In Frankfurt, the European Investment Bank (EIB) and KfW Bankengruppe have signed a risk sharing framework agreement for the KfW SME programme ‘Capital for Work and Investments’. Under this risk sharing agreement, between 2008 and 2010 the EIB will assume risks for a total of EUR 100 million arising in connection with subordinated financing offered under the KfW programme.
Detlef Leinberger, member of the Board of Managing Directors of KfW Bankengruppe at the signing of the agreement in Frankfurt said: "The mezzanine financing we offer is especially important for small and medium-sized enterprises (SMEs) because of the quasi-equity tranche that it includes. I am very glad that the EIB is joining this programme. In so doing, it is supporting the SMEs of Europe's largest economy, companies that create both innovations and jobs and, as such, need corresponding financing offers" .
Matthias Kollatz-Ahnen, EIB Vice-President, underscored this: "Our goal, and that of the European Union, is to support innovation and jobs in SMEs and, in this way, to boost the competitiveness of Europe's economy. In order to achieve this goal we are ready to design suitable financial products and also to accept greater risks. Mezzanine capital gives us leverage, above all for more jobs. In addition, this joint financing is a successful continuation of the cooperation between our two institutions."
The KfW SME programme 'Capital for Work and Investments' is part of the 'Unternehmerkredit' (entrepreneur loan) family of products that offer subordinated financing which specifically targets start-up entrepreneurs, the self-employed and SMEs. This subordinated financing combines the advantages of debt and equity capital: entrepreneurs do not need to provide any collateral for these loans. A long loan term featuring a grace period of up to seven years eases liquidity pressure during the investment phase while helping the companies to retain their profits and, in this way, to increase their equity capital.
The programme component 'Capital for Work and Investments' is tailored to the needs of established companies that have already been active in the market for over five years. Companies are using this programme mainly to finance investments within Germany that contribute to their sustained economic success while creating or safeguarding jobs. Similar investments by German companies in other countries are also being financed. The subordinated financing under this programme is tied to a classic loan of the same amount for which standard bank collateral is provided. The volume of this kind of financing package is limited to EUR 4 million per project. The programme is offered through commercial banks, which assume the liability for the classic loan that they onlend. KfW, in turn, releases the banks from liability for the subordinated tranche, for which no collateral is provided. The interest rate depends on the credit rating of the company receiving the funds. In the year 2007 a total of EUR 323 million was committed under this programme, with 50% offered as unsecured subordinated loans.
The EIB and KfW have been working together in the fields of SMEs and the environment for several years. Last year, for example a joint programme for the purchase of carbon credits, managed by the KfW Carbon Fund, was set up. The aim of the EIB-KfW Carbon Programme is to support SMEs in particular from all over Europe which need carbon credits to comply with their CO2 emissions targets under the European Emission Trading Scheme (EU ETS), but that are unable to access or develop projects that can reduce carbon emissions abroad. Furthermore, KfW has taken on a key role in the EIB initiative for establishing a post-Kyoto fund for the period after 2012.
About the EIB:
The task of the European Investment Bank, as the long-term financing institution of the European Union, is to support the EU's economic-policy goals by providing long-term financing for suitable projects. The EIB's balance-sheet total is EUR 300 billion, and its shareholders are the 27 EU Member States. Germany holds a 16.2% share of the EIB's capital. One of the EIB's financing priorities is supporting SMEs, particularly innovative enterprises, in order to strengthen the competitiveness of the European economy. In 2007 the EIB granted loans totalling EUR 47.8 billion, EUR 41.4 billion of which in EU Member States. Germany, which received loans adding up to EUR 6.5 billion, was the second largest borrower after Spain.
About KfW:
KfW Bankengruppe gives impetus to economic, social and ecological development worldwide. A promotional bank under public law, its shareholders are the German federal government (80%) and the federal states (20%). Its balance-sheet total of EUR 360 billion (as at 31 December 2006) makes it one of Germany's biggest banks. It performs its legal mandate to offer financial support in various economic and social areas. By granting long-term loans at favourable rates, KfW Bankengruppe supports, among others, commercial SMEs and business start-ups and also stimulates both innovation and the equity capital market. It takes a strong stand for climate and environmental protection and its diverse financing offers make an important contribution to promoting investment and sustainable development both within Germany and abroad. In addition, it supports the private housing sector and the development of municipal infrastructure while being committed to education finance. KfW Bankengruppe does business in the area of export and project finance and performs promotional tasks in developing and transition countries.