José Fernando Figueiredo President AECM

1. Guarantee Schemes in Europe: the cooperation with the banking sectorBGK International SeminarGuarantee Schemes in European Union Countries – searching for the best modelWarsaw, 9 February 2011 José Fernando Figueiredo President AECM

2. Why guarantees ? SME are key actors in the EU economy (also worldwide): They represent an important part of employment and GDP and are generally important for maintaining the economic and social fabric throughout the territory. Credit finance is important to SME in the EU, as they: have no or little access to venture capital, mezzanine capital, bond issues, etc. Have weak own funds positions => limited capability to auto-finance investment or working capital needs Rely predominantly on loan finance Usually have a relative lack of bankable collateral Due to the relative lack of collateral, loan finance is more difficult to obtain than for larger companies

3. WHY GUARANTEES? ...STRENGTHEN MARKET MECHANISMS... Savings BankIntermediation SME Securitization Mutual Guarantee Banks PrivateEquity Access to Markets Financial RisingPlatforms EquityChain

4. Why guarantees ? Guarantee schemes facilitate access to finance by providing credit default guarantees for SME that : Are economically healthy Have an economically meaningful project but at the same time do not dispose of sufficient collateral to access bank credit Guarantee schemes’ philosophy: “Help for self help” principle and “risk sharing” with other financial partners, specially banks, in order to support SME development

5. What Guarantee products are offered in Europe? Generally: Credit default guarantees for SME: Guarantee issued on behalf of SME to banks to substitute missing collateral Offered for all stages of SME life cycle (from the financing of start-ups to business transfers) But also other types of guarantee products offered by some Guarantee schemes: Guarantees for: Micro loans, leasing, factoring, mezzanine finance, risk capital, internationalization, projects, EU funding, fiscal authorities, public procurement, etc.

6. ... PRESENCE OVER THE LIFE CYCLE OF THE COMPANY Business Angels Venture Capital Turnaround Maturity M & A Venture Capital Private Equity Loans Growth Start-up guarantees guarantees guarantees 6

7. Added value of Guarantee schemes Advantages to SME: The first and most relevant is obviously the providing of an alternative way to access the financing need to develop their projects (naturally for economically sound projects) At appropriate prices and for adequate term Recognition of qualitative factors in MGS risk analysis Support services and third party analysis by sector analysis of business plan and model Non-profit orientation of Guarantee scheme Intermediary function of Scheme towards lender In mutual schemes, participation in management of scheme

8. Added value of Guarantee schemes Advantages to Public authorities : Helpful tool while designing public policies the specialized knowledge can help the authorities in the SME financing area Financial intermediary for public policies: Directly or through the Counter-guarantee element (regional, national, euroepan level EIF-CIP) - It is an highly cost/effective leverage mechanism: Example: Leverage effect of € 1 public investment in counter-guarantee scheme that has 10 times multiplier, with e.g. a 50% coverage both at counter-guarantee and guarantee level: € 10 of counter-guarantees € 20 of guarantees € 40 of bank loans even higher amount of final investment Individual risk assessment and follow-up

9. Added value of Guarantee schemes Advantages to banks: Reduction of bank’s risk exposure, improvement of credit quality The loss given default ration is reduced in the presence of a guarantee Guarantee issuers are private or public financial institutions (that normally are covered by a public counter-guarantee mechanism, national or european like EIF), thus increasing the banks willingness to lend The can build up an SME portfolio The bank can focus on this specific sector as the guarantee turns these loans more interesting and profitable Risk analysis can be individual or shared between banks and guarantee entities

10. Added value of Guarantee schemes Advantages to banks: Financial supervision of the Guarantee Entity The guarantee entity will also carry out the follow up of the SME evolution so giving additional trust and sustainability vis-a-vis lending partners Mutual Guarantee Schemes provides specific sector knowledge of SME customer in addition to traditional Banking Sector analysis In the particular case of the Mutual Guarantee Societies there is a special knowledge of the borrowers so an even higher level of information to the banks regarding risk analysis The Guarantee Entities are specialized Special knowledge and no competition with the banks (partners on behalf of the SME)

11. Added value of Guarantee schemes Advantages to banks: Mitigation effect on risk-asset ratio thus reduction on capital consumption by the banks (depending of the qualification of the guarantee scheme) High level of liquidity of guarantee in contrast to other types of collateral most of the times guarantees are first demand and paid to banks in short time after claiming

12. Typologies of Guarantee Schemes In general, we can observe a great variety of different legal and operational frameworks for guarantee schemes, reflecting local needs. Nevertheless it is possible to identify three main models: Mixed model of with Private Guarantee entities and Public counter-guarantee (a sort of PPP) – very frequent in older EU member states and the more significant in volumes and number of SME supported; Public Guarantee Scheme or Guarantee Fund – also very frequent, mainly in new EU member states; Fully Private (Mutual) Guarantee Scheme, without any kind of support from public authorities – not very frequent - the remaining existing situations try to find counterguarantee at national or EU level, for example through the EIF.

13. Typologies of Guarantee schemes • PUBLIC GUARANTEE SOCIETIES • Initiative taken by Public Authorities (State, Region..) • Mainly public shareholding • Directory Board elected or nominated by state authorities • Mission: SME support • Solvency: responsibility through own funds + public umbrella • Ltd company with majority from state or endowment from public budget • Other goal: sometimes the management of public subsidies • PRIVATE GUARANTEE SOCIETIES • Initiative from SMEs and representative organizations, also banks • Mainly private shareholding • Directory Board composed of SMEs, bankers, private managers … • Mutuality principles • Mission: support member SME • Self protected solvency through own funds and provisions + public support (normally) through counterguarantee • Cooperative or Ltd Company normally under financial regulation • Other goal: no Main differences between public and private schemes:

14. About AECM 35 active schemes in 19 countries AECM Key figures (provisional 31.12.2009, in €1.000.000) Own Funds € 7.000 Guarantees issued in 2009 € 33.601 Outstanding commitments € 70.000 Leverage Cap / commitments > 10 x SMEs beneficiaries ~ 2,2 Million

15. Evolution of portfolio of AECM members SME Finance Days for SMEs – Vilnius - Lithuania – 16 June 2010

16. The particular case of the portuguese mutual guarantee scheme

18.  Special Credit Lines negotiated between government, banks and MGS • Purpose: financing investment and working capital • Amounts: Max 1,5 million € per SME (positive discrimination for the best SME) • Maturity : Up to 5 years with 18 month grace period • Guarantee: 50% to 75% • Decision time: 3 to 7 working days • Interest rate: according to rating, from 0,9% to 4% spread • Guarantee fee: also according to rating, from 0,75% to 2% • State gives counter-guarantee through the national • counter-guarantee fund up to 80% (90% in certain cases under • Special measures for crisis) • Guarantee fees subsiized under “minimis” Protocols with banks

19. Evolution of activity 19

20. Multiplying effects of public + private allocations to the scheme Investment made by the SME that got guarantees € 10 226 Bank financing to SME € 9 779 Guarantees issued € 4 984 Million Euro Counter guarantees issued € 3 796 Public Investment Mutual SME: > 47 000 Employment: > 605 000 Nº Students: > 11 300 € 708 € 132 Private Investment

21. Thank you for your attention! Contacts AECM Rue Washington 40 1050 Brussels Belgium Tel/Fax: 00 32 / 2 640 51 77 E-mail: info@aecm.be Website: www.aecm.be