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Marc SCHUBLIN Head of “JEREMIE”

7th EUROPEAN CONGRESS OF CEEC RDAs. Marc SCHUBLIN Head of “JEREMIE”. European Integration, Regional Policy and Economic Growth. Sofia, 28/09/2007.

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Marc SCHUBLIN Head of “JEREMIE”

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  1. 7th EUROPEAN CONGRESS OF CEEC RDAs Marc SCHUBLIN Head of “JEREMIE” European Integration, Regional Policy and Economic Growth Sofia, 28/09/2007 This presentation was prepared by EIF. The information included in this presentation is based on figures available for August 2007. Any estimates and projections contained herein involve significant elements of subjective judgment and analysis, which may or may not be correct.

  2. Table of contents EIF Why JEREMIE Principle and phases Evaluation Implementation of Holding Funds Holding Fund structures Products: Tool Kit approach Lessons learnt / challenges 1/18

  3. EU specialised financial institutions for SMEs acting through Venture Capital (fund of funds) and Guarantees (SME portfolios) AAA rated, Multilateral Development Bank status. Part of EIB Group (EIB main shareholder 61%, European Commission 30%, Financial institutions 9% Activity (August 2007): Venture Capital: 4.2bn invested in 275 funds Guarantees: 11.0bn in 185 operations EIF as Mandate Manager On behalf of EIB (Venture Capital), EU Commission (CIP), some Member States (Germany, Spain), other investors EIF so far • EIF • Why JEREMIE • Principle and phases • Evaluation • Implementation of Holding Funds • Holding Fund structures • Products: Tool Kit approach • Lessons learnt / challenges 750.000 SMEs indirectly benefited from EIF support 2/18

  4. Why JEREMIE? • Enhance Financial Engineering and Access to Finance within Cohesion Policy: Lisbon Strategy • Simplified process, with interim payment of structural funds (art. 78.6 of Structural Funds regulation) on an interest-bearing account; • … and revolving nature: proceeds repaid to holding fund can be re-employed for further SME financing; depart from the grant-approach; • Delegation to a neutral expert of selection of intermediaries, monitoring, reporting to Monitoring Committee/Commission; • Flexibility in the selection of instruments through holding fund concept: possibility of reallocation among products based on market conditions/absorption; • Leverage possibilities with other Financial institutions, notably EIB. • EIF • Why JEREMIE • Principle and phases • Evaluation • Implementation of Holding Funds • Holding Fund structures • Products: Tool Kit approach • Lessons learnt / challenges 3/18

  5. JEREMIE: The Principle / the 3 phases 2006 2007 - 2013 • EIF • Why JEREMIE • Principle and phases • Evaluation • Implementation of Holding Funds • Holding Fund structures • Products: Tool Kit approach • Lessons learnt / challenges SME SME SME SME SME SMEs SMEs SMEs SMEs SMEs Microfinance Providers (MCPs) Tech Transfer Activities Guarantee schemes Venture Capital Funds DISBURSEMENT PROCESS IMPLEMENTATION OF HOLDING FUNDS Transforming parts of the ERDF grants into financial products for SME EVALUATION PHASE Preparation of Operational Programmes 4/18

  6. Gap Analysis between supply and demand for SME Access to Finance in EU Member States and Regions; [ public money = need to address market failures] Recommendations for Financial engineering funding with structural funding; So far, about 30 national and regional draft JEREMIE evaluation reports prepared by EIF and presented to Managing Authorities /public authorities; (Denmark, Sweden, England, Scotland, Wales, Lithuania, Estonia, Latvia, Poland, Hungary, Czech Republic, Slovak Republic, Bulgaria, Romania, Greece, Cyprus, Malta, Italy, Portugal, Spanish Regions, French Regions, 1 German Region) JEREMIE Evaluations • EIF • Why JEREMIE • Principle and phases • Evaluation • Implementation of Holding Funds • Holding Fund structures • Products: Tool Kit approach • Lessons learnt / challenges 5/18

  7. JEREMIE EVALUATIONS: some Findings (Central Eastern Europe) • Large majority (70%) of SMEs in CEE meet their financial management needs internally • To encourage access to finance through the use of small loans, SMEs are most interested in lower interest rates, simpler procedures for granting loans and less demanding guarantee requirements. • Collateral requirements are high for the entrepreneur, serious constraint for access for funding (over 100% of loan amount) • Very little supply of early-stage financing (tech transfer, venture capital, business angels) • Commercial banks reluctant to lend to small companies • EIF • Why JEREMIE • Principle and phases • Evaluation • Implementation of Holding Funds • Holding Fund structures • Products: Tool Kit approach • Lessons learnt / challenges 6/18

  8. EIF • Why JEREMIE • Principle and phases • Evaluation • Implementation of Holding Funds • Holding Fund structures • Products: Tool Kit approach • Lessons learnt / challenges 7/18

  9. IMPLEMENTATION OF HOLDING FUNDS (HF) • Decision to reply or not on HF concept with the Managing Authority; • Selection of the HOLDING FUND Manager: • either tender (service contract) • or national institution • or EIF; (both on cost basis within cap of 2% because of Donation = art 44 Reg. Structural Funds); • Involvement of EIF means institutional change representation on the spot. Close involvement also at regional level. • EIF • Why JEREMIE • Principle and phases • Evaluation • Implementation of Holding Funds • Holding Fund structures • Products: Tool Kit approach • Lessons learnt / challenges 8/18

  10. IMPLEMENTATION WORK Definition of: • Amounts, instalments • Business plan (initial activity forecast: guarantees, venture capital, business angels, microfinance, etc …); • Risk profile of the HF: Revolving character, “profitability”; • Legal aspects, structure of the HF: “EIF manages in the name and on behalf” or Special Purpose Vehicle; • Setting up of an Investment Board: EIF proposes, IB decides (ownership issue) • Business Plan • Implementation of reporting/monitoring (delegation to EIF) • Transparent selection of Financial intermediaries and implementation of operations (product experts) • Payments • EIF • Why JEREMIE • Principle and phases • Evaluation • Implementation of Holding Funds • Holding Fund structures • Products: Tool Kit approach • Lessons learnt / challenges 9/18

  11. The Holding Fund structures: Funding possibilities • EIF • Why JEREMIE • Principle and phases • Evaluation • Implementation of Holding Funds • Holding Fund structures • Products: Tool Kit approach • Lessons learnt / challenges National contribution ERDF National HF Regional contributions to one HF R 2 R 3 R 4 R 5 R 6 Region 1 Different specific regional HF R 1 R 2 R 3 R 4 Different Operational Programmes can contribute to the same Holding Fund 10/18

  12. € € € € € € € € Holding Fund Case Study – Leverage at Holding Fund level? National Contribution Possible EIB Loan Possible Private Market Equity Structural Funds ERDF (& ESF) 50% Contribution by way of ‘donation’ 50% National Contribution Banks and/or Pensions Funds to be approached to join as Equity Partners in Fund Up to + 50% additional capital by way of loan to Holding Fund Vehicle (with or without State guarantee). Conditional upon Business plan, due diligence and quality of HF Manager Investment Board Holding Fund (« HF ») Financial intermediaries € € € € SMEs Microfinance beneficiaries 11/18

  13. JEREMIE Investment Board Representatives of the relevant national authorities Main Activities/Responsibilities • Provides strategic input on investment policy and action plan on SME support => Funding Agreement/Mandate with Manager • Establishes the JEREMIE Investment Board and appoints its members • Reports to the European Commission on JEREMIE Government / Managing Authority • Approves the business plan and investment policy proposed by the manager of Holding Fund; • Monitors performance of the manager of Holding Fund (via reporting and audit) • Proposes business plan and investment policy for Holding Fund, in cooperation with authorities; • Identifies/proposes investment opportunities to JEREMIE Investment Board for approval; • Structures, executes and manages approved investments, incl. reporting to authorities • Reports to the Managing Authority on JEREMIE Holding Fund 12/18

  14. Implementation so far: • Signed: Greece, Romania • Advanced negotiations: Slovak Republic, Lombardy, Auvergne, Andalusia, Bulgaria, Wielkopolska, Cyprus, Malta • Discussions on implementation with EIF: other Regions in France, Italy, Spain, Poland, Denmark, Sweden, South West England • Very different motivations: expertise, neutrality, delegation of administration, etc. • EIF • Why JEREMIE • Principle and phases • Evaluation • Implementation of Holding Funds • Holding Fund structures • Products: Tool Kit approach • Lessons learnt / challenges 13/18

  15. Sweden Denmark United Kingdom Poland Czech Republic Slovakia France Romania Italy Bulgaria Spain Greece Cyprus Malta List of Potential JEREMIE Holding Funds • Legend • National Level • Regional Level 14/18

  16. The Product side • Use Public funding as a RISK RESERVE in support of SME finance • Long term approach (2007/2015) • Flexible management • JEREMIE as a “TOOL-KIT” • EIF • Why JEREMIE • Principle and phases • Evaluation • Implementation of Holding Funds • Holding Fund structures • Products: Tool Kit approach • Lessons learnt / challenges 15/18

  17. Sources of Finance to SME SMEs and Micro- entrepreneurs Financial Intermediaries Holding Fund Funding Sources MARKET FAILURE ANALYSIS ERDF Guarantees Bank with SME lending business ESF Loan from SME Bank SME Co-Guarantees SME Loan from MFI Microfinance Institution Global Loans SME Finance Lease From Leasing Co. Leasing Company Counter Guarantees M. S. JEREMIE Direct Investment From Business Angel Securitisation Business Angel Network SME Business Angel Matching Funds SME Direct Investment From VC Fund VC Mgt. Company SME EIB VCF investments as Limited Partner Quasi-Equity From Specialist Equity Finance Specialist Co. Equity Guarantees SME Investment from Tech. Transfer Fund University, Incubator or R&D specialist OTHER SME Investments into Tech. Transfer Funds SME Guarantees The Tool Kit approach 16/18

  18. Lessons learnt so far and challenges for the future • Close involvement of EIF at regional level, future partnership in line with new EIB Group Strategy • Difficulty to solve implementation issue: system is new! • From Grant culture to risk culture = JEREMIE as a “fridge” until 2015 • Avoid fragmentation (EU 15), develop new instruments (EU 12), enhance efficiency, attract commercial players to SME lending/ investment by taking more risk. • EIF • Why JEREMIE • Principle and phases • Evaluation • Implementation of Holding Funds • Holding Fund structures • Products: Tool Kit approach • Lessons learnt / challenges 17/18

  19. Contact European Investment Fund JEREMIE 43, avenue J. F. Kennedy L-2968 Luxembourg Tel.: (+352) 42 66 88 212 Fax: (+352) 42 66 88 280 Patrice Liauzu EIF Brussels Office Tel.: (0032 2) 2 35 00 71 www.eif.org/jeremie 18/18

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