Social impact, Skills & Human Capital
As we transition rapidly towards a greener, digital economy, we need to make sure that it remains an inclusive economy. We need to make money care more. Achieving that goal involves the channelling of public resources in the direction of real social impact on the ground.
In 2022, for the EIF that has meant developing human capital, investing in helping people upgrade their skillsets to adapt to a changing world. It has meant reaching out and offering improved access to finance for the smallest actors of the economy who are always the worst hit in times of crisis - even more so in periods of prolonged economic turbulence and multiple economic shocks. It has also meant stepping up our efforts to tackle inequalities, by focusing for instance on disadvantaged communities and areas and promote the role of women in the venture capital and private equity spaces.
At the same time, it has meant a continuation of our support for the cultural and creative industries that play such a crucial role in our identity, culture and values, making financing more readily available and on better terms.
Finally, it has meant a series of investments in the social impact sphere, supporting impact funds and social entrepreneurs and all those business leaders who aim to do good as much as they intend to do well.
Adapting skillsets in a changing world
Skills, education and training are drivers of growth, competitiveness and social convergence. Insufficient financial resources constitute a major barrier to accessing education and training and this can lead to unequal opportunities in education and access to the labour market. For young people, access to education in many EU countries relies too heavily on parental social background and financial standing. For SMEs, investment in the up-skilling or re-skilling of their employees is often constrained due to barriers preventing access to finance. Moreover, a massive investment is needed to better respond to the economy’s changing needs for skills. In particular, the shift towards a climate neutral Europe and the rapid digital transformation require new digital and green skills. Education providers and providers of services ancillary to education need financial support to adjust and keep up with the demand for skills transformation. In 2022, with the help of InvestEU, we have been active in trying to bridge these gaps, helping individuals adapt their skillset in a changing world.
In December, we committed €30m to Brighteye, a pan-European venture capital fund focused on education technologies. With a commitment in the fund, which has a target size of €100m, the EIF will contribute to enhancing access to capital for European entrepreneurs focused on the ed-tech sector through the support of an emerging manager developing a relevant pan-European investment strategy.
Another ed-tech initiative we supported in 2022 was Educapital II, which benefitted from a €25m investment. Educapital was founded in 2016 by two female partners with the aim of delivering resilient financial and social impact returns. It is Europe’s first education technology impact fund, focused on early-stage European companies with a particular focus on France and a target fund size of €150m. Its aim is to address the lack of quality educational outcomes and the digital skillset gap in the EU-27, especially among marginalised segments of the population.
In Spain, a guarantee agreement signed with MicroBank will facilitate access to finance for individuals wishing to improve their skills and organisations active in the education sector. Under this agreement, the EIF will guarantee a portfolio of up to €65m for job training and skill-building with the goal of improving employability.
In Germany, Jacobs University Bremen will provide €45m worth of loans to students over the next four years. The repayment of such loans is linked to their future income. Repayment only kicks in once students are in employment with a pre-determined percentage of their income over a pre-defined period and depends on their career progress and the evolution of their salary. With EIF support, students will benefit from a reduction of the income sharing percentage, a reduction in the total amount to be repaid and a reduced repayment period.
Supporting the smallest actors of the economy
Micro-enterprises and social enterprises promote quality, sustainable employment and social inclusion by supporting entrepreneurship and job creation, in particular, for persons in vulnerable situations. Yet both segments continue to face difficulties in accessing finance due to the perceived high risk. Enhancing access to finance for microenterprises and social enterprises is fundamental to fostering an inclusive European social ecosystem. With the help of the EU’s EaSI instrument and more recently InvestEU, we have been able to make important commitments to support microfinance providers across Europe. Typically, portfolio volumes are not as large as in other EIF business lines, as loans tend to be much smaller, but the impact in terms of benefit for the micro-entrepreneur is often quite significant.
In September, the EIF and BT Microfinantare IFN (BT Mic) signed a guarantee transaction. The EIF will provide guarantee cover for microfinance operations amounting to RON 500m (€100m). With a 47% market share within the Romanian microfinance sector, BT Mic expects to provide around 7500 loans on the back of this transaction. Micro-borrowers are not required to provide any security or collateral other than personal guarantees and will benefit from a significant interest rate reduction.
Further north, we’ve supported Swedish fintech Froda, allowing SEK 500m (€45m) to be channelled to Swedish micro-entrepreneurs. Froda is one of Sweden’s fastest-growing fintech companies, whose mission is to make loans and micro-loans easily accessible for micro- and small businesses on the best possible terms in a swift and unbureaucratic manner. Through the digitalisation of the entire application process, Froda has been able to help over 50,000 businesses to access funding. This agreement with Froda allows us to help finance Swedish entrepreneurs through innovative digital solutions, strengthening competitiveness, and boosting growth and jobs, supporting the smallest actors in the economy that struggle most in difficult times.
In the Czech Republic, we have teamed up with Česká spořitelna to enable local micro-businesses to unlock their potential. Our capped guarantee agreement will facilitate €20m in local currency for micro entrepreneurs who are unemployed or from vulnerable groups, giving them access to finance that they would not otherwise have. This transaction underlines the suitability of microfinance as a tool for economic growth and social inclusion.
The post-pandemic recovery period has proven to be a fertile ground for EU Fintechs, as funding in the segments of VC and PE growth financing boomed to a record volume of €11.47bn in 2021. Preliminary data suggest that 2022 funding volumes will match or exceed this number. – European Small Business Finance Outlook 2022
Tailored support for the Roma community
Another highlight of 2022 is the signature of the guarantee agreement with REDI Economic Development (REDI) that will make close to €4.7m available to enhance access to finance for entrepreneurs operating in marginalised Roma communities in Romania, Bulgaria, Serbia and North Macedonia. REDI’s main activity is offering risk-sharing debt products to banking and non-banking financial institutions, flanked by useful business development services. Through these products, these institutions will be in position to finance final recipients that are small businesses owned by Roma or active in Roma communities. This first transaction specifically aimed at this vulnerable social group shall provide financing for more than 300 small businesses and is projected to create at least 1000 jobs.
“It’s been a long time coming, so we are both very glad and very proud to have put together the first microfinance investment vehicle with a specific focus on the Roma community”
Cristina Dumitrescu
EIF
Wright Educational Solutions: green school education
Location
Macau, Cluj-Napoca
Financial Intermediary
BT Mic
SME
Wright Educational Solution
Number of employees
30
Financing purpose
green school project
EIF financing
Skills & Education Guarantee Pilot; EFSI
Promoting diversity
In 2022, a number of concrete steps were made in relation to the issue of diversity in the venture capital ecosystem. The EIF has developed a holistic strategy across four pillars:
Investments that favour diverse management teams. Through InvestEU, for the first time, there are defined criteria for gender diversity for financial intermediaries and the EIF aims to ensure that at least one in four equity investments will comply with gender criteria.
Advisory and capacity building work to boost support for female entrepreneurs and decision-makers. Most notably, in December we organised a very well-attended event entitled Empowering Equity, bringing together actors from across the VC spectrum to discuss female representation in this space and explore avenues for progress.
Strengthening research on this topic, with the objective of improving the availability of information for evidence-based policy interventions. In particular, this includes literature reviews and exploring gender-related questions in our regular venture capital and private equity surveys.
Fronting gender and diversity issues in our institutional relations, notably through ESG assessments with our intermediaries.
Leveraging on the InvestEU initiative, in the context the EIF-NPI Equity Platform, the EIF aims to join forces with NPIs to develop new equity investment partnerships promoting professional women in leadership and decision-making positions at financial intermediaries and portfolio companies. This initiative, entitled Gender-Smart Equity Investment Programme (GESIP), will focus on investments in equity, debt, climate and infrastructure funds (indirect investments, fund-of-funds model) to leverage EIF’s existing expertise and processes.
The EIF envisages developing GESIP as a pan-EU initiative, with specific partnerships developed under it with individual NPIs for their respective countries or regions. It will build on the existing InvestEU gender smart initiative and, more broadly, on the EIF’s holistic framework for gender smart investments in order to ensure a coherent approach towards the market, in line with the EIBG Gender Action Plan.
The initiative will constitute a strategic opportunity to develop into a key EU and EIBG policy area, to stimulate deal-flow generation for the benefit of InvestEU and other mandates, and to improve the delivery of our public policy goals.
Social impact - making money care more
The EIF provides strong support to intermediaries focusing their investment activities on achieving social impact. Entrepreneurs in this field seek to address mounting challenges to Europe’s social cohesion through business models that generate tangible and measurable societal benefits coupled with sound economics.
We continued to support the social sector, backing innovative financial solutions that can help address today’s societal challenges. In France we invested €11.3m in French pioneer of the European impact investing ecosystem, Citizen - Fonds de CIS, a venture capital fund focusing on Social Outcome Contracts (SOC) funding. SOC is an impact-focused financial instrument where investors finance upfront the working capital of a social sector organisation, which in turn deploys a particular social intervention benefiting from agreed payment of principal and premium by public sources provided pre-agreed social impact targets are met. Citizen will invest in impact companies and founders based in underprivileged urban area.
We also topped up our commitment (€20m portfolio volume) to Triodos Bank, an ethical bank that has been very active in the field of social entrepreneurship in multiple countries: the Netherlands, Belgium, France and Spain, all covered by the same guarantee agreement. Triodos mainly finances projects with a positive social and/or environmental impact and offers inhouse development tools to their clients for the assessment and optimisation of their impact, helping them to connect to industry peers, potential business partners and build a strong network.
In Denmark, we signed a guarantee agreement with long-term partner Merkur Andelskasse, a Danish cooperative Bank which promotes sustainable development and social responsibility by actively supporting SMEs and small mid-caps that create valuable solutions to societal problems. Merkur lends exclusively to projects/enterprises which core objective is to resolves society’s failings. This transaction will make available around €21m to support financially underserved sectors including education and culture, environment, agriculture, social housing and services for vulnerable groups but also regions and rural areas in Denmark where finance is not always accessible.
At the same time, in an effort to broaden the scope of our partnerships and reach out to new types of financial intermediaries, we organised a workshop for philanthropic organisations in October. The workshop was an awareness-raising opportunity, particularly about the opportunities offered under the InvestEU programme, presenting the products, the application and assessment processes and examples of previous collaborations with foundations. By involving philanthropic foundations in the delivery of our support, we are hoping to extend our support to new beneficiary groups, particularly in the areas of climate and environmental sustainability, skills and education, culture and creativity or social impact and inclusion.
Backing the cultural & creative sectors
The cultural and creative sectors play a fundamental role in the continued development of society and are at the heart of the creative economy. Knowledge-intensive and based on individual creativity and talent, they generate considerable economic wealth.
More importantly, they are critical to a shared sense of European identity, culture and values. But at the same time, they struggle with access to finance. The intangible nature of the assets in question doesn’t help when it comes to accessing banking finance, and neither does the very specific nature of many of the industries covered.
Addressing this market failure in the cultural and creative sectors has been the focus of a dedicated guarantee instrument during the previous budgetary period. With InvestEU, and on the back of the strong demand seen in the market, this facility will continue, while also adding an equity component.
Our first InvestEU signature in Croatia, a €50m wide-ranging guarantee agreement with Erste Bank Croatia, will support, among other priorities, companies active in the cultural and creative sectors.
At the same time, BPI France, CERSA (Spain) and UAB Orion Leasing (Lithuania) have all included a focus on the cultural and creative sectors in their respective multi-thematic guarantee agreements backed by InvestEU.
S&E Guarantee Pilot: Victoria Marmili
Location
Malaga, Spain
Financial Intermediary
Student Finance
Beneficiary
Victoria Marmili
Course
Frontend developing
Institution
UpgradeHub Madrid
EIF financing
Skills & Education Guarantee Pilot; EFSI
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