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CIP CIP Financial Instruments Financial Instruments

Leverage EffectsLeverage Effects

European CommissionEuropean Commission

Economic and Financial Affairs DG - Luxembourg, Economic and Financial Affairs DG - Luxembourg, Unit L2Unit L2

James Mc GING

Head of Unit,ECFIN-L2

Presentation on the occasion of the EIP Management Committee meeting,Brussels, 26 June 2008

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Management Mandate

Resources

Investment

Investment

SPECIALISED FUNDSPECIALISED FUNDOther Investors

Investments

How does GIF work?How does GIF work?

SMESME SMEOther Investors

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CIP financial instruments - CIP financial instruments - RISK CAPITAL (GIF) principlesRISK CAPITAL (GIF) principles

PRE-SEED & EARLY STAGE PRE-SEED & EARLY STAGE

(GIF1)(GIF1) SMEs < 10 years

Focus on high growth potential

Support co-investment with business angels

Typically up to 25% EU investment(adjusted for non-eligible beneficiaries)

EXPANSION STAGE (GIF2)EXPANSION STAGE (GIF2) Lower EU intervention

More sizeable VC funds

Typically up to 15% EU investment

(adjusted for non-eligible beneficiaries)

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Venture Capital Instruments Venture Capital Instruments Achievements – Leverage EffectsAchievements – Leverage Effects

Fund level – Fund level – total MAPtotal MAP

€ 5,65 of total funds for

€ 1 of EU funds committed

1125

199

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

Total funds EU BudgetaryFunds

Committed

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Venture Capital Instruments Venture Capital Instruments Achievements – Leverage EffectsAchievements – Leverage Effects

SME level – SME level – Skype ExampleSkype Example

EU Investment: EUR 10 M

EU Share: 19,5%

EU Leverage (fund level): 1:5

Fund Investment: EUR 1,4 M

EU Investment: EUR 0,3 M

Fund Share: 5,5%

EU Share: 1,1%

EU Leverage (SME level): 1:92

Other investors

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HowHow

DoesDoes

SMEGSMEG

work work

Financial IntermediaryDirect lender

SME SMESME

Management Mandate

Financial IntermediaryGuarantee Institution

Direct lender

EU Guarantee EU Counter- Guarantee

Guarantee

Debt financing

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CIP Financial Instruments leverage effectsCase study: direct guarantee operations

Case of a bank

mio

FI Loan Portfolio (non EU) 50,0

FI Losses (5%) 2,5

Loan Portfolio (with EU) 100,00

Total Losses (6%) 6,0

Leverage total 100:3 33,3

Leverage on additional vol. 50:3 16,6

EU Guarantee Cap 3,0

FI’s Losses (half) 3,0

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CIP Financial Instruments leverage effectsExample: Loan portfolio after EU intervention

Case of a bank

Single bank case

Cap amount committed;

€3 mio

FIs share of losses; €3 mio

Additional Volume; €50 mio

Loan amount w ithout EU; €50 mio

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CIP Financial Instruments leverage effectsCase study: direct guarantee operations

Guarantee organisation caseBanks alone

With Guarantee organisation

With EU assistance to Guarantee organisation

Loan amounts 50 100 200

Additional Volume 0 50 100

Total losses (6%) 3 6 12

Cap amount committed     3

Share of losses before Eu intervention 3 3 0

Share of losses after Eu intervention 6 3 3

leverage on additional vol.     33,33

leverage total     66,67

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CIP Financial Instruments leverage effectsExample: Loan portfolio after EU intervention

Case of a guarantee organisation

Additional volumes - Counter-guarantee

Loss - EU; 3 mio

Loss - gurantee org.; € 3mio

With EU assistance to Guarantee organisation;

€100 mio

With Guarantee organisation;

€50 mio

Loss - banks; €6 mio

Banks alone; €50 mio

Cap amount: €3 mio

Share of losses after EU intervention:Banks €6 mioGuarantee org. €3 mioEU €3 mio

Higher volume created - additional: €100 mio

Loane volume after EU interventionin bank's BS: €200 mio

Total leverage effect: 66,7

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Additional loan Additional loan volume volume

leveraged: leveraged: EUR 13 billion

As of 30 September 2007 - Data based on figure provided by the European Investment Fund (EIF)

Achievements of ancestor programme MAP- leverage effects

Enhanced access to finance for SMEs:

“Additionality” of SMEs Guarantees under MAPApproved Cap Approved Cap

amounts amounts Total aggregate Total aggregate

loan amountloan amount

€ 262 mio € 17,495 mio

Nr of Portfolios Nr of Portfolios of Financial of Financial

IntermediariesIntermediaries52

Nr of guaranteed Nr of guaranteed

loansloans 261,408

SMEs Guarantees under MAPSMEs Guarantees under MAP

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Status: 15 May 2008

CIP Financial InstrumentsProjects approved/in the pipeline

GIF SMEG

ApprovedFinancial intermediaries

10 5

Countries covered

14 4

PipelineFinancial intermediaries

10 23

Additional countries covered

3 23

Very strong pipeline:

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CIP PARTICIPATING COUNTRIES

APPLICATIONS RECEIVED (March ’08)

Belgium Fonds de Participation

SOWALFINWaarborgbeheer (PMV) Fonds BruxelloisBulgaria Encouragement Bank Finland FinnveraFrance SOCAMA

Oseo GarantieADIESIAGI

Germany KfWGreece TEMPME

Hungary HitelgaranciaUniCredit Bank

Ireland First StepItaly ATI ALL GAR

ACL–ACERMCC

Lithuania INVEGA Slovenia Slovene Enterprise Fund Spain CERSA

MicroBankSweden NorrlandsfondenUK The Prince’s Trust