GARANTAREA AECM Seminar on the future challenges for guarantee schemes

From 7th - 9th June 2012, the European Association of Mutual Guarantee Societies (AECM, description see annex) organizes its annual General Assembly meeting as well as its Seminar on the topic of "Targeting Growth - Future Challenges for Guarantee Schemes" on the occasion of the Association's 20th Anniversary. The series of events is kindly hosted by, and co-organized with, AECM's 4 Romanian Member Organizations: the National Guarantee Fund for SMEs (FNCGIMM), the Rural Credit Guarantee Fund (FGCR), the Romanian Loan Guarantee Fund (FRGC) and the Romanian Counter-guarantee Fund (FRC).

The seminar on the 8th June is an opportunity to both look at the excellent past performance of AECM members, in Romania and elsewhere, in supporting SME access to finance, which in all EU Member States encounters difficulties due to persistent market gaps, mostly due to the fact that the banking sector considers SMEs to be of a relatively high risk, in part because of missing collateral and lack of information. Guarantee institutions, by substituting missing collateral via a guarantee and providing additional information to the partner bank, share in the risk of the financial institution and thereby facilitate SME loans to a considerable degree. This is best illustrated by some of AECM's key statistics:

As of last year (31st December 2011) and according to provisional figures, AECM's members held a total of nearly 79 billion in portfolio, which represents around 140 billion in loans accessed. By reaching over 2,7 million beneficiary SMEs in the EU or about 12 % of all companies in the EU. This strong performance has been mirrored by a fast growth pace of the guarantee business over the last 20 years, with has been steadily increasing with an average rate of 9,6 % since the year 2000. Especially during the recent Financial and economic crisis in 2008, AECM's member organizations have been able to respond quickly and flexibly with a new product offer to support SME short term working capital loans, aimed at bridging the financing difficulties stemming from the banking crisis and the consequent hardening of loan terms.

In order to be able to maintain this crucial role in the future, the AECM seminar also examines the future challenges for sustainability of SME guarantee institutions, which will be subject to the outcome of two developments at EU-level:

While implementing the Basel III accord via the CRD IV, EU institutions should ensure that the positive effect of guarantee provided by AECM members on the regulatory own funds requirements are maintained. Under the currently valid legislation, guarantees with a public guarantee or counterguarantee allow the lender to apply a zero-weighting. This lowers the cost of capital to the bank and encourages SME lending. In addition, a lower risk weight of 50% should be applied to the SME retail portfolio.

The next generation of EU support programmes (2014 - 2020) should maintain a strong focus on Financial instruments in form of counter-guarantees for SME guarantee institutions in the Member States. These programmes have been very effective in the past, allowing AECM members to engage in guarantee products that address particularly relevant market gaps (start-ups, business transfers...). As AECM members have accounted for over 80% of the funds e.g. under the Competitiveness and Innovation Programme (CIP), the follow-up programmes under COSME, Horizon 2020 and structural funds should focus on the effective market needs of SMEs. All potential intermediaries should be allowed an equal access to the programmes.

José Fernando Figueiredo, Chairman of AECM, stated that "we are looking forward to continuing our constructive cooperation with the EU institutions to facilitate SME access to finance as well as GDP growth and employment in the Union. A prudential framework that properly accounts for SME guarantees and targeted EU support programmes with counter-guarantees for SME loan guarantees will be crucial to achieve this goal together. Also the use of structural funds at Member State level is very important to capitalize the schemes. "