Today, we are more aware of our impact than ever before – from the origin of our food to the plastic waste we generate. Generation Z (born from the mid-1990s to the early 2000s) are one of the first to put impact and social matters at the top of their job-seeking lists, and we are seeing younger and younger faces speaking out on the political agenda. From the smallest businesses to the biggest corporates, there is a shift towards making an impact at the same time as doing business.
Small businesses can have a powerful impact in many ways: through employing people, through providing essential services, or even by putting a social mission at the heart of their business plan. We work to support small businesses with a positive impact on society – from a social enterprise developing clean fuel, to a business in the cultural and creative sectors bringing history to life.
By the end of 2019, we had surpassed EUR 1bn of resources leveraged through impact programmes like EaSI (the EU Programme for Employment and Social Innovation) and SIA (the Social Impact Accelerator). We have found new ways of supporting social impact. As climate change affects all of us, we are looking at ways of incorporating support for SMEs dedicated to environmental impact into our new instruments.
Individual transactions have been allocated to thematic areas based on a combination of investment stage and/or mandate objective. This overview is for illustrative purposes only and provides an indication of our main areas of investment focus in 2019.
Financing for social enterprises and impact in 2019
Hundreds of social enterprises across Europe actively generate a positive societal impact. But, like any other business, they need access to finance in order to be successful and sustainable. The EIF supports intermediaries that pursue a positive impact by providing them with guarantees and equity investments. In 2019, the demand for financing was large enough to prompt new equity funds and new instruments supporting loans. Small businesses are becoming more accountable for their impact, and we are behind this all the way.
More equity financing for impact businesses
In 2013, we started supporting funds that invest in businesses making a social impact. In 2019, we completed the investment period of this first fund-of-funds, having committed EUR 220m into 19 social impact funds in nine countries, supporting more than one hundred social enterprises (see ‘What is SIA?’).
We have invested across the growth spectrum…
In 2019, this included an investment in social impact incubator fund Makesense Seed under the InnovFin Equity instrument. The investment of up to EUR 4m will help the incubator fundraise up to EUR 8m to incubate start-ups with high impact potential.
…in new instruments…
…such as social impact bonds (SIBs), which engage private investment in solutions to societal problems. In 2019, using SIA, EFSI and our own resources, we committed to two new investments in SIBs:
• Up to EUR 10m in ‘Joining Forces’, to help military personnel in the Netherlands reintegrate into private sector employment;
• Up to EUR 5m in a co-investment arrangement with BNP Paribas to finance payment-by-results schemes in France;
• …and a wealth of new schemes in the pipeline.
…and new geographies, like Croatia…
We have committed up to EUR 15m into the Feelsgood Social Impact Investment Fund, a social impact fund targeting up to EUR 30m for SMEs with an environmental and social focus in Croatia and Slovenia. The EIF’s commitment will send an important signal of the good health of impact funds in central and southern Europe.
…but there is still more to do
Impact investing is still a relatively young investment area. It can suffer from perception problems, for example, that social enterprises are non-profit organisations, or even charities. The EIF is delivering proof that this is not the case, and that social enterprises have a legitimate place within the investment spectrum. Indeed, a rising number of impact entrepreneurs, backed by impact-driven financial intermediaries, are emerging across Europe – accompanied by a rise in demand for capital. With more and more investors keen to see their money work for societal good and impact funds developing a track record where their businesses succeed in impact and in financial terms, our cornerstone investments can help new funds raise capital and take part in the social impact movement.
A new generation of impact financing
Impact venture capital funds are a growing investment target for institutional investors. As we all become more aware of the importance of environmental, social and governance (ESG) principles and the United Nation’s Sustainable Development Goals (SDGs), we foresee initiatives that would give private investors access to funds in the fields of health and impact.
More debt financing for social enterprises
De-risking is crucial to improving access to financing, particularly for young social enterprises and those lacking collateral. We continued to guarantee a large number of loan transactions under the social entrepreneurship strand of the EU programme, EaSI signing a total of 36 transactions in 18 countries to date.
Including our largest-ever guarantee
We have guaranteed up to EUR 12.7m of a EUR 120m portfolio of loans for France’s la Nef, a cooperative bank based in Lyon. The guarantee (the largest ever under EaSI), will help la Nef provide attractive social loans to up to 1,000 social enterprises.
…and the first targeting early-stage in Germany
The EIF is also guaranteeing up to EUR 3.2m of a EUR 20m portfolio managed by Germany’s Early-Stage Co-Investment Fund for Social Enterprises, which will provide sub-ordinated debt finance in around 70 transactions to around 60 social enterprises over the next five years. The guarantee will help fill the gap for early-stage social entrepreneurship financing in Germany.
“It’s important to keep retelling the story of Czechs and Germans working and living together. There is no more place for animosity in this region. We are all Europeans.”
Additional debt financing available…
From the end of 2019, up to EUR 200m will be available to fund new loans to micro enterprises and social enterprises in Europe. The funded instrument will provide loans to financial institutions for on lending to micro and social enterprises – increasing their origination capacity and allowing them to support longer term financing to a wider variety of businesses (please see ‘What is the EaSI Funded Instrument?’).
…as well as EUR 50m for building skills and education
Investment in skills is at the very core of a flourishing society. It is also an important policy objective of the EC. We are therefore in discussions to deploy a EUR 50m guarantee pilot under EFSI to bolster skills and education in Europe. By running a pilot in this way, we want to pave the way for financial instruments to be used in skills and education in the next European budgetary period.
Financing for micro enterprises in 2019
For many people, getting a job or starting a business is a path back to social inclusion, particularly if they have been out of work, in training, or suffered a setback. Micro enterprises (fewer than 10 employees and an annual turnover of no more than EUR 2m) make up nine out of ten non-financial European businesses. However, their diminutive size means that they sometimes struggle to access financing. By guaranteeing loans to micro enterprises, we are supporting entrepreneurs and vulnerable groups looking to start a business.
First microfinance deal in Bulgaria
We carried out our first commitment to microfinance in Bulgaria, by guaranteeing up to EUR 700,000 of a EUR 5.1m microcredit portfolio for the JOBS Microfinance Institution. The estimated 320 loans will have a particular emphasis on enterprises created by young entrepreneurs, women, artisans and small-scale farmers.
What has our impact been in microfinance?
The path to getting microfinance is easier for some than for others. That’s why we have supported nearly 15,000 female micro entrepreneurs since the beginning of the EaSI programme, 2,600 micro entrepreneurs with no formal education, almost 3,000 entrepreneurs aged under 25 and over 2,000 aged over 60, over 27,000 with a migrant background (EU or other) and 2,000 who have been unemployed for more than 12 months. Targeting a broad range of different groups through our activity makes the road a little smoother for everyone.
“Starting up your own business isn’t easy. There’s the anxiety that never ends, the fear of the unknown. It’s a big challenge and it’s humbling I guess. But at the end of the day, it’s all well worth it.”
Myey Moens – Theo & Brom
Philippine chocolate in Belgium.
Financing purpose: production capacity.
EIF financing: EaSI
Creative and cultural sectors in 2019
Culture and creativity shape the identity of society. Yet small businesses in this sector often lack tangible assets against which to secure a loan. They operate with specific cash-flow patterns and life cycles, with an output that can be early-stage or prototype in nature, making it difficult for banks to evaluate companies in the sector. By guaranteeing a portion of loans to SMEs in the cultural and creative sectors, the EIF can help to release more financing to small businesses in the creative and cultural sectors. Everyone benefits.
Growing our footprint
Since 2016, we have signed 14 agreements in ten countries, including three transaction increases signed with CERSA, IFCIC and Bpifrance. These guarantee agreements have allowed an increase in loans that have supported more than 1,200 cultural and creative sector businesses in Europe.
Moving into cross-border agreements
In order to make cultural and creative sector financing more widely available across more geographies we have signed a multi-country agreement – a guarantee to IFCIC, which supports cultural and creative sector SMEs outside France as well as within.
Covering all sub sectors
There are many subsectors in the cultural and creative sectors area. These include audio visual and multimedia, performing arts, books and press, visual arts, heritage, archives and museums, architecture and other domains. In 2019, we ensured all of these sub sectors were covered. We also know that young businesses struggle the most to get financing - so around 40% of the debt financing granted was to SMEs with an operational history of five years or less.
Capacity building in 2019
The specific nature and business model of social enterprises, micro enterprises, or SMEs in the cultural and creative sectors can be alien to the banks and funds financing them. The EIF has a role to play not just in providing guarantees and cornerstone investments, but to provide capacity-building services that help these intermediaries deepen their understanding of the sectors they serve, assess risk and support new areas. This can mean developing databases that help them access relevant industry data, holding workshops, or simply providing structuring input so that funds and banks optimise their operations.
The EIF takes two approaches to capacity building: investing directly in a financial intermediary, as with its activity under the EaSI Capacity-Building Investments Window; or through expert consulting services, as with the CCS Capacity-Building Window.
In 2019, the EIF carried out a number of capacity-building transactions under its new instruments, including in a crowd-investing platform. Few banks understand the specific nature and business model of SMEs in these sectors, hence the need to create more awareness and build capacity in this area.
Demand in social and microfinance
Through the EaSI Capacity-Building Investments Window, the EIF invests or lends to financial intermediaries to improve their capacity to better serve their clients in microfinance and social entrepreneurship. In 2019, we fully deployed our capacity-building budget in financial intermediaries that serve social and micro enterprises – ten deals signed in 2019.
…including in social Fintech…
The EIF made a EUR 1.2m subordinated loan to Litaco, France’s only crowd-investing platform to focus solely on the social economy and sustainable development in Europe. The capacity-building investment will support the scale-up and geographical expansion of the platform – allowing many more social enterprises to access finance through this Fintech.
“Our aim is to help our students bring out their best, and provide an environment in which they feel comfortable to make mistakes and learn from them… We are able to computerize texts and the students can ‘read with the ears’ as we say… With digitalisation, reading and writing can become a lot easier for dyslexic people.”
Kirsten Weile – Vrigsted Efterskole
Stouby, Denmark. Social enterprise: education for dyslexic students.
Financing purpose: construction of facilities.
EIF financing: EaSI
…and two joining forces with Social Impact Italia…
We also increased EIF-firepower by co-financing two Italian capacity-building investments with EIF shareholder and Italian NPI Cassa Depositi e Prestiti’s (CDP’s) Social Impact Italia mandate. A subordinated loan of up to EUR 4.05m to Per Micro will help finance the micro lender’s geographical expansion and IT system improvement, meanwhile, another subordinated loan of up to EUR 9.75m to ethical bank Banca Popolare Etica will allow the bank to improve its operations and strengthen its capital position.
…and one capacity-building loan in Serbia
We are providing a subordinated loan of up to EUR 4m to Serbian microfinance provider, Opportunity Bank Serbia. This investment will allow the bank to develop its digitalisation modules and real-time performance reporting. With these changes, Opportunity Bank will be able to provide a faster service and ultimately pass on cost savings to its clients - very small businesses in rural areas of Serbia.
Capacity building in the creative and cultural sectors
We also help to build capacity in the creative and cultural sectors through providing consultancy services and support to financial intermediaries active under the CCS GF. In 2019, the EIF provided capacity-building support to ten financial intermediaries through workshops, relevant market and risk assessment studies and guides, e-learnings and marketing support.
Reaching out to the market in 2019
In 2019, we communicated widely to banks, funds and SMEs about the CCS GF through promotional events, publishing an e-guide for SMEs, and carrying out market studies to target our financing even better. As part of the capacity building under the CCS GF, financial intermediaries can benefit from the risk assesment guide in the CCS, a guide to assessing loan applications from CCS SMEs, as well as CCS market fact sheets providing key information on the CCS country-by-country (Member States as well as Norway, Iceland and Liechtenstein).