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Internationalization of SMEs by MikeJenny


									    Guarantee Schemes
 and how they can help SME
   getting better access to
OECD SEE Conference on Access to Finance
                        Skopje, Macedonia
                           8 June 2010

    José Fernando Figueiredo                António Gaspar
       President AECM                Member of the Board of SPGM Portugal
Why guarantees ?
   –   SME are key actors in the EU economy (also worldwide):
           –    They represent an important part of employment and GDP and
                are generally important for maintaining the economic and social
                fabric throughout the territory.

   –   Credit finance is important to SME in the EU, as they:
           –    have no or little access to venture capital, mezzanine capital,
                bond issues, etc.
           –    Have weak own funds positions => limited capability to auto-
                finance investment or working capital needs
           –    Rely predominantly on loan finance
           –    Usually have a relative lack of bankable collateral
   –   Due to the relative lack of collateral, loan finance is more
       difficult to obtain than for larger companies
               WHY GUARANTEES?

Why guarantees ?

   –   Guarantee schemes facilitate access to finance by
       providing credit default guarantees for SME that :
           –   Are economically healthy
           –   Have an economically meaningful project but at the
               same time do not dispose of sufficient collateral to
               access bank credit

   –   Guarantee schemes’ philosophy:
           –   “Help for self-help” principle
What Guarantee products are offered ?

   –   Generally Credit default guarantees for SME are:
           –   Guarantee issued on behalf of SME to bank to
               substitute missing collateral
           –   Offered for all stages of SME life-cycle (Start-up –

   –   But also other types of guarantee products are
       offered by some Guarantee schemes:
           Guarantees for:
               Micro loans, leasing, factoring, mezzanine finance, risk
               capital, internationalization, projects, EU funding, etc.
Added value of Guarantee schemes
Advantages to SME:

   –   Access to finance for economically sound projects
   –   Recognition of qualitative factors in MGS risk
   –   Support services and third party analysis by sector
       analysis of business plan and model
   –   Non-profit orientation of Guarantee scheme
   –   Intermediary function of Scheme towards lender
   –   In mutual schemes, participation in management
       of scheme
Added value of Guarantee schemes
Advantages to banks:

    –   Reduction of bank’s risk exposure, improvement of credit
    –   Build-up of SME-Retail portfolio
    –   Financial supervision of MGS => Trust and sustainability vis-
        a-vis lending partners
    –   MGS provides specific sector knowledge of SME customer
        in addition to traditional B/S analysis
    –   Specialization in guarantee business
    –   Mitigation effect on risk-asset ratio, thus reduction on capital
        consumption by the banks (depending of the qualification of
        the guarantee scheme)
    –   High level of liquidity of guarantee in contrast to other
        types of collateral (most of the times guarantees are first
Added value of Guarantee schemes
  Advantages to Public authorities :

      –    Individual risk assessment and follow-up
      –    Financial intermediary for public policies:
           • Counter-guarantee element (reg., nat., EIF-CIP)
           Cost effective leverage effect of MGS’ regulatory own funds:


           Leverage effect of 10 x € 1 with e.g. a 50% coverage :

                – € 10 of guarantees

                – € 20 of bank loans

                – even higher amount of final investment
Typologies of Guarantee Schemes
   In general, we can observe a great variety of different legal
   and operational frameworks for guarantee schemes,
   reflecting local needs.

   Nevertheless it is possible to identify three main models:
   1.   Mixed model of with Private Guarantee entities and Public counter-
        guarantee (a sort of PPP) – very frequent in older EU member states and
        the more significant in volumes and number of SME supported;

   2.   Public Guarantee Scheme or Guarantee Fund – also very frequent,
        mainly in new EU member states;

   3.   Fully Private (Mutual) Guarantee Scheme, without any kind of support
        from public authorities – not very frequent - the remaining existing
        situations try to find counterguarantee at national or EU level, for example
        through the EIF.
    Typologies of Guarantee schemes
            Main differences between public and private schemes:


•    Initiative taken by Public Authorities (State,   •   Initiative from SMEs and representative
     Region..)                                            organizations, also banks
•    Mainly public shareholding                       •   Mainly private shareholding
•    Directory Board elected or nominated by          •   Directory Board composed of SMEs,
     state authorities                                    bankers, private managers …
•    Mission: SME support                             •   Mutuality principles
•    Solvency: responsibility through own             •   Mission: support member SME
     funds + public umbrella
                                                      •   Self protected solvency through own
•    Ltd company with majority from state or              funds and provisions + public support
     endowment from public budget                         (normally) through counterguarantee
•    Other goal: sometimes the management of          •   Cooperative or Ltd Company normally
     public subsidies                                     under financial regulation
                                                      •   Other goal: no
Example of Guarantee Schemes
1. Private Guarantee Societies (private shareholding and
management), with support through public counterguarantee:

Mutual Guarantee Societies (MGS) + Counterguarantee Fund
(managed by SPGM), Portugal:
       Mission: Guarantees to member SME (mutual) + students loans +
   –   Ownership: mutual SME (majority) + SPGM + Main national banks
   –   Statutes: Legislation SGM; Bank Act; Ltd companies
   –   Board: Full Board: Professional Managers + representatives shareholders.
       •Smaller Executive Board for daily management and risk decisions
   –   Control: Internal and External Auditors + Portuguese Central Bank supervisor
   –   Solvency and default coverage: Own Funds + Risk Provisions + average 75%
       Counterguarantee from public FCGM (this getting EIF Counter-guarantee in
       small part of portfolio)
   –   Guarantee rate: up to 80%
   –   Guarantees considered as risk mitigators to Banks
Example of Guarantee Schemes
2. Public Guarantee Societies or Funds (or state departments)

Invega, ltd., 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% or up to 80% in special programmes
Example of Guarantee Schemes

3. Fully Private (Mutual) Guarantee Societies or Funds

SOCAMA - Sociétés de Cautionnement Mutuel, France:

    –     Mission: Guarantees to member SME (mutual)
    –     Ownership: Beneficiary Enterprises (250 000)
    –     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 %
Examples of Guarantee Schemes

Details of the functioning of the
Mutual Guarantee Scheme


     Business Angels
      Venture Capital

                            Maturity                 M&A
                                                 Venture Capital
                           Private Equity

                                                Evolution of activity of the
                                                Mutual Guarantee Societies
4000                                                                                                                       3904

3200                                                                                                                                             3 040
                                                                                                                                  2 749
1800                                                                                                       1631
milhões de euros
1200                                                                                  966                            913
 800                                                               651
 600                                                                                               491
                                                408                             358
 400      201                254                             227
                       126                142
                2003               2004               2005               2006               2007              2008            2009          Mar- 10

       Guarantees Issued                                                                                 Outstanding portfolio
                    The multiplying effects of the scheme

                                                                  induced by
                                                                    the SME
                                                   Bank              € 8 877
                                               financing to
 Million Euros
                                                  € 8 398
                               issued by the
                                  € 3 904
  Public            issued
Investment         € 2 932
         € 524                                      Mutual SME:       > 42 500
  € 82                                              Employment:       > 565 000
    Private                                         Students:            11 272
About AECM
34 active schemes in 18 countries

AECM Key figures (provisional 31.12.2009, in €1.000.000)

–     Own Funds                            € 7.000

–     Guarantees issued in 2009            € 33.601

–     Outstanding commitments              € 70.000
      Leverage Cap / commitments         > 10 x

–     SMEs beneficiaries                 ~ 2 Million
Evolution of portfolio of AECM members
A Special note on the solutions using
Guarantees during the current crisis
Changing market environment for SMEs due to crisis:

    – Increase of payment delays
    – Uncertain evolution of market demand for products and
    – Decreasing exports

Changing situation in access to finance:

    – Reduced access to loan finance, especially short term
    – Increased risk premiums and interest rates
    – Higher demands in collateralisation and guarantees
Impact of guarantees during the crisis

  AECM member organisations have played a crucial role:

      – Drastic increase of guarantee business in 2009 in general:
          • New guarantees activity: + 55,3 % to 33 billion €
          • Total guarantees in portfolio: + 25,2% to 70 billion €

      – Solid performance of specific guarantee instruments to fight the crisis:
          • 11,2 billion € in guarantees issued in 2009
          • 90% of which for short or medium term loans related with working
          • 117.000 SME beneficiary with more than 686.000 jobs maintained

      (based on provisional figures for 2009)
   Thank you for your attention!

                               SPGM PORTUGAL
Rue Washington 40
1050 Brussels                  Rua Prof. Mota Pinto, 42 F,
Belgium                        2º, sala 206
                               4100-353 Porto
Tel/Fax: 00 32 / 2 640 51 77
E-mail:           Portugal
                               Tel.: + 351 22 616 52 80

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