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European EFSD+ guarantee tool: a driver to boost the private sector in high-risk sectors and geographical areas

Interview

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Financial services
drapeau europeen

Mobilizing funds delegated by the European Union is a strategic priority for AFD Group’s operations. Some €3bn of funds were mobilized between 2014 and 2020 for the entire Group. PROPARCO has been accredited since 2015 and today mobilizes certain instruments dedicated to the private sector, including the EFSD+ guarantee.

Some explanations about the EFSD guarantee just before the launch of th call for tenders by th Commission, from Pierre Forestier, Director Sustainable Devlopment department at PROPARCO

The European Union (EU) has stepped up its support to the private sector since 2018 with the European Fund for Sustainable for Development (EFSD) guarantee tool. Can you tell us about the operating principles of AFD Group (AFD and PROPARCO) for the implementation of funds delegated by the EU?

The European Union devotes a significant proportion of its budget to external aid and development issues. As it does not have the capacity to implement its substantial budgets outside the European area, it relies on and delegates to bilateral institutions, such as AFD Group, which have the competence to take concrete action in these territories.

AFD launched its first blending facilities ten years ago. They make it possible to blend various types of resources and thereby leverage its own financing. PROPARCO has also been accredited to benefit from these funds since 2015.

In 2018, the EU increased its proportion of private sector development assistance. It set up an External Investment Plan (EIP), which includes the EFSD guarantee tool. Between 2014 and 2020, this EIP, with a budget of €1.5bn, made it possible to offer a guarantee instrument to development banks and Development Finance Institutions (DFIs) for the private sector. AFD and PROPARCO understandably took steps to be recipients of these guarantees. Over €160m of private sector guarantees have already been delegated to PROPARCO, on its balance sheet and on AFD’s.   

To respond to the effects of the Covid-19 pandemic, in 2020, the EU refocused the EFSD guarantees to support small businesses affected by the crisis and encourage local banks to finance them more. It is on this basis that PROPARCO signed the Emergency Covid Response portfolio guarantee program.

For its budget year 2021-2027, the EU has decided to renew this guarantee instrument and allocate it a substantially higher budget: €41bn, including €14bn available to DFIs. The “+” added to EFSD therefore marks the instrument’s second phase with a much higher amount.

What are the main characteristics of the EU’s EFSD+ guarantee?

The EFSD+ guarantee makes a budget of about €14bn available to European Development Finance Institutions, including PROPARCO. It is a multi-country and program budget, with the EU seeking a leverage effect that must be at least 2. This guarantee instrument is combined with a grant component available to prepare the projects or technical assistance activities of the beneficiaries.

Two calls for projects for the EFSD+ guarantee are scheduled to be launched between 2021 and 2027. The first, for €6bn, will start in April 2022. Its thematic windows will be: connectivity (renewable energies, transport, digital infrastructure), MSME finance, sustainable  urban development, sustainable agriculture and biodiversity, sustainable finance and human development/social sectors.

PROPARCO intends to take action alone, in the AFD Group format, and also in partnership with the other European Development Finance Institutions (EDFIs) to:

  • Operate in and finance new sectors or more risky geographical areas (g.: fragile countries)
  • Support the mobilization of private financing (in investment funds or in the context of project financing)
  • Top up existing guarantees (e.g. ARIZ)
  • Increase its local currency financing capacity (hedging).

 

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