The European Investment Bank (EIB) is owned directly by the 28 EU member states and the world’s largest international public bank. The EIB supports sound and sustainable infrastructure and private sector investment projects across Europe and around the world. We interviewed them to find out more about how they can support international activities of Europe’s small businesses.
Interview with EIB Vice President Pim van Ballekom
Could you please explain the role of the European Investment Bank and its activities? Is lending the only activity of the EIB?
The European Investment Bank has a unique engagement, supporting crucial investment both across Europe, but also in more than 160 countries around the world. The EIB is not only one of the world’s largest public banks, last year lending more than EUR 77 billion for over 500 projects, but equally importantly can share technical experience from similar schemes elsewhere that helps strengthen infrastructure projects being developed for the first time. Supporting the replacement of hundred year old hospitals, supporting the world’s largest wind farms, improving education for thousands of children and students, backing development of clean car engines and encouraging sustainable transport make a real difference to the lives of millions of people.
The EIB is self-financing and raises money on global capital markets to invest in projects alongside other sources of finance, from other banks, a company’s own resources or public resources. The long-term nature of EIB loans, cheaper costs and considerable experience from more than 400 technical staff all help make the EIB a truly unique bank.
How are you supporting the EU’s economic recovery?
The EIB was asked to respond to the crisis and significantly increase lending in the weeks immediately after the 2008 Lehman crisis. We have supported investment in skills, services and crucial infrastructure at a time of reduced public spending and increased challenges for many commercial banks. Part of this response has included development of new financial products, alongside a continued commitment to core priorities: innovation and skills, smaller enterprises, strategic infrastructure and climate action.
The Bank has strengthened support for investment to improve transport links across Europe, enabled Europe to increase renewable energy generation even during the crisis, helped small businesses expand and enabled firms to create jobs for young people.
A year ago the EIB launched a new initiative to strengthen lending for innovation and research. InnovFin follows from the earlier RSFF initiative and provides both dedicated financing tools and specialist advisory services offered by the EIB Group. InnovFin is unique in that it opens up finance on acceptable terms for innovative businesses, from the small to the very large, and also to midcaps (businesses of 250-3,000 people) looking for either direct or indirect financing.
The European Fund for Strategic Investments (EFSI) is being supported by the EIB and European Commission, and is expected to support significant new investment as part of the wider Investment Plan for Europe. New lending guaranteed by EFSI will be managed by the EIB and is expected to mobilise more than EUR 315bn of additional investment across the EU over the coming three years. Although it has yet to be ratified, we remain hopeful that EFSI will allow the EIB to do what it does best and more: to further increase support for economic growth and jobs through unlocking new investment in vital infrastructure projects, support digital networks, boost investment in education, R&D, health and resource efficient energy as well as further back Europe’s many small businesses.
What sort of support can you provide to EU SMEs?
Support for SME investment represents around a quarter of all EIB Group activity. Smaller companies are the principle driver of growth and employment in Europe yet in some sectors and regions they can face difficulty in accessing funding. We offer a large range of products for SMEs, from loans, through to guarantees, equity and mezzanine finance, as well as technical assistance. And all of this across a wider range of sectors and markets. We do it through a large network of financial intermediaries, such as commercial banks, public and cooperative banks, venture capital funds, guarantee institutions.
Our main aim in all of this is to provide the right financing for all stages of company development, whether this is funding Intellectual Property (IP), start-up and early-stage risk finance, microfinance, loans for development in tangible and intangible assets, or even working capital. We are also constantly developing tailored products for innovative companies, SMEs that recruit or train young people, SMEs wanting to internationalise, impact investments or sector-specific loans.
And it is not only a question of bridging the funding gap for SMEs. Our goal is also to improve the terms of funding. We do this by extending loan tenors, reducing interest rates, or removing collateral requirements for entrepreneurs.
More specifically, to EU SMEs willing to internationalise?
As the only public institution with operations both inside and outside the EU, we see considerable potential for the transfer of our expertise and investments from our activities inside the EU to the non-EU world, and vice-versa. The synergies between what we do for the private sector in various parts of the world increasingly blur boundaries. This is also the case for European SMEs. SMEs that are looking to expand abroad can access funding through EIB SME loans offered through partner banks, in particular for financing of working capital. Some more specific products have been developed to target this group. The EIB and InterAmerican Development Bank (IDB) recently joined forces to set up a facility with this purpose. Funded with USD 500 million finance from each institution, the new facility enables financing for SMEs and midcaps from Latin America and the Caribbean seeking to expand to the EU and, conversely, for European SMEs and midcaps seeking to invest in or expand in the region. The main objective is to increase trade and internationalisation of companies and, ultimately, support job creation. Furthermore, the EIB has developed trade finance products in some EU Member States, providing guarantees to banks for letters of credit and other trade instruments. The end result helps SMEs to alleviate cash collateral constraints.
What sort of projects do you finance? Could you give us an example?
The projects we finance have to be financially sound and technically feasible, as well as meeting strict social, economic and environmental criteria. We do not finance more than 50% of the total cost of a project, and typically the share is lower, usually around a third of a projects’ overall cost, which means we mobilize and co-finance with others. As the Vice President responsible also for finance and our treasury activities, I can only emphasize the value of diversification. Technical due diligence demonstrated by financial support from the EIB can in some cases further reassure other investors.
It is difficult to give a single example of a typical EIB project. We have invested in some of Europe’s largest onshore and offshore windfarms, as well as the largest in sub-Saharan Africa. We have improved road safety, journey times and emissions across Europe’s transport networks. Our SME financing in 2014 will help create and sustain around millions of jobs around the world. Taken as a whole, our investments will allow the saving of CO2 emissions of 3m tonnes. Similarly, as the world’s largest lender to the water sector millions of people in both developed and developing countries can access safe drinking water and benefit from improved waste water treatment.
The EIB’s unique expertise in different sectors means that we can invest in a very wide range, from environmentally-friendly transport research to sewerage maintenance and share experience crucial for projects being considered for the first time. There is variety in what we do.
Which are the financial intermediaries for SMEs seeking support? How to find them?
Comprehensive lists of financial intermediaries by region can be found on our website. For EU partners, look here, and for those outside the EU, please look here.
What are your activities and support in the ACP countries and in Latin America?
In the sub-Saharan Africa, the Caribbean and Pacific countries we focus on supporting both private sector and infrastructure development. You cannot develop the former without the latter, and many countries simply lack efficient and green electricity supplies and generation, as well as telecommunications and transport facilities. We also invest in water and sanitation schemes and general healthcare. The EIB also supports lending by local financial institutions and helped ease the credit gap for smaller businesses, while developing the financial sector.
The new Impact Financing Envelope for ACP states affords us the chance to invest in projects with higher development impacts and higher risks. This will prove a very effective tool in benefitting the poorest and most vulnerable people in the regions too.
In 2014, the EIB lent more than EUR 2.5 billion for projects across Africa.
We have been active in Latin America since 1993 and our priorities in the region are climate change mitigation and adaptation, social and economic infrastructure and private sector development. Since the start of operations we have provided more than EUR 7 billion to support projects across Latin America. In 2014 alone, EIB lending in Latin America totalled EUR 650 million which helped to support private sector investment, upgrade strategic infrastructure and promote climate change mitigation, including renewable energies. I look forward to further engaging with our partner countries both inside and outside of the EU.