EIF Staff Paper: "New financial instruments (financial engineering) to support SMEs"

Small and Medium-sized Enterprises (SMEs) are a driving force for the European economy. Their creation and further development depend, among other things, on the availability of financial instruments to fund their activities.

This is the reason why European public institutions- at EU, national and regional level- have established strategies to improve SMEs access to finance as a mean to foster entrepreneurship and innovation and to promote economic growth.

Within the European Union's SME policy two trends can be observed in this respect: first, the emphasis on the use of new financial instruments allowing certain financial engineering as an alternative to grant aid and second, the risk sharing with national and regional intermediaries (risk sharing mechanisms).

The use of financial instruments such as loan guarantees, microcredits, microcredit guarantees, venture capital and securitisation instead of non-reimbursable grants, allow to recycle the public funds and to leverage private capital, increasing the efficiency and the impact of public resources allocated to SMEs.

As regards the second trend, the funds are channeled from the responsible European institutions through, either financial intermediaries or national or regional public institutions. This allows to better reach the different territorial levels throughout Europe and to share the risk among diverse actors.

This article reviews the new financial instruments for SME finance at its distribution mechanisms in Europe, including (i) the European Commission through the Structural Funds,(ii) the European Investment Bank through global loans and (iii) the European Investment Fund, through venture capital and guarantee instruments.

The implementation of this type of instruments in Spain and their dissemination through Spanish national and regional institutions is used as case study to illustrate these trends.

Article written in Spanish by Ms Guadalupe de la Mata
Publication: Analisis Local (Numero 58, 1/2005)

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