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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
2
Management Mandate
Resources
Investment
Investment
SPECIALISED FUNDSPECIALISED FUNDOther Investors
Investments
How does GIF work?How does GIF work?
SMESME SMEOther Investors
3
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
5
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
6
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
9
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
12
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:
13
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