Market Gaps on Access to Finance - Bank of Valletta

Malta Business Bureau – <strong>Market</strong> gaps in access to finance
April 2013
interest rates or providing similar advantages compared to their ordinary financing
activities. Under SMEG a portion of each individual transaction is guaranteed, typically 50%
(i.e. guarantee rate). The overall exposure for the EU budget is however limited by a
contractually agreed maximum cap on portfolio losses (i.e. cap rate). 75
Loan Guarantee Instrument for TEN-T projects (LGTT) - This instrument is aimed at
facilitating larger participation of the private sector in the financing of TEN-T
infrastructure. Attracting private sector funding in core European transport projects can be
challenging due to the relatively high levels of revenue volatility in the projects' early
operating stages. The LGTT partially covers this revenue risk and consequently improves
the financial viability of such TEN-T projects. LGTT is financed with a capital contribution
from the EU budget. Technically, the LGTT Guarantee is issued in favour of commercial
banks which provide a stand-by liquidity facility (SBF) to the project. Such SBF can be drawn
upon by the project company in case of unexpected reduction of traffic/usage related
income of the project during the initial operating period in order to insure the service of the
senior debt facilities.
3.5.2.3 Instruments combining equity and debt support
European Progress Microfinance Facility (EPMF) –through the EPMF, set up in 2010, the
EU facilitates the granting of credit by providing guarantees, loans and equity to
intermediaries who can then lend to small businesses and individuals or make available
equity finance. It consists of two parts: 1) a guarantee instrument to providers of microcredit
(i.e. loans of up to €25,000, in particular to vulnerable groups in risk of social
exclusion, for the purpose of setting small commercial operations) and 2) a structured
investment vehicle, the European Progress Microfinance Fund, which offers senior loans,
subordinated loans, risk-sharing loans (senior loans combined with risk participation in the
micro-credit portfolio) and equity participation to micro-credit providers. The maximum
guarantee rate is 75% of the underlying microcredit or guarantee portfolio, while a cap is
agreed for each guaranteed portfolio, based on the expected cumulative losses of the
portfolio. The maximum liability for the EPMF is set at 20% of each guaranteed portfolio.
The Fund has the EU and the EIB as investors while the EIF acts as Management Company.
The EU holds the junior shares, which means that it bears the first net losses affecting the
fund’s assets, within the agreed cap, while the EIB is protected as holder of the senior
shares against the losses borne by the junior shares. The financial intermediaries may be
private or public banks, non- bank microfinance institutions and not-for-profit microcredit
providers. These providers would lay down the conditions, such as the amount, rate of
interest and duration applicable to any microloans granted. The micro-enterprise can
further benefit from interest rate rebates, guidance and coaching with the support of the
ESF. The EU also provides funding to microcredit providers aimed at covering start-up costs
and funding for lending to high-risk target groups, whilst increasing microcredit on-lending
volumes 76 .
European Energy Efficiency Fund (EEEF) – the EEEF was set up in 2011 using unspent
funds from the European Energy Programme for Recovery. The fund is a structured finance
vehicle to invest either directly in smaller scale energy efficiency and renewable energy
projects of local authorities or invest in such projects indirectly via financial institutions.
The Fund aimed at supporting the development of energy service companies. Investors in
75 In its evaluation report, the European Court of Auditors found the EU value added of SMEG not demonstrated since its
results might have also been achieved by funding under national schemes (European Court of Auditors (2012), Financial
instruments for SMEs – audit report. Audit based on Germany, Hungary, Portugal, Slovakia and the UK). On the other hand,
the final evaluation of the EIP found the SMEG to fulfil a demand for finance which otherwise would not have been met (CSES
(2011), Final evaluation of the Entrepreneurship and Innovation Programme).
76 Camilleri (2012), Microfinance - Access to Finance for SMEs within a European Context; European Commission (2012),
Implementation of the European Progress Microfinance Facility - 2011
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