to the HLG on investor demand for end of August 14

HLG's matrix Criteria Option 1a Option 1b Option 2 Option 3 (w/ Pooling) Leverage 1:5 1:5 1:6 Up to 1:10 (no participation of (assumes participation of (assumes participation of [as indicated by COM and EIF in the HLG private investors) private investors) private investors) discussions] Speed of structuring and signature High Medium High + High - Speed of reaching final SME beneficiaries Slow Slow High High (ramp-up period) (ramp-up period) (existing loans) (existing loans) Relative complexity in structuring Low High High Highest Medium / high (if national promotional banks involved) (Regulatory) Capital relief Sure Structured Structured Structured (subject to national (subject to national (subject to national regulatory rules) regulatory rules) regulatory rules) New direct funding No No Yes Yes No Yes Yes Contribution to development of securitisation Yes markets (over time; ramp up period) Contribution to overcoming financial Low (indirect) Low Better Best fragmentation (indirect; through pricing (indirect; through pricing of (indirect; through pricing of EIB investment in EIB investment and through of EIB investment and senior tranches) progressive revitalisation of through progressive securitisation markets) revitalisation of securitisation markets boosted by significant political signal)