ES Fund/TISE Loan Fund for Social Economy

Case study

Warszawa, April 10th, 2014

Content:

1. About TISE2. Social economy in Poland3. ESFund/TISE – pilot project 4. Conclusions and recommendations

About TISETISE = Social and Economic Investment Company

Established in 1991 to support the development of the entrepreneurship and the civil society in PolandSince 2002 – member of the FEBEA (European Federation of Ethical and Alternative Banks)Since 2008 - operates as a loan fund for the social economy and micro and SMEs, 100% subsidiary company of the French co-operative bank Crédit Coopératif (social finance leading institution in Europe)

Why TISE?

Over 20 years experiance in cooperation with the social economy entities, micro and SMEs and in financing the socially beneficial initiatives

Wide knowledge of the sectors and theirs needs

Expertise in providing financial services (venture capital, guarantees, loans)

Offering advisory services to the social economy entities and SMEs

TISE’s fields of activity:

Own regular lending activity for social economy entities and micro and SMEs

Financial intermediary of the loan fund for social economy – (ES Fund/TISE) as well as and of Jeremie and the Operational Programme for the Development of Eastern Poland (PO RPW) for micro and SMEs

Service provider for CoopEst

TISE’s key numbers:

As of 31/03/2014

Social economy Micro and SME

Own funds ESFund/TISE Own funds Jeremie and SME loan funds

Number of loans granted

205 115 328 392

Amount granted

27,6 M PLN 10,1 M PLN 86 M PLN 57 M PLN

Total balance sheet as of 31/03/2014 - PLN 136 M (approximately EUR 32 M)

TISE for the SE abroad:21 loans for the total amount of EUR 1,1 Min Hungary, Slovakia, Slovenia, Romania

Social economy sector SE entities

non-governmental institutions (over 76,000 entities, including 7 667 public benefit organizations)social cooperatives (~800)cooperatives of the disabled and the blind (~ 300) cooperatives of employees (~ 600 )ZAZ (Vocational Training Center, 68), WTZ (Occupational Therapy Workshop, 684) other institutions such as:

associations of local governments, ecclesiastical legal persons and organizational units running public benefit activity, limited liability and joint stock companies sport clubs operating as non-profit companies

Social economy sector SE supporting entitiesPublic administration bodies – MIR (Ministry of Infrastructure and Development) and MPiPS (Ministry of Labour and Social Policy)

Regional and local administration authorities (i.e. Warsaw, Katowice)

Supporting specialized entities with no legal personality: OWES (Social economy support centers) , CES (Social economy centers), KCES (National Centre for Social Economy), SKES (Social Economy Permanent Conference)

institutions of social assistance and social integration with no legal personality including: CIS (Social Integration Centers, currently 92 operating entities), KIS (Social Integration Clubs, 286),

National Association of Social Cooperatives

Loan providers (PAFPIO, TISE, MFES, Regional loan funds – Kujawsko-pomorski, Dolnośląski, Pasłęk, Nida, etc)

Selected problems of the social economy in Poland

legal instability

supporting system at early stage of development

limited access to external financing

Act on Social Enterprise

Pact for the Social Economy

National Program of Social Economy Development (KPRES)

Pilot project - origins

2008 – establishment of an expert team working on system solutions in the field of social economy.

July 2012 - financing agreement between the Ministry of Labour and Social Policy (Intermediate Institution) and BGK (state-owned bank - Systemic Beneficiary) chosen to carry out the project.

In September 2013 BGK invited bids to select financial intermediaries responsible for providing services directly to the social economy entities in five macro-regions* covering the whole country. The tender consisted of 5 parts (1 part = 1 macroregion).

* Definded by the expert team based on number of existing NGOs and social cooperatives

Pilot project - origins

The potential financial intermediaries were obliged to: grant a minimum number of loans and provide advisory services to a minimum number of social economy entities (the limits were fixed for each macroregion seperately)

In all 5 macroregions 14 offers were made by 9 institutions and consortia

Criteria in each part of the tender were:Business plan assessment – 55%Fund management cost – 38%Advisory service cost – 7%

BGK has selected TISE to perform the task in all 5 macroregions

In January 2013 BGK signed five agreements with TISE

Pilot project - objectivesGranting at least 251 loans by 30/06/2015 for the maximum total amount of PLN 25 M; project deadline – December 2020;

Providing advisory services to at least 200 social economy entities by 30/09/2015; in total 4 000 hrs, total value of the de minimis aid – PLN 400 K;

Creating minimum 50 jobs;

Assessing the financial situation of the social enterprises based on the group of financed and rejected clients;

Determining the financial needs of the social economy entities;

Checking in practice the risk assessment methodology designed for the sector proposed by BGK.

Pilot project – special features

Preferential conditions (interest rate 25% or 50% of the rediscount rate, no charges, no commision, no extra fees);

For social economy entiites running business activity;

Free counseling after loan granting.

Regional distribution (five macro-regions corresponding to the areas of operation of five Social Economy Centres);

Pilot project - regional distribution

Maximum amount: 100.000 PLN

Interest rate: 25% or 50% of rediscount rate (de minimis aid)

Maturity : Up to 60 months

Maximum grace period: Up to 6 months

Maximum financing: Up to 100% of an investment

Charges and fees: None

Advisory services Free of charge (de minimis aid)

Maximum number of hours 30 per borrower

Pilot project - fixed parameters

Mentors Counselors

Pilot project - parties

Pilot project - beneficiaries

1. Entities planning to develop their businesses aiming to achieve an income or employment growth;

2. Micro or small enterprises;3. Registered and engaged in economic activities for at least 12

months at the date of loan application;4. Organized in the form of:

Cooperatives of employees,Cooperatives of the disabled and the blind,Social cooperatives,NGOs, Ecclesiastical legal persons or organizational units carrying out public benefit activities,Non-profit joint-stock companies, limited liability companies and sports clubs.

Pilot project - process

Assistance in loan applications preparation

Ensuring uniform standards of assessment

Advisory services for the borrowers to ensure

sustainable operation of the SE entities

Direct contact with the SE entities

Use of the existing support

networks

One analysis center

Local partners and TISE advisers

ESFund/TISE – application verification and assessment Risk assessment is based on the methodology provided by BGK under the tender and consists of:

1. Formal verification;

2. Evaluation of the profitability of the project (business plan, financial projections);

3. Examination of the creditworthiness of the entity (financial data);

4. Evaluation of securities (a blank promissory note with a promissory note declaration is a minimal required security).

Main financial parameters taken into account:cash flows,EBITDA /debt repayment,debt ratio,return on sales ratio,fixed assets to fixed capital ratio.

ESFund/TISE performance as of March 31st, 2014

From March 2013 till March 2014:115 loans granted for the total amount of over 10,1 M PLN (40% use of funds);115 business activity development have been implemented;156 declared jobs to be created and sustained; 2.196 hrs declared interest in advisory services;

Used allocation as of 31/03/2014

ES Fund / TISE – pilot project time schedule

03/2013 30/06/2015 30/09/2015 2017 2020

Loans granting

Providing advisory services

Possible extention of the loan granting period

Portfolio monitoring and project settlement

ESFund/TISE performance as of March 31st, 2014

By branches:

Catering and hotel business 25%Tourism, recreation, culture 11%Training, consultancy, education 17%Medicine and elder care 12%Other 35%

ES Fund / TISE performance as of March 31st, 2014

By entities

ES Fund / TISE – pilot project effectiveness parameters

Use of funds – 100% by 30/06/2015, at least 125% by 2017

Overdue and lost loans ratio – 15% as of 31/12/2017

Number of loans granted – 250 by 30/06/2015 and at least ~ 380 by 31/12/2017

ES Fund / TISE – observations after year one

Low maximum loan amount ;Fixed maximum maturity;Only investment and job creation purpose can be financed - no possibility to use a loan for working capital ;Unavailability for SE entities employing more than 50 employees - exclusion of many workers' cooperatives and cooperatives of the disabled and blind; Unavailability for entities with no legal personality i.e. ZAZ (Vocational Training Center);Unavailability for start-ups

Financing needs of the Polish social economy entities

Wider range of financial products: Working capital and liquidity loans;Investment and development fiancing;Quasi capital – social VC, subordinate loans, mezzanine;

Bigger amountsLonger financing periodAvailable also for: start-ups, enterprises employing more than 50 employees, Financial participation of the financial intermediaries