1







EIF CORPORATE OPERATIONAL PLAN 2011-2013










Important notices:

The Corporate Operational Plan 2011-2013 was discussed and approved by the Board of Directors
of the European Investment Fund at its meeting of 13 December 2010.

Attention is drawn to the fact that data provided on 2010 activity are estimates only which were made
prior to the 2010 year-end. This document also contains other forward-looking statements such as
projections of financial performance. Such statements and projections may, by their nature, prove to
be inaccurate.

Data or statements that are confidential and/or financially sensitive in nature have been removed from

this publication.


2

Table of Contents

Introduc
IntroducIntroduc
Introduction
tiontion
tion







3
33
3

1
11
1

Vision, Values and Strategy of EIF
Vision, Values and Strategy of EIFVision, Values and Strategy of EIF
Vision, Values and Strategy of EIF






4
44
4

2
22
2

2010 Activities
2010 Activities2010 Activities
2010 Activities





6
66
6

3
33
3

Business Environment

Business EnvironmentBusiness Environment
Business Environment





10
1010
10

4
44
4

Value Added of EIF Operations
Value Added of EIF OperationsValue Added of EIF Operations
Value Added of EIF Operations





12
1212
12

5
55
5


Business Planning and Operations: 2011
Business Planning and Operations: 2011Business Planning and Operations: 2011
Business Planning and Operations: 2011–
––
–2013
20132013
2013



14
1414
14

5.1

Business Development, Strategic Imperatives and Key Action Items 14

5.1.1

Equity Investments 14

5.1.2

Guarantees and Credit Enhancement 21

5.1.3

Microfinance 24


5.1.4

Regional Support and Advisory Business 26

5.1.5

Strategic Product and Mandate Development 28

5.2

Operational Excellence 29

5.2.1

IT development 29

5.2.2

Finance, Risk and Control 29

5.3

Employer of Choice 30




Annex
Annex Annex

Annex 1
11
1: Acronyms
: Acronyms: Acronyms
: Acronyms



3


Introduction
IntroductionIntroduction
Introduction



European Investment Fund
European Investment FundEuropean Investment Fund
European Investment Fund


The European Investment Fund (EIF) is the EIB Group’s specialist provider of risk finance to
small and medium-sized enterprises (SME) across Europe, delivering a full spectrum of
financing solutions for selected intermediaries. It promotes the implementation of Community
policies, notably in the fields of entrepreneurship, technology, innovation and regional
development. Its unique structure also requires the generation of an appropriate return for its
shareholders.

The

The The
The EIB
EIB EIB
EIB Group
Group Group
Group


The EIB Group consists of the European Investment Bank (EIB) and the European Investment
Fund (EIF). The range of products offered within the EIB Group extends from equity to senior
loans. The principal area of cooperation between EIB and EIF is support of SMEs. The Group
will continue to develop joint risk sharing solutions and to systematically develop joint client
relationships.

The Corporate Operational Plan
The Corporate Operational PlanThe Corporate Operational Plan
The Corporate Operational Plan


The Corporate Operational Plan (COP) covers the major priorities and activities of EIF
including risk management, budget, and staff matters. A separate COP is prepared by the
EIB to further detail information relevant to its operations.







Executive Summary

Executive SummaryExecutive Summary
Executive Summary





The COP 2011-2013 presents a comprehensive plan to maximise the impact of EIF for the
benefit of the SME market in Europe. This will be achieved through an increase of venture
and growth capital investment of 40% to EUR 1.3bn in 2011, leveraging over EUR 3.5bn of
equity funding. A sharp increase of guarantee volumes is also planned from EUR 611m to
EUR 1.3bn (+100%) with a leveraged impact of EUR 7.8bn. The microfinance activity will
accelerate to a level of EUR 100m as a result of the Progress fund, again leveraging
EUR 230m for this vital sector.
EIF will sustain its operating profit in 2011 at EUR 59m despite flat treasury and guarantee
income. Costs will rise by 9% reflecting a slow down in recruitment but increased investment
in IT. The resultant cost to income ratio of 46% is in line with last year's COP figure for 2011.
Weak economies in most of Europe will mean continued challenges for SMEs and a high
level of insolvencies. This factor is reflected in the planned exceptional provisions and
impairments of EUR 28m in 2011, down from the full year charge for 2010 of EUR 58.1m.
Nevertheless, the capital adequacy ratio of EIF will remain strong at 25-30% (under the
currently approved methodology) and management is confident to be able to maintain the
AAA rating going forward.

4

1
11
1 Vision
VisionVision

Vision,
,,
,

Values a
Values aValues a
Values and Strategy
nd Strategynd Strategy
nd Strategy of
of of
of EIF
EIF EIF
EIF



Vision
VisionVision
Vision


“Europe’s leading developer of risk financing for entrepreneurship and innovation”



Values
ValuesValues
Values



Excellence * Teamwork * Integrity * Responsibility * Accountability * Customer-driven



Medium
MediumMedium
Medium-

-term objectives
term objectivesterm objectives
term objectives


 “Maximise
“Maximise “Maximise
“Maximise impact on the smar
impact on the smarimpact on the smar
impact on the smart, sustainable and inclusive growth of medium,
t, sustainable and inclusive growth of medium, t, sustainable and inclusive growth of medium,
t, sustainable and inclusive growth of medium,
small and microenterprise
small and microenterprisesmall and microenterprise
small and microenterprises
ss
s in the EU
in the EU in the EU
in the EU A
AA
Accessi
ccessiccessi

ccessio
oo
on and EFTA
n and EFTA n and EFTA
n and EFTA C
CC
Countries
ountriesountries
ountries”
””
”


o Segment the market in line with the EU 2020 strategy;
o Work intensively with the European Commission (EC) on the most effective
instruments;
o Maximise EIF’s value added and catalytic effect;
o Expand the Fund-of-Funds activity through development of relations with a
broader range of EU and Accession Member States in order to assist them in
developing their risk capital markets;
o Mobilize EUR 1.1bn under the JEREMIE Holding Funds;
o Work with the EC to adapt the Structural Funds regulation to align it better
with the constraints of market based financial instruments, ensuring that
convergence funds can be efficiently deployed.
 “
““
“Cornerstone European Grow
Cornerstone European GrowCornerstone European Grow
Cornerstone European Growth and Venture Capital and catalyse a
th and Venture Capital and catalyse a th and Venture Capital and catalyse a

th and Venture Capital and catalyse a
maximum level of new SME lending
maximum level of new SME lendingmaximum level of new SME lending
maximum level of new SME lending”
””
”


o Deliver on the renewed EIF Equity and Guarantee strategies to better respond
to market needs;
o Become the leading investor in Europe in Microfinance over the next three
years.


“Leverag
LeveragLeverag
Leverage own capital and mandator’s risk capacity to catalyse
e own capital and mandator’s risk capacity to catalyse e own capital and mandator’s risk capacity to catalyse
e own capital and mandator’s risk capacity to catalyse EUR
EUREUR
EUR

1
11
10
00
0bn
bnbn
bn to
to to

to
13bn
13bn13bn
13bn Equity, Mezzanine and Debt
Equity, Mezzanine and Debt Equity, Mezzanine and Debt
Equity, Mezzanine and Debt annually
annuallyannually
annually”
””
”


o Optimise the usage of available resources in the circumstances of limited
capital and budgetary resources at EU and national levels;
o Leverage EUR 10bn by 2011 with a new target of EUR 13bn for the following
two years (2012-2013);
o Ensure a high catalytic role on all segments of the market (Guarantees and
Securitisation, Venture and Growth Capital, Mezzanine) with an increasing
role of EIF as cornerstone investor (increased stakes and added value at
earlier stage of the transaction).
 “
““
“Generate
Generate Generate
Generate EUR
EUREUR
EUR

7
77

70
00
0-

-80m
80m80m
80m operating profit at 40
operating profit at 40 operating profit at 40
operating profit at 40
–
45
4545
45% cost to income and
% cost to income and % cost to income and
% cost to income and at a
at a at a
at a
long run ROE
long run ROElong run ROE
long run ROE

of
ofof
of

5
55
5 to 6
to 6 to 6
to 6%”

%”%”
%”


o Increase efficiency and staff productivity through investments in IT;

5

o Decentralize budget ownership to give more responsibility to teams;
o Implement cost saving measures and specific recommendations in a number
of cost lines (travel expenses, consultancy, etc).
 “Establish value creating Risk Management
“Establish value creating Risk Management“Establish value creating Risk Management
“Establish value creating Risk Management

–
––
–

AAA rating”
AAA rating”AAA rating”
AAA rating”


o Manage actively the relationship with all three rating agencies to maintain
AAA rating;
o Optimise own capital and better assess the balance sheet impact of new
volumes of activities;
o Enhance continuously stress testing processes and proactive monitoring;
o Build further excellence in fund management and administration in order to

mitigate operational risk.
 “
““
“Build i
Build iBuild i
Build integrated,
ntegrated, ntegrated,
ntegrated, stable,
stable, stable,
stable, scaleable systems and processes”
scaleable systems and processes”scaleable systems and processes”
scaleable systems and processes”


o Develop the Long-Term Information Strategy; main initiatives include:
 Enhance the different systems and, more specifically, the guarantee platform.
Development of a tool specific to the microfinance activity;
 Leverage the existing infrastructure at EIB Group level, in particular for
Group-wide solutions like PeopleSoft, Data-Warehouse and the
Collaboration tools.


“
““
“Promote and enhance an e
Promote and enhance an ePromote and enhance an e
Promote and enhance an excellent internal and external reputation”
xcellent internal and external reputation”xcellent internal and external reputation”
xcellent internal and external reputation”



o Enhance internal and external communication (intranet fully operational
complemented by quarterly all staff meetings; new head of communication
recruited);
o Manage proactively the relationships with mandators and stakeholders,
adhere to EU policy objectives and EIB Group goals;
o Develop initiatives towards the goal of being employer of choice.

6

2
22
2 2010 Activities
2010 Activities2010 Activities
2010 Activities


A summary of the achievements of the year 2010 are presented below. The financial and
business projections are compared to those contained in the COP 2010-2012, as approved
by the Board of Directors in December 2009.

 Financials
FinancialsFinancials
Financials



EUR m
EUR mEUR m
EUR m

2009
20092009
2009
COP
COPCOP
COP
Actual
ActualActual
Actual
∆ COP
∆ COP ∆ COP
∆ COP
G&S & Micro
G&S & MicroG&S & Micro
G&S & Micro
Risk fees
38.6


25.2


28.9


3.7


Mgmt fees
(0.8)



2.2


3.7


1.5


Equity
EquityEquity
Equity
Equity gains
0.9


2.8


10.9


8.1


Mgmt fees
19.6



22.7


21.9


(0.8)


Regional & Advisory
8.1


11.7


11.6


(0.1)


Treasury
28.5


32.1



33.3


1.1


Other income
0.3


-


0.6


0.6


Total income
Total incomeTotal income
Total income
95.1
95.195.1
95.1







96.8
96.896.8
96.8






110.8
110.8110.8
110.8






14.0
14.014.0
14.0






Total expenses
Total expensesTotal expenses

Total expenses
37.0
37.037.0
37.0






44.4
44.444.4
44.4






45.4
45.445.4
45.4






1.1
1.11.1

1.1






Operating income
Operating incomeOperating income
Operating income
58.1
58.158.1
58.1






52.4
52.452.4
52.4






65.4
65.465.4

65.4






13.0
13.013.0
13.0






Exceptional items
65.4


46.7


58.1


Net income
Net incomeNet income
Net income
(7.3)

(7.3)(7.3)
(7.3)






5.7
5.75.7
5.7






7.2
7.27.2
7.2






1.5
1.51.5
1.5







Cost / Income
Cost / IncomeCost / Income
Cost / Income
38.9%
38.9%38.9%
38.9%
45.9%
45.9%45.9%
45.9%
41.0%
41.0%41.0%
41.0%
Cost / Income from Ops *
Cost / Income from Ops *Cost / Income from Ops *
Cost / Income from Ops *
55.7%
55.7%55.7%
55.7%
68.7%
68.7%68.7%
68.7%
58.6%
58.6%58.6%
58.6%
* Total Income - Treasury

2010
20102010
2010

Total 2010 income exceeded the COP target of EUR 96.8m.

The risk fees on the own risk guarantees business surpassed the COP forecast of
EUR 25.2m, partly as a result of the extension of the maturity dates of a few transactions.
However, the portfolio requires a rapid replenishment in order to make this revenue stream
sustainable for the years to come.

Following a phase in 2009 in which the revenues from equity exits were hit by the limited
activity of the IPO and M&A markets, the performance in 2010 has been very positive with
global revenue repayments reaching EUR 10.9m.

The management fees for both the equity and guarantees business are in line with the COP
targets of EUR 22.7m and EUR 2.2m respectively.

The EUR 32.1m target on the treasury income was built on a scenario which anticipated
higher yields in the second part of the year, which did not fully materialize. Yet, a more active
management of the portfolio with the optimisation of the liquidity policy and the exploitation
of a few market opportunities helped to close the gap.


7

JEREMIE grew to become a well diversified and predictable income line, with a more
balanced structure between fee and cost recovery agreements.

Global expenses were slightly higher than the COP forecast of EUR 44.4m, mainly

represented by staff and staff-related costs, consultancy and IT projects.
As a result of higher than expected revenues, and global expenses in line with the plan, the
operating income target of EUR 52.4m was exceeded, with a cost-to-income ratio of 41%
(compared to the 46% planned).

Further material downgrades have been booked in the last quarter, leading to provisioning
for guarantees of about EUR 54m for 2010. Equity impairments amounted to EUR 4.5m at
year end.

 Client /
Client / Client /
Client / Business
BusinessBusiness
Business Volumes
Volumes Volumes
Volumes



EUR m
EUR mEUR m
EUR m
2009
20092009
2009
COP
COPCOP
COP
Actual
ActualActual

Actual
MFG
160


205


224


Own resources
40


34


47


RCM
365


307


356



CIP
42


80


72


Other mandates
123


124


150


Subtotal
SubtotalSubtotal
Subtotal
730
730730
730







750
750750
750






848
848848
848






JEREMIE
-


121


82



Total
TotalTotal
Total
730
730730
730






871
871871
871






930
930930
930




Own resources

-


400
400400
400






260
260260
260






CIP (budget)
116


100
100100
100







97
9797
97






Subtotal
SubtotalSubtotal
Subtotal
116
116116
116






500
500500
500







357
357357
357






JEREMIE (FRSP/FLPG)
75


444
444444
444






229
229229
229







Total
TotalTotal
Total
191
191191
191






944
944944
944






586
586586
586







Joint Group Operations
-


75
7575
75






26
2626
26






Progress FMA
-



-

-






1
11
1






Progress FCP
-


-

-







-

-






EPPA
-


-

-






2
22
2







RCM micro
2


12
1212
12






5
55
5






GAGF micro
-


-


-






-

-






Subtotal
SubtotalSubtotal
Subtotal
2
22
2






12

1212
12






8
88
8






JEREMIE micro
-


33
3333
33







-

-






Total
TotalTotal
Total
2
22
2






45
4545
45







8
88
8






EQUITYGUARANTEESMICROFINANCE
2010
20102010
2010


In terms of volumes of signatures, 2010 has been a busy year. The COP equity target of EUR
871m was met and exceeded. This represented a significant increase over 2009 and
confirmed the crucial role of EIF as countercyclical investor in a market that is still
characterised by difficult fundraising conditions. In 2010, as in 2009, across the equity
business lines, EIF has maintained a high level of support by backing teams in the early
process of their fundraising.


8

For the Guarantees and Securitisation business, 2010 has been another challenging year:
the team delivered on both the CIP/SMEG products and the own risk securitisation business,
the latter with final signatures of EUR 260m. Only one transaction (by Lloyds bank) had
come to the market by August, with the public placement of the most senior notes (EIF
guaranteed EUR 60m). In September, EIF issued a new guarantee for EUR 200m for the

super senior class of notes backed by SME loans originated by Unicredit AG (Germany), a
transaction that would not have taken place without EIF.

EIF continued working on the development of risk sharing products and joint EIB Group
schemes to extend the product range available to intermediaries in order to stimulate SME
financing. At the same time new facilities like the Greater Anatolia Guarantee Facility
(GAGF) and the Progress Microfinance Facility (PMF) were signed and started to be
deployed.

The signature of the PMF marked an important milestone for EIF, adding a third business
pillar targeting micro businesses to the range of risk financing products. A new fully
dedicated team is already in place and operational.

Finally, JEREMIE resources have been deployed according to plan, but with some delays due
to slippages to early 2011 or to the longer than expected phase of product development in
order to meet the regional market needs. Additionally, EIF has deployed a substantial effort
to promote best market practices and support candidate and potential candidate countries to
reach a satisfactory level in SME access to finance (inter alia, EIF carried out gap analyses for
SMEs financing in Croatia and Western Balkans). Finally, through its local presence,
innovative products and investment structures have been put in place, such as GAGF in
Turkey and the First Loss Portfolio Guarantee (FLPG) product in various JEREMIE countries.

In relation to the CIP mandate and specifically to the GIF window, EIF closed the year a bit
short of the planned signature target. Yet, the full budget is foreseen to be utilised by
February 2011
1
.


 Mandate and Product D

Mandate and Product DMandate and Product D
Mandate and Product Development
evelopmentevelopment
evelopment


EIF’s activity during 2010 in terms of strategic mandate and product development has been
marked by the structuring and implementation of the Progress Microfinance Facility, a
complex and innovative mandate that was completed within seven months from approval of
the European Commission legal base that established the programme. In this exercise, EIF
successfully leveraged its competences in market research, new product development and
mandate structuring. The novel implementation framework in the form of a Luxembourg FCP
(Fonds Commun de Placement) can become an effective template for replication in future
multi-party initiatives.

The development of new activities at EIF has received a structured internal framework with
the set up of formal mandate and product development procedures and the establishment of
a dedicated Steering Committee.
Product development has focused on enhancing the design of guarantee and equity products
in support of the deployment of the JEREMIE holding funds and of the establishment of new
mandates.


1
The table shows the position as of December 2010.

9

EIF has also been intensively involved in the joint discussions with the European Commission
and the EIB in relation to the preparation of the EU2020 strategy. In this context, EIF has

prepared a 10-year equity strategy and the review of the RCM mandate.

 Risk M
Risk MRisk M
Risk Management
anagementanagement
anagement & Control
& Control & Control
& Control


Risk management remains a priority for EIF and close monitoring of the portfolio as well as
stress testing to better forecast unexpected losses are regularly carried out. The Board is
updated on a quarterly basis on the evolution of the exceptional items (equity impairments
and guarantee provisions) and a recently enhanced capital allocation model helps to
optimize the allocation of resources and the headroom available for investment.

As far as audits are concerned, 56 audit points (AAPs) have been closed as of December,
and 10 are outstanding (with no high risk AAP). The global closure rate performance stands
at 91%, significantly higher than the 60% long term target.

 Information and Project Man
Information and Project ManInformation and Project Man
Information and Project Mana
aa
agement
gementgement
gement



During 2010 EIF brought forward several projects, in particular: the Long-Term Information
Strategy (LTIS), Data Lifecycle Management (DLM) Prototype, EIF Timesheet, New Products IT
arrangements. The most important initiatives are related to: (i) technical development
/maintenance of key applications (PeopleSoft, eFront, Guarantees); (ii) business process
structuring and improvement; (iii) support to operational activities.
Twenty-eight projects have been completed in 2010 and ten will continue during 2011.

 Employer of C
Employer of CEmployer of C
Employer of Choice
hoicehoice
hoice


2010 hiring activity was slightly lower compared to the previous year (30 budgeted posts
versus 40 in 2009). This has allowed for a focus on efficiency by limiting the duration of the
recruitments (80% completed in the range of the 16 weeks target), tightly monitoring the
hiring budget and ensuring high quality of the profiles joining EIF in areas including
communication, operations and controls, and securitisation.

The three induction sessions held throughout the year enabled new staff to learn about all of
EIF’s activities and quickly assimilate to the organisation.

Internal mobility both from and to EIB as well as internally at EIF has been a constant matter
of attention and provides opportunities to EIF’s growing talents. This has resulted in an
increased number of internal career moves.

Talent development has continued through an extensive technical skills training programme
as well as a continued focus on managerial and leadership development. All staff have been
involved in an Individual Development Plan (IDP) at the half year, which gave a base for

detailed follow up and for a more systematic career and succession planning process at the
year end.

EIF Management Committee undertook a 360 degree feedback programme and shared the
findings and the improvement plan with their direct reports.

10

3
33
3 Business Enviro
Business EnviroBusiness Enviro
Business Environment
nmentnment
nment



 General economic outlook
General economic outlookGeneral economic outlook
General economic outlook


The global recovery remains multi-speed, slower for advanced economies and faster for
emerging ones. However, following a few months of strong activity in a number of countries,
the latest data suggest an overall slowing down of the global recovery, driven mainly by:
 The fading effect of inventory restocking;
 The progressive withdrawal of the unprecedented stimulus packages – it is not clear if
private sector’s consumption will compensate for reduced public spending;
 Questions about the commitment of some countries to fiscal consolidation, which is

impacting consumer confidence.

The outlook remains particularly uncertain, as testified by the diverging views of economists
in the austerity vs. stimulus debate. A double-dip recession remains a distinct possibility,
although most economists believe a sluggish recovery in the medium term to be a more likely
outcome.

 Situation of SMEs
Situation of SMEsSituation of SMEs
Situation of SMEs


The global financial crisis heavily impacted the European economy and particularly SMEs in
their ability to access finance. SMEs have less recourse to market-based financing than larger
firms, and as such are more reliant on bank loans. However, banks appear to remain risk
averse when it comes to SMEs: there has not been any significant improvement in banks’
willingness to provide loans, and SMEs have seen no noticeable change in the terms of their
loans, unlike larger firms, which have experienced a decline in interest rates. These difficult
financing circumstances mean that the market environment remains problematic for SMEs,
and bankruptcies are likely to continue to be significant: the Euler Hermes Insolvency Index
for the Eurozone is forecast to increase by 6% in 2010.

 With regard to EIF’s business lines
With regard to EIF’s business linesWith regard to EIF’s business lines
With regard to EIF’s business lines


 Private Equity Market
Private Equity MarketPrivate Equity Market
Private Equity Market: European private equity investment activity appears to be picking

up from the doldrums of 2009, although it remains a long way off its peak in 2006/7.
The improvement is mostly driven by buyout activity, in turn driven by mid-market
deals, a sector that had been particularly hit by the drying up of leverage in the
immediate aftermath of the financial crisis. Fundraising remains difficult, and has not
really shown any significant improvement since it collapsed at the end of 2008. Private
equity funds continue to struggle to reach their target size.
 Venture Capital
Venture CapitalVenture Capital
Venture Capital

(VC) Market
(VC) Market(VC) Market
(VC) Market: European venture capital markets have been hit hard by
the financial crisis. The fundraising environment for VC funds, which already pre-crisis
was challenging, has now become extremely difficult. With many traditional Limited
Partners (LPs) having backed out of the VC market and only few positive signs of
recovery, much of the early stage fundraising activity is driven and structured around
public or semi-public LPs. Quarterly VC fundraising figures increased in Q1 2010 (by
about one-fifth, to EUR 1.1bn) but fell back again in Q2 2010 (by more than 60%, to
EUR 376m), nearly reaching the Q3 2009 level, the lowest quarterly VC fundraising in
2009. The availability of equity for early stage SMEs which typically do not have access
to loan financing, has been reduced significantly and investments in the early stage
segment have fallen to very low levels. At the same time this creates extremely

11

interesting opportunities for VC investors having the means to invest, as valuations are
historically low and the quality of deals available tends to be very good in times of
recession.
 Structured Finance/Securitisation

Structured Finance/SecuritisationStructured Finance/Securitisation
Structured Finance/Securitisation: In Europe, there was a large volume of structured
finance issuance in 2009 (approx. EUR 426bn, for comparison – 2008: EUR 740bn,
2005: EUR 407bn), but more than 90% was retained by the originators for ECB
repurchase purposes. The investor-based market remains fragmented and limited to
best-in-class and simple structures. The ECB’s changes of the eligibility requirements
for Asset Backed Securities signals the beginning of a more stringent regime with
regard to central bank dependent financing. In July 2010, Lloyds TSB re-opened the
SME securitisation market with the first term transaction after the crisis which was
actually placed with private sector investors. The securitisation comprised a portfolio of
UK SME loans and the purpose of the transaction was to provide additional funding for
Lloyds TSB. EIF supported this market-opening deal with a guarantee over EUR 60m
for a mezzanine tranche. In general, it is currently too early to identify a sustainable re-
opening, even though the projected volumes in this COP for the next 3 years indicate
that EIF has confidence in this direction.
 Microfinance
MicrofinanceMicrofinance
Microfinance: Microfinance institutions have been affected by the adverse macro-
economic conditions, generally through significantly higher bad debt rates among their
clients and in some cases through increased difficulties in accessing external sources of
funding. The target group for microfinance, namely the financially excluded but
economically active, is faced with a tightening credit supply by mainstream banks due
to higher risk-averseness and deleveraging balance sheets. This creates an opportunity
for microfinance, but also underlines the paramount importance of credit risk
management. Microfinance, particularly in Western Europe, continues to be driven by
socially motivated investors and entities. This has a significant impact on the pricing of
financing instruments to such types of entities, sometimes undermining the
development of viable microfinance models in terms of self-sustainability.




12

4
44
4 Value
Value Value
Value Added of EIF O
Added of EIF OAdded of EIF O
Added of EIF Operations
perationsperations
perations



After the formalisation and the approval of the Value Added Methodology
2
, EIF has applied
the VA assessment to all its equity and own resource guarantee operations presented to the
Board. The results have demonstrated EIF’s generally strong value added at market level and
in terms of catalytic effect.

Two further methodologies have been developed during 2010 to complement the mainly
qualitative approach of the ex ante value added assessment with a quantitative evaluation,
which creates an integrated framework for tangible demonstration of the catalytic effect and
market impact of EIF’s activities.

 A “leverage” methodology
3
proposes a consistent approach across all EIF’s debt and

equity products in the estimation of how much third party investors’ money is
mobilized and attracted at the intermediary level by EIF’s investments through its
signalling and catalytic effect. The leverage multiplier is derived by taking into
account the nature, the investment rationale, the investment size, and the risk profile
of the transaction. The results from the ex ante Value Added assessment serve as a
corrective factor to the calculated leverage in EIF’s equity operations;
 The ex post value added measurement
4
takes the form of an impact assessment at
final beneficiary level, measured by the total amount of equity financing raised for
final beneficiaries (in equity operations) and cumulative loan volumes originated at
SME level (in guarantees). First results are expected to become available in the
context of the annual update on the Value Added Methodology at the end of 2011.
The actual impact results will validate or correct the parameters used in the Value
Added and Leverage Methodologies.

The table below reports the estimated leverage multipliers for the main EIF products for the
period of 2011-13 and the rationale behind them. In section 5, the volume forecasts for the
period are reported also in expected “leveraged terms” using a stage by stage approach for
the private equity business line and a product by product approach for the guarantees
activity.


2
Board of Directors of 1 February 2010, Ref. BD/148/10, doc. 10/086. A final version of the
document will be agreed before the end of January 2011, following a review with the EC.
3
Board of Directors of 15 November 2010 and 31 January 2011, doc. 10/202 and doc. 11/240
4
Board of Directors of 15 November 2010, Ref. BD/164/10, doc. 10/201.


13

Instrument
InstrumentInstrument
Instrument
Avg multiplier
Avg multiplier Avg multiplier
Avg multiplier
2011-2013
2011-2013 2011-2013
2011-2013
Technology transfer
Technology transferTechnology transfer
Technology transfer 2-3
2-32-3
2-3
VC/Early stage
VC/Early stageVC/Early stage
VC/Early stage 3-5
3-53-5
3-5
Lower-Mid Market
Lower-Mid MarketLower-Mid Market
Lower-Mid Market 3-5
3-53-5
3-5
Mezzanine
MezzanineMezzanine
Mezzanine 3-5

3-53-5
3-5
Guarantees CIP/SMEG
Guarantees CIP/SMEGGuarantees CIP/SMEG
Guarantees CIP/SMEG 14.5
14.514.5
14.5
Guarantees Own Risk
Guarantees Own Risk Guarantees Own Risk
Guarantees Own Risk
6.6
6.66.6
6.6
Guarantees FLPG
Guarantees FLPGGuarantees FLPG
Guarantees FLPG 4
44
4
Funded Risk Sharing Products
Funded Risk Sharing ProductsFunded Risk Sharing Products
Funded Risk Sharing Products 2
22
2
Guarantees Microcredit
Guarantees MicrocreditGuarantees Microcredit
Guarantees Microcredit 7
77
7
Progress FCP
Progress FCPProgress FCP

Progress FCP 2
22
2
* Interest held refers to EIF's ticket in the fund
** For the equity/mezzanine investments A, B, C scoring is related to the Catalytic Effect section of the Value added scoresheet
50% loss protection and 50% upfront funding
Similar product to SMEG but higher cap rate
Weighted avg leverage on the mix of products offered
(equity, loans, risk sharing loans, subordinated loans)
Comments / Assumptions
Comments / Assumptions Comments / Assumptions
Comments / Assumptions
Debt
Debt Debt
Debt
products
productsproducts
products
Equity /
Equity / Equity /
Equity /
Mezzanine
Mezzanine Mezzanine
Mezzanine
products
productsproducts
products
40% interest held*, 100% A scoring**
2011-12: 35% interest, 100% A scoring; 2013: 33%
interest, 90% A and 10% B

2011: 25% interest, 40% A, 30% B, 30% C; 2012-2013:
25% interest, 30% A, 40% B, 30% C
2011-2012: 33% interest, 100% A; 2013: 33% interest,
80% A, 20% B
Based on the leverage of the 2010 transactions. Funding
and/or risk transfer rationale.
Based on the historical average multiplier on similar
transactions
Similar product to SMEG but higher cap rate


14


5
55
5 Business
BusinessBusiness
Business Planning and O
Planning and O Planning and O
Planning and Operation
perationperation
perations
ss
s: 2011
: 2011: 2011
: 2011–
––
–2013
20132013

2013



5.1
5.15.1
5.1 Business Development,
Business Development, Business Development,
Business Development, Strategic Imperatives and Key Action Items
Strategic Imperatives and Key Action ItemsStrategic Imperatives and Key Action Items
Strategic Imperatives and Key Action Items



The existing EIF products provide support to a broad spectrum of market segments. Forecasts
for commitments over the period 2011–2013, as described below, are driven by the
availability of resources as well as the expected market environment.
5.1.1
5.1.15.1.1
5.1.1 Equity Investments
Equity InvestmentsEquity Investments
Equity Investments



EIF’s equity teams aim to be at the forefront of building self-sustaining venture capital and
private equity markets, as Europe’s reference investor in SME and mid-cap oriented
intermediaries.

 Global

Global Global
Global equity t
equity tequity t
equity targets
argets argets
argets

EUR m
EUR mEUR m
EUR m
2011
20112011
2011
2012
20122012
2012
2013
20132013
2013
COP
COP COP
COP Actual
ActualActual
Actual
MFG
205 224 210 250 290
Own resources 34 47 43 53 57
RCM
307 356 407 519 572
CIP

80 72 102 101 117
IVCi
35 - 40 45 45
PVCi
20 30 30 30 30
Neotec
29 21 33 - -
UKFTF
- 32 86 36 18
Other mandate (ERP, LFA)
40 67 51 46 49
GAP VC
- 16 - -
New FoFs/Investment pool
- - 92 148 146
Subtotal
SubtotalSubtotal
Subtotal 750
750750
750



848
848848
848



1,110

1,1101,110
1,110



1,228
1,2281,228
1,228



1,324
1,3241,324
1,324




JEREMIE
121 82 200 80 -
Total
TotalTotal
Total 871
871871
871



930
930930

930



1,310
1,3101,310
1,310



1,308
1,3081,308
1,308



1,324
1,3241,324
1,324




Expected leveraged volume
Expected leveraged volumeExpected leveraged volume
Expected leveraged volume 4,500
4,5004,500
4,500




3,610
3,6103,610
3,610



3,770
3,7703,770
3,770



3,990
3,9903,990
3,990




Venture Capital 44% 47% 54% 55% 51%
Lower-Mid-Market 33% 34% 30% 26% 28%
Mezzanine 24% 24% 16% 19% 22%
2010
20102010
2010


The new EIF strategy in the private equity area was presented to the EIF September Board
5

.
The volume of activity presented in this document supports the early stages of the
implementation of this new strategy focussing on the following objectives:

I
II
I. Develop markets and products
. Develop markets and products. Develop markets and products
. Develop markets and products

by
by by
by help
helphelp
helping
inging
ing the establishment of a well functioning, liquid
the establishment of a well functioning, liquid the establishment of a well functioning, liquid
the establishment of a well functioning, liquid
e
ee
equity
quityquity
quity market that attracts a wide range of private sector investors:
market that attracts a wide range of private sector investors: market that attracts a wide range of private sector investors:
market that attracts a wide range of private sector investors:


 Develop and adapt existing instruments to meet market needs;



5
Board of Directors of September 2010, Ref. BD/159/10, doc. 10/175.

15

 Leverage and extend EIF’s sector expertise with sector-focussed Fund-of-Funds
involving industry partners (e.g. cleantech, life science or ICT);
 Support and catalyse business angel investments and investments of other non-VC type
investors;

Equally important is the sustainability of investments in established growth SMEs and EIF will
build on its lower mid-market and mezzanine investment activity by:
 Adaptation and development of existing instruments to meet market needs;
 Support of mid-market teams with solid investment strategies, also in emerging
markets.

The second objective relates to activities beyond 2013 and is thus not reflected in the volume
forecasts of this document. To recall, this is:

II
IIII
II.

.

Broaden sources of capital and mandates to increase geographic impact
Broaden sources of capital and mandates to increase geographic impactBroaden sources of capital and mandates to increase geographic impact
Broaden sources of capital and mandates to increase geographic impact



 Expand the Fund-of-Funds activity through development of relations with a broader
range of EU and Accession Member States in order to assist them in developing their
risk capital markets;
 Work with the EC (DG Regional Policy) to adapt the Structural Funds regulation to
align it better to the constraints of market-based financial instruments in order to
ensure that these convergence funds can be efficiently deployed.

However, the last two objectives are also reflected in the resource planning for this COP:

II
IIII
III
II
I.
. .
. Maximise the leverage of EIB and EIF capital and investment capacity
Maximise the leverage of EIB and EIF capital and investment capacityMaximise the leverage of EIB and EIF capital and investment capacity
Maximise the leverage of EIB and EIF capital and investment capacity


In the circumstances of limited capital and budgetary resources at EU and national levels, it
is even more important to optimise the use of these resources.

IV
IVIV
IV.
. .
. Disseminate EIF knowl
Disseminate EIF knowlDisseminate EIF knowl

Disseminate EIF knowledge, experience and performance and build co
edge, experience and performance and build coedge, experience and performance and build co
edge, experience and performance and build co-

-investor
investorinvestor
investor relations
relations relations
relations


Develop the resources of EIF to provide advice and technical assistance, industry information
and co-investor liaison.

The implementation of the equity strategy will require an additional EUR 1bn of RCM
resources. During the period 2011-13 an exceptionally high level of commitments is
foreseen in order to sustain the development of new products and segments and to play a
countercyclical role in a still challenging fundraising market. The new commitments can only
be partially funded by the reflows on the current portfolio.
The increased capacity will fulfil the expected long-term requirement for EIF private equity
activity, as from 2014 the level of commitment is expected to decrease and the volume of
reflows to be sufficient to guarantee the self sustainability of the RCM facility. A detailed
request was submitted to the EIB Board and subsequently approved.











16

 Venture
Venture Venture
Venture Capital (Seed to Expansion)
Capital (Seed to Expansion)Capital (Seed to Expansion)
Capital (Seed to Expansion)



EUR m
EUR mEUR m
EUR m
2011
20112011
2011
2012
20122012
2012
2013
20132013
2013
COP
COP COP
COP Actual
ActualActual
Actual

VC - RCM/EIF/CIP resources
160 151 212 293 306
Other mandates - current (ERP/FoF)
80 114 170 82 67
Other mandates - new
- - 92 148 146
JEREMIE & GAP VC
121 67 148 80 -
Total
TotalTotal
Total 361
361361
361



332
332332
332



622
622622
622



603
603603

603



519
519519
519




Expected leveraged volume
Expected leveraged volumeExpected leveraged volume
Expected leveraged volume 1,100
1,1001,100
1,100



1,570
1,5701,570
1,570



1,610
1,6101,610
1,610




1,560
1,5601,560
1,560




2010
20102010
2010

The development of EIF’s Venture Capital activity is built around four different axes of
priority:
 Continuous adaptation and development of the existing instruments to market gaps
and opportunities. Like in 2010, the investment strategy will continue to be fewer funds
but with increased stakes taken by EIF, especially in first closings, to act as a catalyst to
help the funds reach viable sizes and attract additional investors. This segment of the
portfolio (from RCM, own resources, CIP and ERP/LfA/UKFTF) will represent some
EUR 300m p.a. from 2011 to 2013. This will be complemented by the support to the
new equity strategy which will partially compensate for the run-off of the JEREMIE
mandate which should be fully deployed by 2012 to leave enough time for the
investments to reach final beneficiaries;
 Pan-European sector-focussed Funds-of-Funds in specific sectors such as Cleantech,
Biotech and ICT and growth themes (e.g. healthcare/well being),. Beside the EIB,
strategic partners and institutionals (mainly family offices) are envisaged as major
investors. By taking 20% of these funds (90% of which is planned from RCM and 10%
from EIF) EIF, acting as fund manager, expects to catalyse around EUR 0.7bn for each
Fund-of-Funds, bringing a total leverage of approximately 15 times (EUR 80-100m
invested by EIF to result in EUR 1.4bn investments to benefit SMEs);

 A Euro Co-Investment Fund which will provide co-investment opportunities with
Business Angels and other non-institutionalised investors. The Euro Co-Investment
Fund will start to operate in a restricted number of Member States and with an initial
capitalisation of about EUR 200m for the first three years. In the mid-term, it will be
rolled out in all relevant Member States and regions that will also be expected to
contribute with own funds.
 An Impact Investing Fund-of-Funds which will have a target size of EUR 100m and an
investment period of about four years. Investors would include foundations, family
offices and public or semi-public institutions. First closing is not expected before mid-
2012 with a 30% share from RCM/EIF resources.

The table below presents a detailed view of the “Other mandates - new” line of the VC table
above:

17


EUR m
EUR mEUR m
EUR m
2011
20112011
2011
2012
20122012
2012
2013
20132013
2013
COP

COP COP
COP Actual
ActualActual
Actual
BioE (Biotech)
- - 80 80 40
Cleantech
- - 20 30 38
Business angel co-inv.
- - 20 70 110
Impact Investment
- - 25 25
Total
TotalTotal
Total
-

-



-

-



120
120120
120




205
205205
205



213
213213
213




External mandates (Institut invest.) 92 148 146
RCM/EIF
28


58


67


2010
20102010
2010




Growth Capital / Lower Mid
Growth Capital / Lower MidGrowth Capital / Lower Mid
Growth Capital / Lower Mid-

-Market
MarketMarket
Market



EUR m
EUR mEUR m
EUR m
2011
20112011
2011
2012
20122012
2012
2013
20132013
2013
COP
COP COP
COP Actual
ActualActual
Actual

MFG
205 224 210 250 290
LMM (RCM/EIF - GIF2)
230 300 260 270 290
FoF (iVCi/PVCi)
55 39 70 75 75
JEREMIE
- - 60 - -
Total
TotalTotal
Total
490
490490
490



563
563563
563



600
600600
600



595

595595
595



655
655655
655




Expected leveraged volume
Expected leveraged volumeExpected leveraged volume
Expected leveraged volume
3,400
3,4003,400
3,400



1,860
1,8601,860
1,860



1,940
1,9401,940
1,940




2,130
2,1302,130
2,130




2010
20102010
2010


Lower Mid Market segment (
Lower Mid Market segment (Lower Mid Market segment (
Lower Mid Market segment (LMM
LMMLMM
LMM)
))
)


For 2011-2013, the investment strategy implemented over the recent years will be pursued
continuing to back a number of successful existing relationships focused on SMEs but also
selecting new counterparts. EIF closely tracks and maps the entire Lower Mid-Market universe
spotting existing players as well as new and emerging managers of interest to EIF in the years
to come. The strategy also seeks to pursue the geographical diversification of the portfolio,
with particular support to the development of Central, Eastern and South Eastern European

markets as done in recent years.

RCM/EIF volume for 2011 is expected to be EUR 240m, higher than the COP target of EUR
220m. For 2012 and 2013, it is forecast that volumes will be maintained at similar levels
(EUR 240m and EUR 260m respectively). The fundraising climate should start to recover in
2011, though this will probably be a gradual increase rather than an immediate return to
pre-crisis commitment levels by investors.
The segment addressed by EIF, although affected by the current credit market conditions,
continues to be one of the few areas which offer the opportunity to support smart growth
companies and to obtain an attractive return. The number of funds invested by EIF should
remain more or less stable. However, fundraising will continue to take time: EIF will commit
larger stakes and thus reinforce the added value of its presence at early closings.

The flow of eligible deals under the CIP mandate, especially to the GIF 2 window with a Mid-
Market focus, has been weak over 2009 and 2010. However, there have been positive signs
of recovery since summer 2010, with projects in the Cleantech segment, targeting
developing geographies (such as Greece, South Eastern EU or the Western Balkans),
developing segments or special projects (such as a fund managed by experienced women
targeting companies chaired by women).

18

EUR 20m are expected to be signed under GIF 2 in 2011 and, with the improvement of the
fundraising climate, this should rise to EUR 30m in 2012 and in 2013.

Mezzanine
MezzanineMezzanine
Mezzanine



The Mezzanine Facility for Growth (MFG) has been in place since April 2009 and is planned
to be deployed by the end of 2012. Thus, 2011-2012 is a crucial period for
implementation, focused on building the pipeline and effectively committing most of the
programme into eligible funds.

It is expected that after a strong year in 2010 (commitments of EUR 224m vs EUR 140m in
2009) the volume committed in 2011 will increase to EUR 210m. 2012 and 2013 are
budgeted respectively at EUR 250m and EUR 290m, allowing more than 80% of the MFG
mandate to be committed by the end of 2012. This is a realistic estimate of the level of
commitments and would imply the extension of the mandate for one year to ensure full
allocation.

Lower Mid-Market mezzanine or hybrid funds are likely to be more affected by the current
fundraising situation described above than the Lower Mid-Market private equity funds.
Moreover, the MFG’s specific focus on innovative investment strategies (transactions without
equity sponsor or support to late stage technology companies) requires an increased
attention to emerging teams or first time funds without relevant track record. These
characteristics render the segment of limited attractiveness for other potential investors. This
is obviously one of the “raisons d’être” of the MFG, which, through substantial commitments
at early closings, can mitigate the lack of interest of LPs and have a positive impact on the
fundraising traction. However, there is some evidence that established players or new teams
active in the venture debt segment (senior amortisable debt with equity access) have started
raising funds for financing of technology companies.


Technology Transfer
Technology TransferTechnology Transfer
Technology Transfer




EUR m
EUR mEUR m
EUR m
2011
20112011
2011
2012
20122012
2012
2013
20132013
2013
COP
COP COP
COP Actual
ActualActual
Actual
TT
20 21 80 110 150
JEREMIE
- 15 8 - -
Total
TotalTotal
Total 20
2020
20




36
3636
36



88
8888
88



110
110110
110



150
150150
150




Expected leveraged volume
Expected leveraged volumeExpected leveraged volume
Expected leveraged volume
80
8080

80



180
180180
180



220
220220
220



300
300300
300




2010
20102010
2010


EIF is increasingly solicited by research centres/universities as well as independent fund
managers and corporates in the Technology Transfer and Intellectual Property market

segments, also as a result of the business development activities carried out by EIF. In
particular a number of first generation investments are maturing and increasingly providing
second-generation opportunities (CD3 Leuven signed in 2010 being the first such case
completed). In the area of Intellectual Property finance an important milestone was achieved
in 2010 with the signing of the Strategic Partnership together with the EIB and a number of
leading EU innovation investors, including EIF shareholders KfW and CDC, and well known
EIB Group partners such as Cassa Depositi e Prestiti, CDTI, Innovationsbron and
Veraventures. The Strategic Partnership will meet regularly to assess the opportunities
generated by this fast growing market and, if appropriate, jointly set up a specific financing
vehicle.

19

It is envisaged that EIF will significantly increase its operations on the assumption that it can
rely on the availability of dedicated financial and personnel resources.


Funds
FundsFunds
Funds-

-of
ofof
of-

-Funds
FundsFunds
Funds




Despite the difficult market conditions, which make the deployment of the Funds-of-Funds
very challenging, the advantages in channelling third party money while bringing high
leverage on EC/EIB investments led EIF to favour such structure to put in place part of its
future equity strategy. The Fund-of-Funds approach has proven to have the positive
externalities of further generating deal flow for other mandates (CIP and Mezzanine mainly)
as the network developed at the local level catalyses the growth of business.
Benefiting from its experience, EIF is well positioned to rapidly put in place the new waves of
Funds-of-Funds expected for 2011 and 2012, while maintaining an efficient investment pace
on the current ones.


EUR m
EUR mEUR m
EUR m
2011
20112011
2011
2012
20122012
2012
2013
20132013
2013
COP
COP COP
COP Actual
ActualActual
Actual
Neotec

40 29 45 - -
iVCi
35 - 40 45 45
PVCi
20 30 30 30 30
UKFTF
- 32 86 36 18
New Fofs/Investment pool
- - 120 205 213
BioE
- - 80 80 40
Business Angel
- - 20 70 110
Impact Investment
- - - 25 25
Cleantech
- - 20 30 38
Total
TotalTotal
Total 95
9595
95



91
9191
91




321
321321
321



316
316316
316



306
306306
306




2010
20102010
2010


Neotec
NeotecNeotec
Neotec



Neotec has signed an additional EUR 29m in 2010 bringing current aggregate commitments
to EUR 127m of a total programme of EUR 183m. The Advisory Board has approved an
extension of the investment period until 31 December 2011 and there will be capacity for
two additional investments in addition to Adara II, a deal approved yet to be signed.

iVCi
iVCiiVCi
iVCi


Lower Mid-Market represents the bulk of the iVCi investment strategy. After an initial period
of relationship building and market mapping, the first investments have been completed.
However, the development of EIF investment activity on the Turkish market (domestic funds or
regional funds) is slowed by complex and sophisticated legal structures that are proving
difficult to endorse. For the years 2011-2013 volumes are expected to reach and remain at
EUR 40-45m p.a. to be committed to 2-4 funds p.a. This includes emerging teams but also
existing and reputable players coming back to the market. On such a basis, it is planned that
the programme will be committed by the end of 2013.






20

PVCi
PVCiPVCi
PVCi



Similar to iVCi, Lower Mid-Market represents the focus of the PVCi investment strategy,
however with the difficulty of a much weaker deal flow in Portugal that is mainly composed of
first time players. After an initial period of relationship building and market mapping the first
investments have been completed in 2010. For the years 2011-2013 volumes are expected
to be EUR 30m p.a. to be committed to 1-3 funds p.a.

UKFTF
UKFTFUKFTF
UKFTF


After about nine months of operation, UKFTF has signed three commitments, bringing total
signatures to EUR 32m. A further two deals are in advanced due diligence and the pipeline is
being actively developed. UKFTF is expected to become fully ramped up in 2011 with
cumulated signatures of EUR 116m.


21

5.1.2
5.1.25.1.2
5.1.2 Guarant
GuarantGuarant
Guarantees and Credit Enhancement
ees and Credit Enhancementees and Credit Enhancement
ees and Credit Enhancement




EIF’s guarantees and credit enhancement team (G&S) aims to act as a catalyst of SME
lending and leasing in countries of EIF operations.


Global G&S
Global G&SGlobal G&S
Global G&S t
t t
targets
argets argets
argets
EUR m
EUR mEUR m
EUR m
2011
20112011
2011
2012
20122012
2012
2013
20132013
2013
COP
COP COP
COP Actual
ActualActual
Actual
Own resources
400 260 750 800 900

CIP
100


97


110


110


110


Subtotal
SubtotalSubtotal
Subtotal
500
500500
500






357
357357

357






860
860860
860






910
910910
910






1,010
1,0101,010
1,010







JEREMIE (FRSP/FLPG)
444 229 393 220 -
Total
TotalTotal
Total
944
944944
944



586
586586
586



1,253
1,2531,253
1,253



1,130
1,1301,130
1,130




1,010
1,0101,010
1,010




Expected leveraged volume
Expected leveraged volumeExpected leveraged volume
Expected leveraged volume
3,040
3,0403,040
3,040



7,780
7,7807,780
7,780



7,700
7,7007,700
7,700




7,540
7,5407,540
7,540




Joint Group Operations
75


26


90


100


100


of which EIF own risk
26 9 10 10
2010
20102010
2010






Own
Own Own
Own Risk
Risk Risk
Risk -

-

Credit Enhancement and Securitisation
Credit Enhancement and Securitisation Credit Enhancement and Securitisation
Credit Enhancement and Securitisation


EIF remains a point of reference in the SME securitisation market, with a solid track record,
know-how and unique position recognised by originators, investors and regulators. In view of
the current market conditions, EIF’s credit enhancement activity will support market recovery
and facilitate deal execution, with a strong catalytic role both in terms of signalling effect to
market participants and mobilisation of resources for new SME lending.

After the two operations of 2010, a steady increase in numbers and volumes is anticipated
for the years to come, also in view of the likely phasing out of the ECB repo facilities over the
next 2 years.

For 2011, EIF plans to originate EUR 700-750m in new guarantee commitments in respect
of approximately 9-10 transactions. This activity will target both ends of the market, i.e.
funding-driven transactions as well as risk transfer transactions, so as to cover the whole

spectrum of market needs with regard to commercial lending to SMEs. Indicatively 80% of
the total commitments are likely to be in the AAA/AA area, and 20% will target mezzanine
tranches (BB rating range) in risk transfer transactions or low rated senior exposures (e.g. in
countries like Turkey, Greece, CEE where senior tranches cannot reach Aaa ratings due to
weak sovereign ratings). For the risk transfer transactions, in order to further fill the market
gap and to improve its catalytic effect, EIF risk appetite in the mezzanine tranches will
progressively increase, following the expected restoration of a more solid investor base for
senior notes.


Joint EIB
Joint EIBJoint EIB
Joint EIB-

-EIF operations
EIF operationsEIF operations
EIF operations


The Joint Group operations form a fundamental part of the EIF strategy. EIF shall seek to use
its guarantees to complement the products offered by the EIB to its bank counterparts for
SME financing.



22

a.
a.a.
a.


Combined EIB Funding & First Loss Protection using third party mandates
Combined EIB Funding & First Loss Protection using third party mandatesCombined EIB Funding & First Loss Protection using third party mandates
Combined EIB Funding & First Loss Protection using third party mandates


In 2010, the EIB and EIF jointly implemented a new mandate for SME financing (the Greater
Anatolia Guarantee Facility in Turkey). Going forward, EIF will seek opportunities to combine
issuance of guarantees under mandate with the EIB funding, so as to strengthen the value
proposition for key partner Financial Institutions and the added value for SMEs. In particular,
EIF has been exploring ways to combine its JEREMIE First Loss Portfolio Guarantees with EIB
funding, i.e. providing guarantees on portfolios of new loans which are partially funded by
EIB Loans for SMEs.

The FLPG product is expected to represent the flagship of the JEREMIE products for SME debt
financing. The concept was presented to the EC for endorsement in the first half of 2010 and
it has now entered the implementation phase, with several Calls for Expression of Interest
already published and the bulk of guarantee commitments expected to be signed in 2011.

b.
b. b.
b. Joint part
Joint partJoint part
Joint participation
icipation icipation
icipation in funding
in fundingin funding
in funding-

-driven

drivendriven
driven SME securitisation
SME securitisation SME securitisation
SME securitisation


The EIB Group can play a fundamental role in the re-development of a sound SME
securitisation market through joint operations.
Funding-driven SME securitisation is likely to become the main theme in the coming years. In
such transactions, EIF’s role is to facilitate the placement of the senior notes with market
investors.

In joint operations, the funding raised from investors with EIF guaranteed notes would
complement the funding provided by the EIB through its underwriting of senior notes in the
structure. With a combined intervention, the EIB and EIF together will make the execution of
the transaction more likely, the signalling effect to the market of the EIB Group intervention
stronger, and the deal economics for the originator more attractive, resulting in a positive
effect on its new SME lending.

c.
c. c.
c. Joint risk
Joint riskJoint risk
Joint risk-

-sharing operations (e.g. Risk Partnership Loans pilots)
sharing operations (e.g. Risk Partnership Loans pilots)sharing operations (e.g. Risk Partnership Loans pilots)
sharing operations (e.g. Risk Partnership Loans pilots)



EIF expects to be able to close soon the first of the three EIB Risk Partnership Loan (RPL)
“pathfinder” transactions. The RPL is a “bundled” product that was developed jointly by the
EIB and EIF to provide banks with both regulatory capital relief and new funding. It offers
both a guarantee on a mezzanine tranche of an existing portfolio (i.e. a “classical” EIF risk
transfer transaction) and an EIB loan to the bank to finance new SME lending.

As such, the RPL addresses both the liquidity and the capital protection needs of banks. If
after this initial phase the offering of the product is confirmed, EIF expects a number of top
tier banks to be interested in such joint operations.


CIP
CIPCIP
CIP


In 2011, it is expected that total budgetary commitments in respect of CIP guarantees will
amount to EUR 110m, with a guaranteed volume of about EUR 1.6bn (equivalent to a
leverage effect of 14-15 times).

New commitments will comprise both amendments (increases and extensions) of existing
agreements and signature of contracts with new intermediaries. In older Member States, EIF
will mainly build upon its existing network of private and public guarantee institutions, which
are the natural partners under CIP as they cover the entire country and are experienced in
mobilising public funds. In new Member States contracts will be signed with both Guarantee
Institutions and commercial banks.


23


For the years 2012 and, in particular, 2013, EIF expects to sign mostly increases and
extensions of existing contracts, subject to the budget availability: the cumulative budgetary
commitments under the CIP SME Guarantee Facility are projected to reach some EUR 550m
by 2013.

24


5.1.3
5.1.35.1.3
5.1.3 Microfinance
MicrofinanceMicrofinance
Microfinance




Global Microfinance t
Global Microfinance tGlobal Microfinance t
Global Microfinance targets
argets argets
argets

EUR m
EUR mEUR m
EUR m
2011
20112011
2011
2012

20122012
2012
2013
20132013
2013
COP
COP COP
COP Actual
ActualActual
Actual
Progress FCP
-

-






-

-






50

5050
50






44
4444
44






47
4747
47






Progress FMA
-

-







1
11
1






8
88
8






9
99
9







9
99
9






EPPA
-

-






2
22
2







1
11
1






-

-






-

-






RCM micro
12

1212
12






5
55
5






-

-






-

-







-

-






GAGF micro
-

-



-

-



-

-




-

-



-

-




Subtotal
SubtotalSubtotal
Subtotal
12
1212
12






8
88

8






59
5959
59






53
5353
53






56
5656
56







JEREMIE micro
33
3333
33






-

-






40
4040
40







25
2525
25






25
2525
25






Total
TotalTotal
Total
45
4545
45



8

88
8



99
9999
99



78
7878
78



81
8181
81




Expected leveraged volume
Expected leveraged volumeExpected leveraged volume
Expected leveraged volume
60
6060
60




230
230230
230



200
200200
200



200
200200
200




2010
20102010
2010


Under this new activity pillar, EIF will optimize the usage of the available resources by
launching initiatives for the development of this market segment, with the objective of
becoming a leading microfinance player in Europe.


In June 2010, EIF and the EC signed a mandate agreement for a micro-guarantee
instrument as the first step in the implementation of the Progress Microfinance Facility, which
is complemented by Progress FCP. This new initiative combines a EUR 100m budget from
the EC’s DG Employment with match funding from the EIB to support micro-entrepreneurship
and counter unemployment in the EU.

The first implementation phase involved the deployment of a micro-credit guarantee
instrument broadly based on the product currently available under CIP, however, with a
special focus on certain groups (such as long-term unemployed, at risk of social exclusion
and vulnerable persons), as well as development of entrepreneurship activities. Out of the
total budget, approximately EUR 25m is expected to be allocated to the guarantee
instrument and made available to suitable intermediaries. Due to the small size of the
mandate and the specific target group it is expected that agreements will be mainly signed
with MFIs on regional or local level, with relatively small ticket sizes.

The microcredit guarantees are complementary to the funded products under the Progress
FCP for instance for intermediaries with low funding costs combined with a need for portfolio
risk coverage or for intermediaries with a very high portfolio risk profile and insufficient
means to cover their costs.

Progress FCP is implemented through a multi-product strategy to cover funding and risk
participation requirements for a wide range of intermediaries across the European Union.
Progress FCP transactions will go further than supporting existing small loan business lending
by commercial banks and rather seek an increased social value added at micro-borrower
level. This includes e.g. focus on funding support to vulnerable groups, female micro-
borrowers, self-employed, young entrepreneurs, etc.


25


A strong and diverse pipeline has already been pre-identified for 2011. Many of the first
transactions are likely to be signed in markets where access to long-term funding at MFI
level, often in local currency, is needed. This is the case in countries like Bulgaria, Romania,
the Baltic region, and Poland. Whereas funding out of the Progress FCP is expected to add
value per se in some Eastern European markets, more tailored solutions will be required in
Western Europe.

The remaining investment activity under Micro RCM and EPPA will be integrated into
Progress FCP from 2011 onwards, with only residual amounts left for follow-up investments.
This will leave the EIF strategy focussed on Progress and the remaining JEREMIE microfinance
windows as key pillars of its microfinance business line.

EIF will seek to become a reference investor in more mature microfinance markets. In some
EU countries the microfinance sector is under development and EIF will identify
opportunities over the mid-term together with strategic partners.