1 XII FORO REGAR Santiago, Chile, 14 November 2007 José Fernando Figueiredo President of AECM

2 EUROPEAN MUTUAL GUARANTEE ASSOCIATION Structure & mission

3 AECM AECM Background Founded in 1992 Open, democratic, independent Association. Statute : international non-profit association Based in Brussels, Capital of EU.

4 AECM: Some data 34 active schemes in 18 countries Key figures ( , in € ) Own Funds Guarantees issued in Outstanding commitments Leverage Cap / commitments > 10 x SMEs beneficiaries > 2 Million

5 AECM: Some data Evolution of Total guarantee volumes:

6 AECM: Some data

7 AECM AECM Mission Mission to Represent members’ political interests Promote the economic role of M.G.S. Support cooperation among members Stimulate exchange of information in favour of SMEs.

8 AECM Scope of activity Presentation of Interest (EU and Interntl. Inst.): – Prudential regulation, State Aid rules and competition policy; EU Financial Instruments… Promotion guarantee instrument – Documentation, contact with Business Associations, seminars, Round Table Bankers-SMEs Exchange of best practices between members – Newsletter, studies, technical seminars

9 AECM AECM Structure Members : full + associates General Assembly Board of Directors Technical Working Groups Secretariat General.

10 AECM Definition of European Credit Guarantee Schemes

11 AECM AECM Common features of European Guarantee Schemes (GS) The European guarantee activity is based on a broad national consensus between national authorities, SME lenders and borrowers. It is exercised by specialised institutions. GS’s are a part of the financial industry, subject to legal regulation and financial supervision which creates the conditions of their sustainability and trust with lending partners. Working in a global economy, respecting competition and market rules, GS’s propose a better access to credit for sustainable projects of viable SMEs in the private sector.

12 AECM AECM Common features of European Guarantee Schemes Guarantee schemes are formed of a mix of private and / or public initiatives and tend to involve entrepreneurs directly or indirectly in the shareholding, decision and management (mutuality). Public support provides equity and protection in order to reach higher leverage and efficiency. A special feature is the existence of national counter- guarantees and of a platform of supra-national counter-guarantee organised and funded by the EU Commission and managed by the European Investment Fund.

13 AECM AECM Common features of European GS MOST IMPORTANT IS: WE ALL CARE ABOUT SME, SPECIALLY HOW THEY GET APPROPRIATE AND ON TIME FINANCING, AND, THROUGH THAT, HOW THEY SOLVE THEIR PROBLEMS AND CREATE JOBS AND SUSTAIN ECONOMIC DEVELOPMENT OF OUR COUNTRIES

14 PUBLIC GUARANTEE SOCIETIES (or funds on going) Initiative taken by Public Authorities (State, Region..) Mainly public shareholding Directory Board elected or nominated by state authorities Mission: SME support Solvency: responsibility through funds + public umbrella Ltd company with majority from state or endowment Other goal: subsidies PRIVATE GUARANTEE SOCIETIES (or funds on going) Initiative from SMEs and representative organizations Mainly private shareholding Directory Board composed of SMEs, bankers, … Mutuality principles Mission: member SME support Self protected solvency + public support (normally) through counterguarantee Cooperative or Ltd Company. Other goal: no AECM : GUARANTEE SCHEMES: A COMPLEX LANDSCAPE

15 AECM Some EU models of Credit Guarantee Schemes

16 Mission: Guarantees to member SME (mutual) Ownership: Beneficiary Enterprises ( ) Statutes: Cooperative Co. with limited liability Board: 14 entrepreneurs + 1 Banker (Banque Populaire) Control: Auditor + Banque de France supervisor Solvency and default coverage: Own Funds + Risk Provisions + 50% EIF Counterguarantee (with cap rate) in 1/3 of the operations Guarantee rate: 80 – 100 % AECM MUTUAL GUARANTEE SOCIETIES Example: SOCAMA - France

17 Number of beneficiaries: Number of guarantees issued last period: > p.a. Total guarantee portfolio: € 1,7 bn Guarantees issued last period: € 724 mn Equity: € 69 mn Leverage: 25 x Equity (2005 figures) AECM MUTUAL GUARANTEE SOCIETIES Example: SOCAMA - France

18 AECM MUTUAL GUARANTEE SOCIETIES Example: SOCAMA - France

19 Mission: Guarantees to SME member of the Confidi (mutual) Ownership: Beneficiary Enterprises (> ) Statutes: Cooperative Co. with limited liability Board: Confidi Management Control: Auditor + Banque supervisor Solvency and default coverage: Own Funds + Risk Provisions + 50% EIF Counterguarantee (with cap rate) in part of the total operations Guarantee rate: up to 80 % AECM MUTUAL GUARANTEE SOCIETIES Example: Confidi - Italy

20 Number of beneficiaries: > Number of guarantees issued last period: > p.a. Total guarantee portfolio: € 20 bn Guarantees issued last period: € 12,5 bn Equity: € 1,75 bn Leverage: 11 x Equity (2005 figures) AECM MUTUAL GUARANTEE SOCIETIES Example: Confidi - Italy

21 AECM MUTUAL GUARANTEE SOCIETIES Example: Bürgschaftsbanken - Germany Mission: Guarantees to member SME (mutual) + advisory Ownership: Industry, Craft, Trade Organizations and Banks Statutes: GmbH, Banking License Board: Mixed board SME delegates + Banks + Experts Control: Auditor + German banking supervisor Solvency and default coverage: Own funds + Risk Provisions + 65% “Bund + Land” counterguarantee Guarantee rate: 80% (up to 100% to the so called “tranched covered”)

22 AECM MUTUAL GUARANTEE SOCIETIES Example: Bürgschaftsbanken - Germany Number beneficiaries: companies Number of guarantees issued last period: Total Guarantee portfolio: € 5,135 bn Guarantees issued last period: € 1,11 bn Equity: € 300 mn Leverage: 17 x Equity (2005 figures)

23 AECM MUTUAL GUARANTEE SOCIETIES Example : Bürgschaftsbanken - Germany

24 AECM MUTUAL GUARANTEE SOCIETIES Example : Sociedades de Garantía Recíproca – SGR España Mission: Guarantees to member SME (mutual) + advisory Ownership: mutual SME (majority) + Local governments + Chambers Commerce + Banks Statutes: Legislation SGR; Bank Act; Ltd companies Board: Mixed board with Experts + SME delegates + Local Authorities Control: Auditors + Spanish Central Bank supervisor Solvency and default coverage: Own Funds + Fondo Técnico Provisiones + Counterguarantee from CERSA to approximately ¾ of the operations (this getting 50% EIF Counterguarantee) Guarantee rate: usually 100%

25 AECM MUTUAL GUARANTEE SOCIETIES Example: Sociedades de Garantía Recíproca – SGR España Number beneficiaries: companies Number of guarantees issued last period: Total Guarantee portfolio: € 4,826 bn Guarantees issued last period: € 2,259 bn Equity: € 266,4 mn Equity + € 270,5 mn Fondo Técnico de Provisiones Leverage: 18 x Equity (or 9 x own funds + technical provisions) (2006 figures)

26 AECM MUTUAL GUARANTEE SOCIETIES Example: Portuguese Mutual Guarantee Scheme SGM (Mutual) and SPGM (FCGM) Mission: Guarantees to member SME (mutual) + advisory Ownership: mutual SME (majority) + SPGM (public manager of the counterguarantee) + Banks Statutes: Legislation SGM; Bank Act; Ltd companies Board: Mixed board with Independent Experts + SME delegates + Banks + State SME Agencies Control: Auditors + Portuguese Central Bank supervisor Solvency and default coverage: Own Funds + Risk Provisions + average 65% Counterguarantee from public FCGM (this getting 50% EIF Counterguarantee in approximately 2/3 of the operations) Guarantee rate: up to 80%

27 AECM MUTUAL GUARANTEE SOCIETIES Example : Portuguese Mutual Guarantee Scheme - a Private-public Partnership - Number beneficiaries: companies Number of guarantees issued last period: Total Guarantee portfolio: € 350 mn Guarantees issued last period: € 250 mn Equity: € 24 mn Equity + € 124 mn counterguarantee fund Leverage: 15 x Equity (or 2,4 x own funds + counterguarantee fund) (2006 figures)

28 AECM PUBLIC GUARANTEE SOCIETIES Example: Invega – Lithuania Mission: Loan Guarantee + subsidies to SMEs Ownership: Lithuanian State Statutes: Ltd Company, 100% public Board: Committee with 3 Government representatives + 2 independent experts Control: Auditor + Ministry Economy Solvency and default coverage: Own funds + Risk Provisions + EIF Counterguarantee (+ State protection against insolvency) Guarantee rate: Up to 50%

29 AECM PUBLIC GUARANTEE SOCIETIES Example: Invega – Lithuania Number guarantees issued: Total guarantee portfolio: € 22 mn Guarantees issued last period: € 15,9 mn Equity: € 6,2 mn Leverage: 3,6 x Equity (2005 figures)

30 EUROPEAN UNION An overview of SME Policies

31 EUROPEAN UNION AND SMES ENLARGED EU = 27 countries almost 500 million inhabitants. > 25 million businesses 99% are SMEs aprox. 80 million jobs average size of a business: 3 jobs aprox. 60% contribution to GDP.

32 EUROPEAN UNION AND SMEs SME DEFINITION (2003) Enterprise Category Staff Headcount Annual Turnover Balance sheet total Micro< 10<2 m EUR Small<50< 10 m EUR Medium- sized < 250< 50 m EUR<43 m EUR

33 EUROPEAN UNION AND SMEs Implications of Lisbon Strategy: 2001: Lisbon Strategy – Objective: Transform EU into fastest-growing and most competitive economy in the world with full employment by 2010 Particular focus on SME policy due to importance of their economic contribution Integration of Lisbon Strategy in EU policies

34 EUROPEAN UNION AND SMEs Lisbon strategy: FEIRA CHARTER Education for entrepreneurship Cheaper and faster start-up Better legislation and regulation Availability of skills Improving access on line A true internal market Taxation and financial matters Strenghten technlogical capacity of SMEs Top class small business support More efective representation of SMEs at political level

35 EUROPEAN UNION AND SMEs Lisbon strategy: ENTREPRENEURSHIP Entrepreneurship : awareness, attitudes, CSR More fast growing enterprises (business incubators, clusters, transfer of technologies, internationalisation) Developing enterprises in the social sector Reducing the complexity of regulations for micro-enterprises (registration, etc.) Access of SMEs to public procurement

36 EUROPEAN UNION AND SMEs Lisbon strategy : FINANCIAL INSTRUMENTS Structural Funds: focus on development areas (objective 1, 2): 21 bn EUR → SMEs 7th Framework programme R&D 2003 – 2008 : = 2,2 bn directed to SMEs (objective: R&D investment = 3% of GDP) EIB Global loans : SME elements ≈ b EUR Multiannual Programme (MAP)

37 EUROPEAN UNION AND SMEs Lisbon Strategy: FINANCIAL INSTRUMENTS European Investment Fund - MAP – Runs EU support programmes on behalf of EU – MAP - Guarantee facility for loans and guarantees with a maturity > 3 years → 10 years = A special and free cover of losses (50%) capped to a pre-set amount, with a commercial objective, a commonly agreed PD and with an objective of additionality in the 25 Member States – 1/3 AECM members acted as financial intermediaries

38 EUROPEAN UNION AND SMEs Lisbon Strategy: FINANCIAL INSTRUMENTS European Investment Fund - MAP – Transition phase MAP (end June 2007) and CIP, follow-up programme of MAP. – Due to delays, signature of framework contract – AECM lobbied intensively to ensure timely signature of CIP framework contract: Integration of Conterguarantee in calculation of certain products Safe planning horizon needed – Signature at end September - Retroactivity.

39 EUROPEAN UNION AND SMEs Lisbon strategy: STATE AID POLICY General Review of EU State Aid policy: – Prohibition of distortion of competition in Internal Market via State Aid at Member State level – EU rules determine: When there is aid (guarantee notice) If there is aid, whether it can be acceptable (exemption regulations) Otherwise notification procedure – State aid action plan (2004): Modern framework coherent with Lisbon agenda goals Particular focus on SME needs

40 EUROPEAN UNION AND SMEs Lisbon Strategy: STATE AID POLICY General Review of EU State Aid policy: – Stated goals of Commission: Simplification of rules General positive attitude towards SME support measures Facilitations for SMEs: e.g. increasing of de Minimis Regulations’ ceilings – Review to be finalised latest mid-2008

41 EUROPEAN UNION AND SMEs Lisbon strategy : STATE AID POLICY General Review of EU State Aid policy: – Problems of proposed framework for guarantees: Transparency of aid equivalent of guarantees Lack of distinction between the private guarantee element and the public counterguarantee element Use of ratings to determine aid relevance and aid equivalent for SME-guarantees – AECM lobby initiative towards Commission to take SME-guarantee concerns into consideration

42 EUROPEAN UNION AND SMEs CONCLUSIONS Policy challenges: – Competition policy: Bias against guarantees: Tendency towards heavier reporting requirements Despite simplification target, guarantee regulations are becoming more detailed and restrictive Future trend towards notification requirement of calculation method of state aid equivalent becomes apparent. – Solution has to be found to keep exemption system practicable at reasonable cost

43 EUROPEAN UNION AND SME CONCLUSIONS Positive economic outlook: – Loan finance remains main source of SME finance Guarantees highly effective support instrument for access to loan finance: – High leverage – Relatively low cost – High additionality factor – Mitigation factor (Basel II) – Growth figures show vitality of the instrument: 2000 – 2005: > 60 % in outstanding guarantees About 10% annualised => faster than economic growth rate

44 GLOBAL SUMMIT OF SME GUARANTEE ORGANISATIONS Lisbon Declaration of SME Guarantee Organisations (On the occasion of the first Global Summit of SME Guarantee Organisation Leaders in Belém, Lisbon, Portugal on 9th October 2007)

45 LISBON DECLARATION OF SME GUARANTEE ORGANISATIONS Considering that: 1. The access to adequate and timely credit financing is one of the main pillars of SME development; 2. The crucial contribution by guarantees to the creation and economic development of SME.

46 LISBON DECLARATION OF SME GUARANTEE ORGANISATIONS The signatories declare that: Guarantees need to be an important item on the global agenda of policy makers; The existence of an alliance between the SME, the Banking sector and the state is of utmost importance

47 LISBON DECLARATION OF SME GUARANTEE ORGANISATIONS The Signatories conclude that: There is a need for an improved knowledge and articulation between the different entities that work with guarantees, with the purpose of supporting the development of SME and entrepreneurship. They will proceed with the Global Summit of SME Guarantee Organisations Leaders as the political and strategic discussion forum on the role of the SME guarantees around the globe, to be organised on a regular basis. ……..

48 LISBON DECLARATION OF SME GUARANTEE ORGANISATIONS The Signatories conclude that: …… They will report to their respective governments, and to multilateral organisms, on the importance of the existence of a sustained, consistent and permanent public policy supporting SME guarantee schemes. They will also report on the need for a strategic partnership between SME, the Banking sector and the State, with the objective of promoting the guarantee instrument at a global level as one of the best ways to leverage public policies aimed at SME and entrepreneurship development. Lisbon, Portugal, 9 October 2007