Since the financial crisis broke out, the European Investment Bank (EIB) has stepped in to provide financial stability throughout the 27 EU member states and candidate countries hoping to join the bloc.
In September 2008, EU economy ministers directed the EIB to increase lending to small and medium-sized companies (SMEs) by €30 billion by 2011.
More than half of that money went to the "old" Western EU member states. However, over the past two years, the EIB also signed contracts totalling €13.8 billion for Eastern European countries and candidate countries alone.
The funding went mostly to large European banks to prevent them from pulling out of the region during the economic crisis. So far, €11 billion has been disbursed to banks including UniCredito, Société Générale, BNP Paribas, Dexia and Fortis, according to EIB figures released on 22 February.
Banks in Turkey got the most money with loans totalling €3 billion, followed by Poland with €1.6 billion, and Hungary and the Czech Republic with about €1.3 billion.
Access to finance still a problem
With the financial crisis turning into a full-blown economic crisis, the €30 billion initially earmarked by 2011 quickly dried out. The figure was reached late last year as banks clamoured for access to cheaper financing.
"A lot of what we did was so the banks wouldn't shut down. We said, 'we'll give you (money) for new SME loans under the condition you don't move out of the country'," said Matthias Kollatz-Ahnen, a vice-president of the European Investment Bank.
Companies with 250 and fewer employees are the backbone of the European economy and the main engine for job growth. Surveys from the European Central Bank consistently rank access to finance as one of the top three challenges SMEs face, and the EIB said today that the funding shortage is expected to last another two or three years.
On Wednesday, the European Commission is expected to publish its two-year review of the Small Business Act. A January draft of the review, obtained by EurActiv, said the Commission will aim to help two million SMEs over 10 years through a stronger loan guarantee programme. And the Commission has an ambitious plan to ensure venture capital funds established in any member state can function and invest freely in the EU.
EIB lending via commercial banks
The EIB's figures are in part designed to thwart criticism that commercial banks – which distribute the EIB's crisis funds – have been holding onto the money in order to shore up their own balance sheets rather than lending it to SMEs.
"Our 2010 study 'Missing in Action' highlights serious issues of transparency and accountability with the procedures through which the EIB uses commercial banks as intermediaries to distribute money to European SMEs," Isabella Besedova of the Central and Eastern Europe Bankwatch Network wrote to EurActiv earlier this month.
"There are no clear-cut means to ensure that the banks lend out the money to SMEs as soon as possible. Our study shows that a considerable portion of the EIB money has been kept by the banks in their coffers as a means to make up for their shortage of capital during the crisis."
But Kollatz-Ahnen says the EIB gives the money in tranches as the commercial banks prove they have SMEs to lend it to. The EIB tries to ensure the funds are disbursed within nine to 12 months, but during the crisis some banks took longer because SMEs needed more time to provide collateral as insurance in case of default.
SME lending 'on an upward trend'
Richard Hyslop, EU adviser for the Federation of Small Businesses, said: "The EIB financing of SMEs seems to be working well and figures we've seen showed that the number and value of EIB loans is on an upward trend."
Last year, the EIB funded loans averaging €157,000 for 63,000 SMEs. That's up from an average loan of €146,000 for a total of 48,000 companies the previous year.
The EIB also started a new micro-lending programme last summer with loans of up to €10,000. The bank signed partnership agreements in the Netherlands and Bulgaria, and expects to sign deals during the next several weeks in Belgium, Romania, the UK and Lithuania, with other countries to follow.
The three-year, €200 million programme is expected to help more than 26,000 companies across the region. The loans will be aimed at creating jobs for unemployed people, migrant communities and women entrepreneurs.
"We're now going into a complete different world," Kollatz-Ahnen said.
