21 june 2013
AECM Annual Seminar Rome, Italy
Consultation on CIP successor programme: AECM calls on the Commission for a continuation of a strong EU innovation and competitiveness policy making use of counterguarantee instrumentsNews - 04/02/2011
In its position paper to the Commission's consultation on the successor programme of the Competitiveness and Innovation Framework Programme (CIP), AECM underlines the added value European guarantee facilities have brought to SME access to finance under the CIP as well as the predecessor framework programmes, such as the MAP. Both before as during the financial crisis, the CIP financial instruments have allowed a great number of SMEs get access to finance and contribute to the global European economy in terms of employment and GDP growth.
Due to a high leverage factor and revolving nature, CIP counterguarantees have proven to be particularly cost-efficient. To illustrate, for a guarantee coverage ratio of 50% of the loan amount, € 1 of own funds allows issuing € 10 in guarantees and € 20 in approved loans. The presence of a European CIP-Counterguarantee dramatically improves this impact. Indeed, given a coverage rate of 50% by the CIP-Counterguarantee instrument, the amount of loans issued to SMEs can be doubled to € 40 for every € 1 of own funds of the guarantee institution. Similar results cannot be reached with other financial support instruments, such as grants or equity.
CIP counterguarantees also provide a high degree of European added value, allowing AECM members to design new guarantee instruments addressing market niches and financing needs that were not properly served by the banking sector, often due to a higher risk profile. The CIP counterguarantees are also key to help maintaining the competitiveness of smaller European companies, which are increasingly exposed to international competitors on their domestic markets and rebalance the playing field vis-a-vis larger companies, which typically have more sources of finance and less difficulties in accessing these than SMEs.
Therefore, AECM calls on the Commission not only to maintain an unwavering commitment to guarantee instruments for SME access to loan finance under the successor programme but to also increase funding for the guarantee facilities under the successor programme to ensure SME access to finance in a changed post-crisis environment. Now more than ever, these will have to count on loan guarantees in a future context of rising interest rates and stricter prudential supervisory rules, which will all put SME lending under pressure.
This makes the case for adequate balance to be struck in the design of the new Framework programme. While there is a need and justification for all types of financial instruments, such as guarantees, subordinated loans, venture capital, etc., these instruments address different classes of beneficiaries and life-cycle situations. Venture capital for example is most suited for high-tech start-up, medium-sized companies and companies with high growth potential.
This source of finance is however not suited to the needs of the majority of European SMEs, who also provide the bulk of employment and GDP. Being rather small and not necessary with high growth perspectives, they are not naturally the target of profit oriented venture capital funds. These businesses mainly rely on loan finance and therefore are in need of a proper guarantee support. As a consequence, venture capital should not become the exclusive focus of the successor programme, instead it has to be ensured that the funding made available under the new framework programme is balanced with regard to the financing needs on the market and the respective size of the beneficiary populations.
For the new framework programme, AECM considers necessary to maintain a broad definition of innovation in favour not only of a few high-tech, high-growth companies but rather to the benefit of a larger SME population that are innovative in the larger sense, e.g. process innovation, or are adopters of new technology, etc. In addition, AECM calls among others for a simplification with regard to reporting requirements, for a relaxation in the interpretation of the additionality criteria and a seamless transition between the current CIP Framework Programme and the successor programme to the CIP.
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