Financial engineering

Financial engineering is a new form of EU actions to make repayable investments and provide guarantees for repayable investments in Member States enterprises, public private partnerships or other urban projects included in integrated programs for sustainable urban development. As a part of the Economical Growth program for 2007–2013 EU Structural Funds it contributes to the enterprises as a repayable investment or a guarantee for a repayable investment. It ensures improved access to finance and innovative financial engineering primarily to micro, small and medium-sized enterprises.

The vital key objectives of financial engineering include:

1) Improvement of access to financing primarily to micro, small and medium-sized enterprises;

2) Activating private investments by improving at Member States level the institutional, legal and commercial environment; attract private investments to leverage public funds.

In order to implement the project two holding funds and a Financial Engineering (FE) measure were established.

The Holding Funds:

INVEGA fund which is managed by JSC Investment and business guaranties (INVEGA). The Fund is allocated to EUR 58 million and is gained (paid by financial intermediaries) – EUR 1, 7 million. Through this Fund there are already implemented two measures and one is planned:

1. Small Credits. Total sum of allocation – EUR 27, 5 million.
2. Open credit funds. Total sum of allocation – EUR 29 million. Implementing measure is expected to attract EUR 9, 65 million private investments.
3. Micro credits (planned new measure) – EUR1, 5 million INVEGA fund allocation and EUR 1, 7 million interests earned allocation.

JEREMIE fund, which is managed by – European investment fund (EIF). The Fund is allocated to EUR 210 million. Through this Fund there are already implemented three measures:

1. Loans. Total assignation – EUR 147 million. Implementing measure is expected to attract EUR 147 million private investments.
2. Risk capital funds. There are formed two foundations, each of them assigned to EUR14 million (Total assignation – EUR 28 million). Implementing measure is expected to attract EUR 12 million private investments.
3. Business angels. Total sum of allocation – EUR 8 million. Implementing measure is expected to attract EUR 8, 8 million private investments.

Financial Engineering measure:

GUARANTEE fund, which is managed by JSC INVEGA. The Fund allocates – EUR 37, 4 million.

According to the market demand the FE measures are being implemented systematically, businesses may choose among a set of non-competing and complementary FE measures: a range of preferential loans of different sizes is available to businesses; the government shares investment risk by providing guarantees to credit institutions; guarantees are being combined with partial compensation of loan interest. The revolving nature of funds from FE measures enables to re-use the money for the purposes of supporting other SME entities. The public money act as a catalyst in attracting private funds. Such financing is more transparent because decisions concerning awarding of support to a SME entity are taken by a private financial intermediary.

Financial engineering and related measures during the programming for year 2007-2013: