Europe and Central Asia

The European Union published a “green paper” on Building a Capital Markets Union for the broader European community. The ambitious goals are laudable but the challenge is high. The report states that in comparison to the United States, medium sized companies received five times more funding than in the EU. This is a profound problem and is indicative of a broken capital markets and equity culture. In presentation delivered in December of last year Dr. Christian Katz, CEO of Six Swiss Exchange, stated that Europe faces a funding gap of € 2 trillion by 2020 highlighting a challenge as equity markets are not good at funding SME’s. That is big.

Since the global financial crisis, alternative finance - which includes financial instruments and distributive channels that emerge outside of the traditional financial system - has thrived in the US, the UK and continental Europe.

The European Commission has laid out options for a capital markets union (CMU) it hopes will encourage schemes to invest in small and medium enterprises (SMEs) and infrastructure.

Small and medium-sized enterprises (SMEs), the backbone of the European economy, were particularly vulnerable to the crisis in Europe due to their dependence on domestic markets and bank lending. Supporting the growth and financial health of SMEs requires addressing several sets of impediments, identified in Restoring Financing and Growth to Europe’s SMEs.

This analysis provides an overview of the main markets relevant to EIF. We start by discussing the general market environment for SME finance, then look at the main aspects of equity finance and the SME guarantees / securitisation markets. Finally, we highlight important aspects of microfinance in Europe.

The University of Cambridge is teaming up with EY, the global professional services organization, to launch European Alternative Finance Benchmarking Survey

The main risks of the Basel III framework in particular with regards to SMEs are:

■ Limiting the efficiency of SME lending.
■ The weak profits spread of the European companies limits their own flexibility to adapt to an increase in costs.
■ This is also going to prolong the structural trend of SMEs to reduce their recourse of lending in order to increase
the soundness, thus sacrificing business growth.
■ This leads to a limitation of the potential growth of SMEs and as a result to a limitation of the competitiveness
of the overall economy.

The Missing Entrepreneurs 2014 is the second edition in a series of annual reports that provide data and policy analysis on inclusive entrepreneurship, and on its barriers, by target social groups across the European Union.

Increasing access to finance for small-and-medium (SME) enterprises is vital for Europe to support a firm recovery and enhance the growth and employment outlook, according to a recent seminar on SME financing. As the euro area recovers slowly from the financial crisis, banks remain weighed down by bad loans and need to raise additional capital.

Against the background of the need for alternative and additional financing channels for SMEs, this paper analyses the market segment of debt funds, provides examples, and presents EIF’s approach to implement financing tools for debt funds in Europe.