Market Gaps on Access to Finance - Bank of Valletta

6.3.2.1 Extending scope of current loan guarantee financial instrument – the success and take-up
of the current JEREMIE loan guarantee instrument implemented in Malta suggests the need
for further similar instruments – potentially increasing the guarantee and consequently the
available funds, as well as extending scope of such an instrument by having additional
eligible sectors (e.g. agriculture and agri-processing firms, fisheries and aquaculture)
6.3.2.2 Introducing loan-based financial instruments - Financial instruments based on a loan
element could be introduced. For example, in the Languedoc- Roussillon region (France), a
seed loan product was introduced. Aimed at start-ups (less than 3 years since inception), or
entrepreneurs with the duty to set up their SME in the next 6 months, this product was
planned to have a direct leverage of 2x. The product entails an interest-free loan of up to
€100,000, without any personal guarantee required, and can finance both the acquisition of
assets and working capital. The risk sharing was split equally between the fund and the
financial intermediaries administering it. Another example is the JEREMIE Campania,
JEREMIE Sicily and JEREMIE Calabria, which provides loans to SMEs, micro-enterprises and
individuals, including those focusing on social inclusion and improvement.
6.3.2.3 Introducing equity-based financial instruments - Financial instruments based on an equity
element could also be introduced through funded risk-sharing products (equity, equity
guarantee). For example, in the Languedoc-Roussillon region (France), an equity product
aimed at SMEs with high growth potential was introduced. This product was based on a
leverage ratio of 2x, a maturity of 10 years, and co-investment amounts set at a maximum
of €2.5 million over a period of 12 months 117 . To date, the leverage is equal to 5x, with the
fund generating significant interest from the private market (included VC firms based
outside the region). In Hungary, an equity-based financial instrument was implemented. A
fund manager was established by the Hungarian Development Bank under the JEREMIE
initiative. This Venture Finance Hungary acts as the Holding Fund manager, selecting several
private financial intermediaries to execute the programmes, provide microcredit and credit
guarantees, or manage venture capital funds 118 .
6.3.2.4 Blending facilities – facilities that combine grants with financial instruments (e.g. equity/
loan / loan guarantee). This would be subject to State Aid considerations (both financial
instruments and grants are subject to rules on State Aid 119 ) and the related impact of any
reductions in co-financing rates following Malta’s move from an Objective 1 country. For
example, a facility could include grant funding, a financial instrument funding, and the
remaining being financed directly by the SME. These hybrid instruments would capture the
synergies between grant assistance and the revolving nature of financial instruments.
The administrative feasibility of this option would need to be analysed further given that
State Aid may limit blending of grants with financial instruments, and might only allow for
grants being blending with loans priced on normal market-lending parameters.
An example of such a combination is the Bulgarian Energy Efficiency for Competitive
Industry Financing Facility (BEECIFF). This facility combines the European Banks for
Reconstruction and Development (EBRD)’s credit lines with grant financing from EU
117
In this fund, the co-investment vehicle and other co-investors act according to the “pari passu” principle, and fund
distribution is according to the cascade principle, i.e. the fund is entitled to the paid-in capital in additional to a hurdle rate
(at least 5%); thereafter the carried interest is split 80/20.
118
European Bank Coordination (“Vienna”) Initiative (2011), The role of commercial banks in the absorption of EU funds, pg.
12
119
European Commission (2011), Guidance Note on Financial Engineering Instruments under Article 44 of Council
Regulation (EC) No 1083/2006
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