7 July 2019
DG ECFIN Response to ELTI InvestEU Letter to the European Commission (DG ECFIN, DG GROW & DG BUDG) and the European Investment Bank Group (below)
Dear Mr von Glasenapp,
Thank you for your letter dated 21 June 2019. I appreciate you sharing ELTI members’ considerations about EU support to SMEs under the future InvestEU Programme. Throughout the implementation of five generations of financial instruments over the past 20 years, National Promotional Banks and Institutions (NPBIs) have been key partners of the Commission.
We share your view that capped guarantees for SME lending, such as the COSME Loan Guarantee Facility (COSME LGF), play a pivotal role in the EU’s support to SMEs. This is why risk-bearing capacity from the SME Window of the European Fund for Strategic Investments (EFSI) has been used to significantly increase the capacity of the COSME LGF, which made it possible to address the high demand from financial intermediaries for this product.
The EFSI reinforcement has doubled the resources initially foreseen for the COSME LGF and we are on track to full deployment - clearly demonstrating that the COSME LGF risk-coverage is very much in demand by financial intermediaries and allows supporting higher risk SME transactions. It is worth highlighting that COSME’s positive results would not have been possible without the excellent cooperation of all participating financial intermediaries among which NPBIs had the highest share.
In light of the above, we see the continuation of this type of guarantees under the SME Window of InvestEU as a natural development. We will draw from experience and lessons learned from the COSME LGF implementation. We will continue targeting higher risk SMEs and higher risk SME transactions (e.g. start-ups, SMEs with insufficient collateral, higher risk SME financing transactions otherwise not offered such as subordinated financing, longer-term transactions) and plan to embed in such facility also the target group of the current InnovFin and the Cultural and Creative Sector Guarantee facilities.
The new guarantee landscape under the SME Window of InvestEU will not bring a revolution but will be an evolution of the current instruments, taking on board important lessons learnt. In particular, as NPBIs have been instrumental in the roll-out of the COSME LGF, the opening up of the EU guarantee for direct access to them also embodies this evolution. In this regard, we have witnessed interest from your members in the two seminars that we organised this year and I would like to thank you for your proactive involvement in these events.
As regards InvestEU, we are planning to continue with the capped guarantees both under the part allocated to the EIB Group (75% of the EU guarantee) under which NPBIs may become financial intermediaries and under the direct access part for NPBIs and IFIs (25% of the EU guarantee). This leaves NPBIs a chance of whether to cooperate under the 75% EIB window or under the 25% NPBIs window.
Deputy Director General
European Commission (DG ECFIN)
Original ELTI InvestEU Letter to the European Commission (DG ECFIN, DG GROW & DG BUDG) and the European Investment Bank Group
21 June 2019
The COSME Program under InvestEU
Dear Ms Jorna, dear Mr Delsaux, dear Mr Presa,
Dear Marjut, dear Roger,
The Loan Guarantee Facility of COSME is a key instrument of SME support in the EU. It supports selected financial intermediaries to provide loans to SMEs that would be considered too risky without the guarantee.
National promotional banks and institutions (NPBIs), in cooperation with the EIB group, and in particular with EIF, are playing a major role in delivering the program to the ground. Indeed, operations through NPBIs account for around 45% of overall COSME budgetary allocation and result in 57% of overall financing mobilised. This shows the success of the COSME program. This is also the reason why, as NPBIs, we would like to stress the importance of having the COSME successor facility included in the 75% window of the EU compartment of the InvestEU guarantee Fund and in no case under the 25% direct access window.
The rationales for this principle are the following:
RISK OF REPLACEMENT of a significant part of the envelope in direct access by COSME: the SME Window under Invest EU amounts to €2.8bn (25% x 11.5) in direct access. COSME representing a budget of €2 billion in the current programming period, it would reduce the SME envelope by more than 80% in direct access and even more if other COSME-like guarantee programs were included such as EASI or the CCS facilities. This would clearly contradict the intention of the legislator to reach new final beneficiaries by opening up direct access to other players than the EIB Group.
DO NOT CHANGE WHAT WORKS: COSME is an excellent example of the successful cooperation among our organisations. NPBIs and financial intermediaries are now familiar with implementation rules and procedures by the EIF, which should therefore continue running COSME. We should endeavour to capitalise on these positive results to make InvestEU a success, offering visibility and continuity of EU-27 programs for SMEs.
THE OBJECTIVE OF INVESTEU DIRECT ACCESS VERSUS ACCESS THROUGH THE EIB GROUP is to promote the design of new bottom-up solutions by NPBIs able to address sub-optimal investment situations by providing tailor-made and locally adapted solutions. COSME LGF instead is a standardised program with predefined criteria aimed at addressing a Union-wide market failure – that is to say limited access to finance for SMEs - regardless of national market specificities. As such, it does not meet the objectives of the 25% direct access window.
In addition, it is critical to make sure that under standardised programs, like COSME, all NPBIs will be treated the same way by the EIB group be they pillar assessed or not.
CLEAR CRITERIA are needed to ensure the effectiveness of InvestEU. It should therefore not be possible to propose an EU-28(7) program in the 25% window exactly in the same way. Only schemes with differentiated aspects (from a risk or a funding policy perspective for example) and in line with the investment guidelines could be eligible for the 25% window.
More generally, when it comes to the future of EU-wide (counter) guarantee programs, ELTI members would like to share additional considerations that they believe to be key for the success of InvestEU. Considering that they aim to address market failures, these products should be made attractive and therefore:
- Both capped and uncapped portfolio guarantee programs should be preserved as they play different roles.
- Guarantees should not be fully charged whilst guarantees which are free of charge should be kept within the range of financial instruments.
- All guarantee programs successfully managed and run by EIF today (COSME, InnovFin, CCS, EASI, ERASMUS+…) should be continued in the next MFF under the 75% window with very similar conditions to the current ones. At the same time, their implementation should be well coordinated to reach different beneficiaries while avoiding overlaps using the experience and the well-established network of NPBIs and financial intermediaries.
I hope these considerations will contribute usefully to the ongoing discussions with regard to the design of InvestEU.
ELTI and its members remain at your disposal to further exchange on this matter.
Helmut von Glasenapp