Page 34 - Annual Report 2010

ANNUAL REPORT 2010

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would not usually be granted a loan by financial institu-tions or at substantially less favourable terms with a view to fostering productivity, competitiveness and innovation capacity throughout the EU.

The SMEG facility comprises four busi-ness lines, known as “windows”:

 Loan Guarantees cover por t -folios of mid to long- term loans and leases to SMEs;

 Micro-Credit Guarantees cover por t fol ios of micro - credi ts to encourage financial institutions to provide f inancing to micro-enterprises, especially start-ups;

„„ Equity/Quasi-Equity Guarantees cover portfolios of investments in, and mezzanine financing of, respec-tively, early stage SMEs;

„„ Securitisation consists of guarantees to support se-curitisation transactions by financial institutions to mobilise additional debt financing for SMEs.

The CIP mandate is an efficient budgetary tool due to the high leverage effect of EIF capped guarantees.

General overview

EIF guarantee operations can be broadly split into ‘man-date’ and ‘own risk’ activities.

For own risk transactions, EIF employs its own capital to credit enhance tranches of SME loan or lease securit isat ion transact ions placed on the capital market transac-tions. In addition, EIF provides credit insurance cover for SME loan and lease portfolios to financial institutions on a bilateral basis. Through its credit enhancement act ivit y, EIF achieves substantial added value by facilitating SME credit risk transfer from financial institutions to the capital markets. As consequences, EIF shares the risk and

facilitates capital relief of financial institutions, therefore increasing their lending capacity to SMEs.

EIF manages the SME Guarantee Facility (SMEG) as part of the Competitiveness & Innovation Framework Programme (CIP) on behalf to the European Commis-sion (EC). Under this facility, the EC provides guarantees and counter-guarantees of part of the expected loss for portfolios of SME loans or leases to financial institutions. Final losses stemming from SME loans granted during a predefined period are covered on a pari passu basis with the financial intermediaries up to the expected loss set at inception of the agreement.

The objective of the programme is, as for the venture capi-tal side, to enhance access to finance of SMEs which

1million

SMEs supported so far