Financing SMEs in the Danube Region

1. Hubert Cottogni 1st Danube Financing Dialogue 22 March 2012 Financing SMEs in the Danube Region

2. EIF at a Glance EU specialised institution for SMEs, risk financing Venture Capitaland Mezzanine (fund of funds) Structuring and Guaranteeing portfolios of SME and microfinance loans/leases Authorised Capital € 3bn EIB: 61.2% EU: 30 % Fin. institutions: 8.8 % Geographic Focus / Intermediaries EU 27, EFTA, Candidate Countries Distributing through Banks and Funds AAA rated: Stable outlook Staffing, Culture and Values Leading-edge modern institution Adapting to changing market conditions Attracting talented staff High standards of compliance and integrity Dual Objective of Meeting EU Policy Goals & Generating a Satisfactory Return on Equity

3. The Danube Region Romania Debt: dominated by international banks, deleveraging, first positive signs of independent regional institutions Early Stage Equity: underdeveloped, depends fully on larger regional funds The Danube river flows 3,000kms – covering 14 countries and comprising a total population of 115 million Czech Republic Debt: strong presence of international banks (de-leveraging), efficient public guarantee system Early Stage Equity: little VC, no Seed, first signs of BA network formation Hungary Debt: dominated by international banks, no trust in the political system, strong de-leveraging effect Early Stage Equity: over flooded with cheap public money, no Seed or Business Angels Southern Germany Debt: overbanked and over branched, Hausbank principle Early Stage Equity: not sufficiently supplied, a number of emerging new models for VC investments (new models, generally higher capital efficiency) Bulgaria Debt: dominated by international banks (Greek banks among others) deleverage and plain vanilla product offering Early Stage Equity: : totally underdeveloped, no sustainable impact of 1st VC/Equity wave in the late 1990s Austria Debt: overbanked and over branched, Hausbank principle Early Stage Equity: virtually non existent Slovakia Debt: dominated by International banks, first signs of deleveraging Early Stage Equity: first attempts, little impact, poor structures. First signs of Business Angels network formation Moldova Debt: underserved Early Stage Equity: ignored Slovenia Debt: dominance of international banking groups, signs of deleveraging Early Stage Equity: sporadic attempts, no visible results, little Seed or Business Angels Western Balkans Debt: dominance of international banks, tendency to deleverage, major difficulties for SMEs to borrow Early Stage Equity: Market in embryonic stages, limited cross border investments, no organized investment society, no experienced fund managers (Croatia TT infrastructure developed, future uncertain)

4. €1bn Net Equity Commitments Across Danube Region at 31.12.2011 (17% of total EIF exposure) EUR m Austria 195 Bulgaria 21 Czech Republic 40 Germany 686 Hungary 15 Romania 42 EU 27 EU Candidate Countries EFTA/EEA

5. €4.8 bn in Guarantee Commitments Across Danube Region at 31.12.2011 (15% of total EIF exposure) EUR m Austria 295 Bulgaria 498 Croatia 3 Czech Republic 128 Germany 3177 Hungary 163 Montenegro 15 Romania 375 Slovakia 25 Slovenia 89 EU 27 EU Candidate Countries EFTA/EEA Other Countries

6. Investment approach 1 Holistic and diversified approach to SME investment – from pre-seed stage though to expansion financing SME Cash Flows Public Stock Markets Portfolio Guarantees & Credit Enhancement Formal VC Funds & Mezzanine Funds Funded Risk Sharing for SMEs VC Seed & Early Stage Microcredit Business Angels, TT Development Emerging Growth Pre-seed Phase Seed Phase Start-up Phase SME Development Stages HIGHER RISK LOWER RISK

7. Case Study of Structural Funds in Bulgaria Mobilising EUR 860m SME Cash Flows In Progress Active 300 M EUR 392 M EUR Mature 60 M EUR Enterprise development stage 60 M EUR 30 M EUR 20 M EUR Start-up Funded Risk Sharing Product First Loss Portfolio Guarantee Growth Fund Mezzanine Fund Seed Fund Venture Fund Development Emerging Growth Pre-seed Phase Seed Phase Start-up Phase SME Development Stages Private funds Public Funds - OP Competitiveness (JEREMIE) HIGHER RISK LOWER RISK

8. Investment approach 2Focus on a specific regional clusterThe Western Balkans SME Platform • Heterogeneous environment – reforms in the legal, tax and regulatory framework • Innovation to be supported through early stage equity investments • Access to finance to be provided to those SMEs currently outside the banking sector radar due to limited financial history, size, collateral etc • The entrepreneurial and Venture Capital ecosystem in the region to be developed and best market practices to be disseminated • Visibility of the region to be increased Given its flexibility, the Western Balkans SME Platform may also serve as the future toolbox with which to support more specific needs of SMEs and Sectors in the region

9. Case Study of Structural Funds in Western Balkans: MobilisingEUR 370m SME Cash Flows + EUR 50M co investment 20 M EUR Mature 54 M EUR 40 M EUR Enterprise development stage Innovation Fund Expansion Fund Guarantee Facility Start-up Financial Instrument Development Emerging Growth Pre-seed Phase Seed Phase Start-up Phase TA component on Reforms and Capacity Building Aiming to reform the underlying legal, tax and regulatory framework in the region 5M EUR SME Development Stages HIGHER RISK LOWER RISK Private and/or Market oriented Public investor Public Funds

10. Danube & Europe 2020 - A Strategy for Growth and Jobs 1 Goal – 5 Targets – 7 Flagship initiatives Smart Growth Sustainable Growth Inclusive Growth « Innovation Union » 3% of GDP to be invested in R&D/innovation « Resource-efficient Europe » 20% less greenhouse gas 20% renewable energy 20% more energy efficiency An agenda for new skills & jobs 75% employment rate « European platform against poverty » At least 20 million fewer poor people « Youth on the move » School drop-out rates below 10% at least 40% third level education « An industrial policy for the globalisation era » Supporting entrepreneurship and improving every part of the value chain Employment R&D / Innovation Climate Change / Energy Education Poverty / Social Exclusion « Digital Agenda for Europe » Creating a digital single market Targets:

11. Contact European Investment Fund 96 boulevard Konrad Adenauer L-2968 Luxembourg Regional Business Development Tel.: (+352) 42 66 88 1 Fax: (+352) 42 66 88 280 www.eif.org