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Risk Sharing Instrument: a Promising Start

Mr Jean-David Malo

The Risk-Sharing Instrument (RSI) is a joint pilot guarantee scheme, launched in early 2012 by the European Commission in cooperation with the European Investment Bank (EIB) and the European Investment Fund (EIF). Its aim is to improve access to debt finance for research and innovation (R&I)-driven and innovative SMEs and small mid-caps (companies with fewer than 500 employees). Following the early successes of RSI, the Commission is looking to develop its role under Horizon 2020.

R&I-driven and innovative SMEs are key drivers for growth and jobs in Europe. However they face considerable difficulties to finance their development and growth.

‘Supporting these SMEs is not only a need, it is an obligation if we want to achieve the objectives of the European 2020 Strategy for a Europe of growth and jobs,’ emphasises Jean-David Malo, Head of Unit B3 of DG Research & Innovation at the European Commission. Unit B3 fosters the economic, legal and financial conditions required to boost the competitiveness and growth of R&I-driven and innovative EU enterprises, particularly SMEs.

‘Data and surveys indicate that most SMEs are to a large extent dependent on banks for their external financing,’ Mr Malo explains. ‘Moreover, SMEs continue to face more severe credit conditions than larger enterprises. The situation is worse for SMEs undertaking R&I, as banks typically lack the ability to value knowledge assets, and therefore often do not invest in knowledge-based companies or do so only with a risk premium perceived as too high by SMEs. In consequence, many established and innovative SMEs find it hard to obtain loans for R&I activities.’

Under RSI, the EIF provides both guarantees and counter-guarantees of up to 50% to financial intermediaries, such as banks and guarantee societies. Guarantees are for financial intermediaries that lend directly to SMEs, while counter-guarantees are for financial intermediaries that provide a guarantee to other intermediaries lending to SMEs. The loan amount received by innovative SMEs varies from EUR 25,000 to EUR 7.5 million, and has a maturity of up to seven years.

‘RSI is a part of the answer,’ Mr Malo explains. ‘RSI is about taking more risk and leveraging private finance, in order to finance those SMEs willing to invest in innovation.’

All R&I driven-SMEs and small mid-caps are eligible, if they are established in Member States or countries participating in FP7 or Horizon 2020. They can use an RSI loan at any stage of the R&I process, from basic research to commercialisation. However, they typically use it for the stage preceding commercialisation, leading up to their entry into a market.

Success so Far

Under FP7, RSI has aimed to mobilise loans up to EUR 2.2 billion in order to support between 2,000 and 3,000 R&I-driven and innovative SMEs and small mid-caps. Under Horizon 2020, the European Union's new funding programme for research and innovation for the period 2014-2020, the aim is to at least triple the EU support for the RSI successor, subject to the level of the demand.

Since its release on 30 March 2012, RSI has met with considerable success. As of the end of 2013, 27 financial intermediaries in 14 countries had already concluded guarantee or counter-guarantee agreements. The total value of these guarantees was EUR 1.2 billion, facilitating up to EUR 2.4 billion of RSI loans and guarantees. There had been 47 applications, showing the high demand for RSI.

‘It’s a very promising result for such a new scheme in a very short time period,’ Mr Malo concludes.

Future Developments

Moving forward, Mr Malo explains, RSI is part of a tool box that makes support to SMEs a priority under Horizon 2020. Horizon 2020 offers an integrated approach that aims to cover SMEs’ innovation needs over the whole innovation cycle for all types of innovation. ‘The goal is to stimulate growth by means of increasing the levels of innovation in SMEs, thereby creating more fast-growing internationally active SMEs.’

RSI is a financial instrument for SMEs that is complemented by other sources of funding under Horizon 2020, such as equity funding, collaborative projects, the SME Instrument and Eurostars. In the commercialisation phase, the SME Instrument will include coaching measures, in order to facilitate access to private finance and make the link with financial instruments. ’But Horizon 2020 is not the only EU programme supporting SMEs,’ Mr Malo stresses. ’With a planned budget of EUR 2.3 billion, COSME is the EU programme for the Competitiveness of Enterprises and SMEs running from 2014 to 2020.’

Applications for RSI

RSI has no call for proposals for companies. SMEs and small mid-caps can directly contact financial intermediaries that have signed RSI guarantee agreements with the EIF. The SME needs will be assessed by these banks locally, according to their usual banking practices and taking into consideration the RSI guarantee. The process is very flexible and adaptable.

The Success Story article in this issue of SME Update features an SME which has benefitted from an RSI-backed loan.

Further Information