On 24 November 2017, the Ministry of Economic Development and Technology and SID Bank signed a financing agreement, under which the Fund of Funds was created. That fund is intended for the use of European cohesion funds.
The aforementioned ministry appointed SID Bank as manager of the Fund of Funds, into which €253 million will be paid from European cohesion funds that are available to Slovenia within the 2014–2020 financial framework until 2023 for the purpose of financing development and entrepreneurship.
The purpose of the fund created as such is the promotion and financing of sustainable economic growth and development, investments in innovation and current operations through debt and equity financing focused on four areas:
development and innovation,
small and medium-sized enterprises,
energy efficiency and urban development.
In the scope of the Fund of Funds, the Slovenian Export and Development Bank (SID Bank) offers financial instruments that will contribute to the achievement of the objectives of the Operational Programme for the Implementation of the European EU Cohesion Policy in the period 2014–2020 to Slovenian companies and municipalities via financial intermediaries (primarily commercial banks and public funds). In addition to European cohesion policy funds, financial intermediaries provide additional funds due to the leverage requirement, such that more than €400 million will be available to enterprises and other end-users.
By creating the Fund of Funds, we have taken an important step in the transition from grants to refundable forms of funding through the use of financial instruments. Refundable funds are significantly more effective than grants, primarily due to higher leverage, multiplier effects and their revolving nature. Due to the use of financial instruments such as loans, guarantees, equity financing, etc., which are refundable and also require the investment of own funds and efforts by enterprises or intermediaries, the market assessment of projects that are financed is built into the process. This leads to improved financial discipline and, together with greater multiplier effects, to the improved allocation of development funds. This also raises the level of responsibility of beneficiaries, as the probability of the abuse of funds is reduced, together with the effect on the distortion of competition, both of which arise frequently in the use of grants. The latter artificially support otherwise ineffective recipients on the market, who maintain their market shares with the help of grants, which is neither sustainable nor development-oriented.
Financial instruments ensure final recipients a higher degree of satisfaction of their needs, in terms of capital, lower interest rates, longer maturities, fewer requirements for collateral (or no collateral at all) and longer moratoriums.
SID Bank is developing new financial instruments based on a preliminary assessment of financing gaps that was conducted by the Slovenian company PwC and supplemented by an analysis performed by the European Investment Bank. Market gaps were identified in the financing of small and medium-sized enterprises, research, development and innovation, energy efficiency and urban development. For this reason, the Fund of Fund offers financial instruments for specific target groups in the four aforementioned areas.
Within the Fund of Funds, SID Bank is expanding access to financing for developmentally important projects for small and medium-sized enterprises with a new financial instrument, portfolio guarantees...