At the “Innovative Enterprise Conference” in The Hague, the creation of a new EU Securitisation Instrument for European banks was announced by Commissioner Carlos Moedas, EIF Chief Executive Pier Luigi Gilibert and EIB Vice-President Pim van Ballekom. On the same occasion, a report on access to finance for companies working with “Key Enabling Technologies” was presented.
The European Commission, European Investment Fund (EIF) and European Investment Bank (EIB) have launched the SME Initiative Securitisation Instrument (SISI) that will enable more lending to SMEs at favourable pricing conditions.
New amendments to the InnovFin and COSME Delegation Agreements signed today create the framework for SISI, available to financial institutions operating in the EU Member States interested to participate in the SME Initiative that will be invited to respond to calls for expression of interest, administered by EIF. EIF will implement the instrument through securitisation transactions with the aim to stimulate new SME financing. This will be achieved by facilitating the partial transfer of the credit risk of securitised loans by providing guarantees and/or through the purchase of asset-backed notes in order to release regulatory and economic capital for the originating financial institutions which will be then used to originate new financing (in the form of loans, leases and guarantees) to SMEs at advantageous pricing terms.
The SISI, which forms part of the EU SME Initiative, will contribute to stimulate economic growth and counter fragmentation of the internal market when it comes to access to finance by SMEs, as financial institutions' liquidity will be increased and new capital for lending will be freed up.
SISI combines resources of the participating Member States which include European Structural and Investment Funds (ESIF), resources of the EU Framework Programme for Research and Innovation (Horizon 2020) as well as from the EU Programme for the Competitiveness of Enterprises and SMEs (COSME), plus resources of the EIB and EIF, and potentially third party investors, for the purpose of purchasing or guaranteeing securitisation structures. The pooling of resources and the collective efforts to promote the instrument will allow more effective risk-sharing and capital relief for the ultimate benefit of SMEs and small mid-caps: small mid-caps can also be eligible whenever Horizon 2020 resources are deployed.
At the conference event in The Hague, the EIB and the European Commission also presented a new report on 'Access-to-finance conditions for KETs companies', which outlines the need for ramping up effective finance solutions and targeted advisory support to innovative companies exploiting Key Enabling Technologies (KETs). The report emphasises that financial risk-sharing products which support lending to companies will not be sufficient on their own, and that proper awareness raising and advisory activities are needed to make companies "investor-ready", in particular under the umbrella of InnovFin Advisory, developed under Horizon 2020.
Securitisation is the process whereby the credit risk of a pool of assets (for example SME-loans) is tranched and transferred to investors through the purchase of asset-backed securities or guarantees.
The SME Initiative is a joint financial instrument of the EC and the EIB Group (the European Investment Bank and European Investment Fund) which aims to stimulate SME financing by providing partial risk cover for SME loan portfolios of originating financial institutions. Alongside the European Structural and Investment Funds resources contributed by the Member States, the SME Initiative is co-funded by the European Union through COSME and/or Horizon 2020 resources as well as EIB Group resources. So far, the SME Initiative has been deployed in Spain, Malta and has been recently signed in Bulgaria through the SME Initiative Uncapped Guarantee Instrument (SIUGI), which foresees the provision of uncapped guarantees to financial intermediaries on new portfolios of debt finance to eligible SMEs.
The product offering under the SME Initiative is now also completed through the SME Initiative Securitisation Instrument (SISI). The main objective of SISI is to help un-block credit channels to SMEs and to stimulate economic growth.
The amended Horizon 2020 Delegation Agreement (through its Fifth Amendment) and the amended COSME Delegation Agreement (through its Third Amendment) are the result of negotiations between the Commission services, EIB and EIF. The Horizon 2020 Delegation Agreement and COSME Delegation Agreement now include provisions which allow to launch the SISI under the SME Initiative in interested Member States.