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AECM and the Different European Guarantee Models

AECM and the Different European Guarantee Models. Berlin, 5 May 2006 M. Sousa Branca. Founded in 1992 International non-profit organisation based in Brussels Open, democratic, politically independent association Main objectives: Representing the interests of members

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AECM and the Different European Guarantee Models

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  1. AECM and the Different European Guarantee Models Berlin, 5 May 2006 M. Sousa Branca

  2. Founded in 1992 International non-profit organisation based in Brussels Open, democratic, politically independent association Main objectives: Representing the interests of members Partner of the European Commission Reflects the economic role of Guarantee Entities Exchange of information for the benefit of SMEs AECM – European Mutual Guarantee Association

  3. Own funds € 3 845 million Outstanding commitments € 38 210 million Guarantees granted € 14 970 million Number of beneficiary SMEs 2 million (data: 2003 annual reports of AECM members) AECM Members’ Main Figures

  4. 25 countries 455 million inhabitants 23 million businesses 99% of which are Micro and SMEs 75 million jobs on average, between 3 and 4 employees per business 57% contribution to GDP European Union and SMEs

  5. Some general beliefs: SMEs require special attention to assure their access to finance Finance is better supplied by banks and other financial entities SME intrinsic risk is often very high in the viewpoint of lenders / Even higher in the case of agriculture SMEs Guarantee Schemes help overcome this SME problem European Guarantee Environment

  6. Private / public initiatives National / regional schemes Entrepreneurs and SME directly or indirectly involved in the shareholding credit decision making process scheme or MGS daily / strategical management European Credit Guarantee Schemes

  7. Public support provides equity and protection higher leverage and efficiency Counter guarantee national / supra national provided and funded by the EU Commission and managed by the European Investment Fund (EIF) European Credit Guarantee Schemes

  8. Guarantee Funds Initiative taken by Public Authorities (State, Region...) Mainly public shareholding Management selected by public majority Solvency related to public umbrella European Different Models

  9. Mutual Guarantee Schemes Initiative of SMEs and SME representative organisations (such as Chambers of Commerce, Industry and Regional SME Associations...) Mainly private shareholding Management as a partnership betweenSME representatives and bankers Mutualism as a core idea Self protected solvency with public support European Different Models

  10. Guarantee Triangular Relationship Banks SMEs Bank loan Guarantee Sheme Guarantee commission (fee) Guarantee State Counter Guarantee Financial Support Legal environment and framework

  11. Access to finance and Access to better credit conditions: lower interest rates and better maturity terms Thanks to the compensation of SME collaterals shortage Promotion of entrepreneurship (start-ups, take-overs) Provision of instruments for SME and their product life cycles Availability of advice and coaching Benefits for SMEs

  12. Partial outsourcing of credit risk Guarantee as a clear instrument for risk mitigation Guarantees may be combined with several financial products Reduction of banks’ capital requirements on SME loan portfolio (importance of guarantee quality) Reduction of banks’ provisions on SME loans Possibility for the bank to leverage its assets Benefits for Banks

  13. Guarantee Schemes are used as a vehicle for SME economic policy and SME support Possibility to design instruments for macroeconomic strategy and SME needs Subsidy of SME cost of capital (guarantee fee below market levels…) Possibility to sit at the Scheme Board (being a Scheme stakeholder) Usually responsible for financial funds availability or Scheme solvency assurance Benefits / Relevance for Public Authorities

  14. General Improve SME access to finance in countries with relatively low rate of financial intermediation Particularly within industries with stronger acess to finance difficulties Product diversification in order to guarantee: start-ups innovative instruments internationalization micro-guarantees… Challenges to Guarantee Schemes

  15. Basel II Increase SME credit worthiness Strengthen SME equity base (together with venture capital) Qualify guarantee so that it may reduce bank capital requirements Improve / develop internal rating (scoring) methodologies Challenges to European Guarantee Schemes

  16. Market Relevance Additionality Effectiveness Leverage Efficiency Sustainability Performance Indicators

  17. Portuguese Mutual Guarantee Scheme EIF All MGS apply a homogeneous credit assessment, according to principles and rules discussed and approved by all entities of the scheme

  18. M. Sousa Branca SPGM – Sociedade de Investimento, S. A. Porto, Portugal Managing Director AECM – European Mutual Guarantee Association Brussels, Belgium Vice President Thank you very much for your attention.

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