Institutional and Non-Bank lending and the Role of Debt Funds

This paper analyzes the market segment of debt funds as an additional or alternative financing channel for SMEs. It provides examples of debt funds and related initiatives, both private and publicly supported, that aim to enhance SME financing through non-bank sources. Using examples, the paper also discusses the emerging market segment of SME bonds. In addition, it explains the EIB Group Risk Enhancement Mandate (EREM) and summarizes important pros and cons of using debt funds as an SME financing tool. The paper covers the following sections in detail:

• Financing gaps and the need to diversify financing channels particularly for SMEs;
• Introduction to debt funds with a focus on lending by non-bank institutions, and diversified funds versus selective funds;
• Examples of initiatives and public support from various countries including Netherlands, Italy, U.K., France, Ireland, Germany, and Spain;
• Identification of active debt funds globally;
• EREM and debt fund solutions with a focus on the structure of the mandate;
• Concluding remarks with a focus on the advantages of using debt and a discussion on the issues to be considered while using debt funds as a financial channel.