EU/EBRD SME finance facility

In April 1999, the EBRD and the European Commission launched the SME Finance Facility for micro, small and medium-sized enterprises operating in the EU Accession countries of central and eastern Europe. This includes Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic and Slovenia.

The SME Finance Facility channels €846 million (€716 EBRD/€130 EU) to SMEs through loans to local banks, leasing companies and investments in private equity funds.

Loans and leases

The local banks and leasing companies focus on financing SMEs at the lower end of the size spectrum. The average loan/lease to a participating bank or leasing company is between €5 million and €15 million. The financing extended is normally for small enterprises with up to 100 employees (€30,000 to €100,000) and micro enterprises with less than 10 employees (up to € 30,000).

Banks and leasing companies are selected on the basis of their financial strength, branch network, knowledge of their clients and, most importantly, their commitment to engage in sustained SME lending.

The EU grant covers performance fees, which compensates the banks and leasing companies for start-up costs related to SME onlending. The grant also funds technical assistance aimed at:

• Recruiting and training of bank staff in small loan appraisal, supervision and administration
• Improving information systems
• Strengthening management capabilities such as marketing and SME client relationship management.

Equity

The equity funds range between €12 and €20 million, and maximum financing per investee is restricted to €1 million for a minority stake. The funds are managed by independent fund managers who are responsible for raising private capital.

The EU contribution is structured to provide incentives to overcome the private sector's reticence about SME investment and to allow the Facility to attract competent fund managers.

The funds use the full range of equity and quasi-equity instruments and normally hold minority positions (10 - 49%). They do, however, secure rights enabling them to exercise corporate governance over the SME portfolio.