Rym Ayadi, President

The Euro-Mediterranean Economists Association (EMEA)

Professor, HEC Montréal

Towards an SME Guarantee Initiative for the South Mediterranean region

AECM Meeting 2014

SME Financing

AECM Meeting 2014

0

20

40

60

80

100

120

Algeria Egypt Israel Jordan Lebanon Libya Morocco Syria Tunisia Turkey

2006 2007 2008 2009 2010

Credit to private sector, % of GDP

Source: World Bank WDI

Background

AECM Meeting 2014

SMEs is a fundamental pillar for sustainable growth in the Euro- Mediterranean economies

80% of the SMEs in Europe and in the South Med rely on bank lending. Access to finance

has become a particularly acute issue for SMEs in “peripheral” Member States, but also in

South med, as banks have restricted the supply of credit to SMEs

To fill-the funding gap in the EU: use of Structural Funds: out of the EUR 55bn support

delivered to SMEs in the last programming period, more than EUR 10bn were deployed

through financial instruments across 25 Member States

In the 2014-2020 programming period, Cohesion Policy will allocate additional financial

resources in support of SMEs and will provide for increased use of financial instruments

either under shared management (tailor-made instruments) or under central management -

--the so called the EU SME initiative

The proposal: To develop a South Mediterranean component to this initiative

With reference to MEDPRO recommendation to develop a Euro-Mediterranean Economic

Union/Alliance for sustainable and inclusive development and growth

SME development in SMC - Obstacles

AECM Meeting 2014

Rank Algeria Egypt Morocco Tunisia

1 Informality &

corruption Infrastructure Access to finance

Informality & corruption

2 Administrative, legal

& tax regulations Availability of skills Availability of skills Clients & suppliers

3 Infrastructure Administrative, legal

& tax regulations Clients & suppliers Access to finance

4 Access to finance Informality &

corruption Administrative, legal

& tax regulations Infrastructure

5 Availability of skills Clients & suppliers Informality &

corruption Availability of skills

6 Clients & suppliers Access to finance Infrastructure Administrative, legal

& tax regulations

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Expected to be operational in 2014

Key objectives

Better access to finance for SMEs through capital relief, loss protection and liquidity

Increased multiplier on public budget through participation of EIF/EIB and private

sector

Fill-in the gap of financing to SMEs in the EU

Two risk-sharing instruments endorsed by the European Council:

1. Guarantee facility for portfolios of new SME loans;

2. Securitisation instrument for portfolios of both new and existing SME loans;

Eligible assets: SME Loans, leasing and guarantees

Eligibility criteria: involvement of ESIF/COSME/HORIZON

Private-public partnership:

EIF/EIB through Own funds (for guarantees and direct investments) plus Expertise in

deal structuring, execution, implementation and monitoring throughout EU

Participation of private investors: important medium-term objective

The SME initiative in the EU

AECM Meeting 2014

Objective: Enhance SME access to finance by addressing challenges that banks face and which impede

their credit appetite in the Mediterranean region

More specifically, by:

Covering 80% of losses for defaulted loans (with no cap at portfolio level), addresses credit risk

concerns and/or lack of collateral at the SME level

Constraints:

South med countries are not yet eligible to EU structural funds

EIF not yet active in the South med countries

Lack of banking integration in the Euro-Med region

Recommendation:

Work on a long term action plan for financial market integration and funding SMEs in the Euro-

Mediterranean

Action:

EMEA in collaboration with other stakeholders (EUMED banks, Guarantees, and SME

organisations in the region) is launching a high-level group that would outline the pillars to this

action plan.

Towards a Euro-Med SME Guarantee Facility