AECM and the Different European Guarantee Models Berlin, 5 May 2006M. Sousa Branca

Berlin, 5 May 2006M. Sousa Branca2 AECM – European Mutual Guarantee Association  Founded in 1992  International non-profit organisation based in Brussels  Open, democratic, politically independent association  Main objectives: Representing the interests of members Partner of the European Commission Reflects the economic role of Guarantee Entities Exchange of information for the benefit of SMEs

Berlin, 5 May 2006M. Sousa Branca3

Berlin, 5 May 2006M. Sousa Branca4  Own funds € million  Outstanding commitments € million  Guarantees granted € million  Number of beneficiary SMEs 2 million (data: 2003 annual reports of AECM members) AECM Members’ Main Figures

Berlin, 5 May 2006M. Sousa Branca5 25 countries 455 million inhabitants  23 million businesses  99% of which are Micro and SMEs  75 million jobs  on average, between 3 and 4 employees per business  57% contribution to GDP European Union and SMEs

Berlin, 5 May 2006M. Sousa Branca6 Some general beliefs:  SMEs require special attention to assure their access to finance  Finance is better supplied by banks and other financial entities  SME intrinsic risk is often very high in the viewpoint of lenders / Even higher in the case of agriculture SMEs  Guarantee Schemes help overcome this SME problem European Guarantee Environment

Berlin, 5 May 2006M. Sousa Branca7  Private / public initiatives  National / regional schemes  Entrepreneurs and SME directly or indirectly involved in the shareholding credit decision making process scheme or MGS daily / strategical management European Credit Guarantee Schemes

Berlin, 5 May 2006M. Sousa Branca8  Public support provides equity and protection higher leverage and efficiency  Counter guarantee national / supra national provided and funded by the EU Commission and managed by the European Investment Fund (EIF) European Credit Guarantee Schemes

Berlin, 5 May 2006M. Sousa Branca9 Guarantee Funds  Initiative taken by Public Authorities (State, Region...)  Mainly public shareholding  Management selected by public majority  Solvency related to public umbrella European Different Models

Berlin, 5 May 2006M. Sousa Branca10 Mutual Guarantee Schemes  Initiative of SMEs and SME representative organisations (such as Chambers of Commerce, Industry and Regional SME Associations...)  Mainly private shareholding  Management as a partnership between SME representatives and bankers  Mutualism as a core idea  Self protected solvency with public support European Different Models

Berlin, 5 May 2006M. Sousa Branca11 SMEs Banks State Guarantee Sheme Guarantee Triangular Relationship Guarantee Guarantee commission (fee) Counter Guarantee Financial Support Bank loan Legal environment and framework

Berlin, 5 May 2006M. Sousa Branca12  Access to finance and Access to better credit conditions: lower interest rates and better maturity terms Thanks to the compensation of SME collaterals shortage  Promotion of entrepreneurship (start-ups, take-overs)  Provision of instruments for SME and their product life cycles  Availability of advice and coaching Benefits for SMEs

Berlin, 5 May 2006M. Sousa Branca13  Partial outsourcing of credit risk Guarantee as a clear instrument for risk mitigation  Guarantees may be combined with several financial products  Reduction of banks’ capital requirements on SME loan portfolio (importance of guarantee quality)  Reduction of banks’ provisions on SME loans  Possibility for the bank to leverage its assets Benefits for Banks

Berlin, 5 May 2006M. Sousa Branca14  Guarantee Schemes are used as a vehicle for SME economic policy and SME support  Possibility to design instruments for macroeconomic strategy and SME needs  Subsidy of SME cost of capital (guarantee fee below market levels…)  Possibility to sit at the Scheme Board (being a Scheme stakeholder)  Usually responsible for financial funds availability or Scheme solvency assurance Benefits / Relevance for Public Authorities

Berlin, 5 May 2006M. Sousa Branca15 General  Improve SME access to finance in countries with relatively low rate of financial intermediation  Particularly within industries with stronger acess to finance difficulties  Product diversification in order to guarantee: start-ups innovative instruments internationalization micro-guarantees… Challenges to Guarantee Schemes

Berlin, 5 May 2006M. Sousa Branca16 Basel II  Increase SME credit worthiness  Strengthen SME equity base (together with venture capital)  Qualify guarantee so that it may reduce bank capital requirements  Improve / develop internal rating (scoring) methodologies Challenges to European Guarantee Schemes

Berlin, 5 May 2006M. Sousa Branca17  Market Relevance  Additionality  Effectiveness  Leverage  Efficiency  Sustainability Performance Indicators

Berlin, 5 May 2006M. Sousa Branca18 Portuguese Mutual Guarantee Scheme All MGS apply a homogeneous credit assessment, according to principles and rules discussed and approved by all entities of the scheme EIF

Berlin, 5 May 2006M. Sousa Branca19 M. Sousa Branca SPGM – Sociedade de Investimento, S. A. Porto, Portugal Managing Director AECM – European Mutual Guarantee Association Brussels, Belgium Vice President Thank you very much for your attention.