EIF Guarantees under EU mandate Experience so far Christa Karis 15 May 2006

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EIF Guarantees under EU mandate - Experience so
far - Christa Karis15 May 2006
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EIF KEY CHARACTERISTICS

• Multilateral Development Bank (MDB) status
• AAA/Aaa/AAA ratings (SP/Moodys/Fitch)
• Basel II 0 risk weighting
• EU specialised vehicle for guarantees and venture
  capital
• Europes key provider of SME guarantees
• One of Europes largest fund of funds

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EIF OverviewEIF portfolio as at 31.12.05
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New EIF Guarantee Commitments in 2005
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EIF GuaranteesPhilosophy
Two Business Lines Own Risk and Trust
Cross-Fertilisation

• Entrance into new markets
• Introduction to new intermediaries
• Track record building
• Relationship with public institutions with
  similar public objectives

• Know-how
• Contact with key players
• Market trends
• Product innovations
• Strategic partnership

Broader EIF shareholding base
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EIF Trust Activity 31 December 2005
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Trust Activity Commitment by Product
31/12/2005
Equity
1.4
SMEG 98
38.5
Micro Credit
2.8
Loan Guarantee Facility
57.3
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EIF Trust Activity Guarantee Commitments
Utilisation
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Which Financial Institutions?

• EIF Intermediaries (examples)
• Guarantee institutions (public schemes, mutual
  schemes)
• Promotional banks
• Charity organisations (e.g. Micro credit)
• Commercial banks (viz. New Member States)
• Smaller, regional banks (viz. Loan
  securitisation)
• Specialised Fund managers (e.g. mezzanine
  finance)
• Financial boutiques (e.g. SME bond origination)

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Different structures direct guarantee

• MAP guarantee to cover loans for start-ups
• high risk, high expected losses
• losses appear quickly
• limited expectation for recoveries
• relatively high cap rate due to target group
  (start-ups, micro)

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Different Windows counter guarantee

• MAP guarantee to cover investment loans, medium
  to long-term, traditional financing backed by
  collateral
• lower risk, expected losses within a range of 2
  5, depending on economy and special focus
• losses are reported with delay through long chain
• normally recoveries

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Additionality

• Requirement under the Facility to cover risk that
  is taken in addition to the normal risk
• Increased volumes
• Extension of loan maturity
• Increase of financing covered
• Waiver of collateral requirements
• Reduced fees
• Riskier target groups (start-ups, new areas of
  operation)
• Reflected in cap rate

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Experience made

• Implementation via guarantee schemes and lending
  banks
• Additionality More difficult to achieve in some
  cases e.g. due to high state support for
  guarantee schemes
• Competition with other sources of EU support
  (e.g. structural funds)
• State Aid requirements

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Experience made

• Impact track record and additionality
• Occurrence of losses depend on WHEN payment is
  made upon default or after recovery actions
• Due to long life of loans, still early days for
  MAP
• SMEGF (1998 2002) losses in line with
  expectation (first intermediaries have fully
  absorbed the cap amount)

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From MAP to CIP

• MAP 2001 2005 extended to 2006 (and budget
  increased)
• New European Commission Programme (CIP)
• Successor programme of MAP 2001-2005 (plus 2006)
  currently in European Parliament
• Term 2007-2013
• Need for flexible, open instruments that can be
  adapted to upcoming needs

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CIP THE GUARANTEE FACILITY

• Draft guidelines currently discussed with
  Commissions Services
• In principle 4 windows under the Guarantee
  Facility
• Loan guarantees
• Micro loans guarantees
• Equity guarantees
• Securitisation window
• EIF mandate expected by Mid 2007
• Budget not confirmed