FMFIB

FAQ

What is Fund Manager of Financial Instruments in Bulgaria EAD / the Fund of Funds?
Fund Manager of Financial Instruments in Bulgaria EAD (FMFIB) is a company fully owned by Bulgarian State which is represented by the Minister for Innovation and Growth.

The Fund was established by a Council of Ministers order issued on 22 July 2015 for the purposes of managing the resources designated for financial instruments under operational and other programmes co-financed by the European Structural and Investment Funds (ESIFs).

The activities of the FMFIB are governed by the national law and the European Union (EU) law. The main legal acts include Regulation 1303/2013, Regulation 480/2014, the Law on the Management of Resources from the European Structural and Investment Funds, the Public Procurement Act, etc. The FMFIB operates on a mandate from the respective EU programmes which is given to it on the basis of signed agreements.

Currently, the FMFIB has signed agreements concerning the management of financial instruments with the Managing Bodies of OP Innovation and Competitiveness 2014 — 2020, OP Environment 2014 — 2020, OP Human Resources Development 2014 — 2020, OP Regions in Growth 2014 — 2020 and the Rural Development Programme, with resources of BGN 1.2 billion in total.

The FMFIB is to mobilise additional resources from private and public investors so that the total amount to be invested in the Bulgarian economy would reach BGN 2.7 billion.

The FMFIB operates as a Fund of Funds (FoF). Its function is to allocate targeted public funds from EU programmes and national co-financing by implementing special financing schemes (financial instruments). The FMFIB carries out the following core activities:
- to hold market consultations in order to produce preliminary assessments of the supply and demand of financial products in a given area and among the selected target groups;
- to structure debt and (quasi-) equity financial instruments and draw up term sheets for them;
- to carry out open and transparent selection of financial intermediaries that are to secure the required co-financing and provide financial products to the final recipients;
- to conclude operational agreements with the financial intermediaries;
- to carry out monitoring, risk management, operational and financial reporting of financial instruments so as to ensure the achievement of goals set in the respective EU programme providing the public resources.
Why was Fund Manager of Financial Instruments in Bulgaria EAD / the Fund of Funds set up?

The European Union (EU) has been implementing financial instruments since the 1994 — 1999 programming period. Bulgaria developed and put into place effective support schemes using EU-funded financial instruments in the period 2007 — 2013 under the JESSICA initiative and the JEREMIE initiative.

Fund Manager of Financial Instruments in Bulgaria EAD (FMFIB) was set up because the scope and amount of funding earmarked for financial instruments in the framework of the European Structural and Investment Funds (ESIFs) were significantly increased in the 2014 — 2020 programming period.

The main tasks of the FMFIB as a company which brings together the management of EU funding allocated to financial instruments in a single national plan are to ensure a more efficient and sustainable management of the public resources, achieve economies of scale and build professional expertise at the national level in order to overcome Bulgaria’s dependence on external experience in the management of financial instruments.

The successful implementation of financial instruments will improve access to financing for a range of target groups of final recipients. This, in turn, will provide an impetus for economic growth and employment and improve the standard of living in Bulgaria.
What are the goals of Fund Manager of Financial Instruments in Bulgaria EAD / the Fund of Funds?
The FMFIB’s mission is to
- ensure efficient use of EU financial resources;
- create a more favourable business environment, promote employment and economic development in Bulgaria;
- provide enhanced access to financial resources for the private and public sectors in Bulgaria by applying innovative and flexible forms of financing;
- support business competitiveness and sustainability;
- provide opportunities for development of innovative business ideas;
- assist projects with a growth potential;
- improve the quality of life in towns and regions.
The FMFIB has the goals to
- leverage public resources by mobilising additional private capital;
- achieve economies of scale;
- ensure sustainability in fund management by applying corporate practices of proven efficiency and a prudential approach, taking into consideration inherent risks;
- build capacity to manage financial instruments at the national level in order to overcome Bulgaria’s dependence on external expertise in that area.
How does Fund Manager of Financial Instruments in Bulgaria EAD / the Fund of Funds function?
Fund Manager of Financial Instruments in Bulgaria EAD (FMFIB) is a company fully owned by Bulgarian State which is represented by the Minister for Innovation and Growth.

The FMFIB operates as a Fund of Funds (FoF). Its function is to allocate targeted public funds from EU programmes and national co-financing by implementing special financing schemes (debt and equity / quasi-equity financial instruments). The FMFIB carries out the following core activities:
- to hold market consultations in order to produce preliminary assessments of the supply and demand of financial products in a given area and among the selected target groups;
- to structure debt and (quasi-) equity financial instruments and draw up term sheets for them;
- to carry out open and transparent selection of financial intermediaries that are to secure the required co-financing and provide financial products to the final recipients;
- to conclude operational agreements with the financial intermediaries;
- to carry out monitoring, risk management, operational and financial reporting of financial instruments so as to ensure the achievement of goals set in the respective EU programme providing the public resources.
The use of resources made available in financial instruments and the achievement of goals set in the EU programmes providing the public resources are controlled at all levels — the EU programme, the Fund of Funds, the financial intermediary and the final recipient. They are subject to audits by the bodies authorised by law to perform that activity at the national and at the European level.
How is Fund Manager of Financial Instruments in Bulgaria EAD / the Fund of Funds managed?
Fund Manager of Financial Instruments in Bulgaria EAD is
- a single member shareholder company fully owned by the Bulgarian State. The rights of the State are exercised by the Minister for Innovation and Growth, who takes decisions within the remit of the general meeting of shareholders;
- It has a one-tier governance system, consisting of a Management Board and a Supervisory Board. The Management Board consists of three members. They are nominated and elected by the Supervisory Board. The Supervisory Board consists of seven members. They are designated by the Deputy Prime Minister, who coordinates and oversees the management of funds from the European Structural and Investment Funds (ESIFs); the Minister of Labour and Social Policy; the Minister of Finance; the Minister of Regional Development and Public Works; the Minister of Economy; the Minister of Environment and Water Resources and the Minister of Agriculture and Food.
The members of the Management Board are elected by the Supervisory Board on the basis of their professional qualifications, expertise and experience in the management of financial instruments.

The FMFIB’s organisational structure is designed so as to ensure effective performance of the company’s activities in line with the goals of the European programmes providing the public resources earmarked for financial instruments.

The FMFIB team consists of professionals who have experience in structuring and implementing financial instruments in the areas of economic, social and regional development; in private investment funds, corporate finance, investment and commercial banking, risk management, compliance, law, finance and marketing.

The FMFIB staff have gained professional experience in companies such as the EBRD, Citi, KPMG, S&P Ratings, Allianz, BDB, BNP CIB, HSBC, SocGen, as well as the BNB, the European Commission, the Ministry of Finance, the managing authorities of OP Innovation and Competitiveness, OP Regions in Growth and OP Human Resources Development. They were educated in elite universities such as INSEAD, Harvard, LSE, Cass, Pantheon Assas, Paris Dauphine, AUBG, Salford and Osnabrück.
Does Fund Manager of Financial Instruments in Bulgaria EAD / the Fund of Funds provide interest-free or grant financing?

Some financial instruments are structured so that FMFIB financing is provided to financial intermediaries free of any interest or free of any fee for issuing a guarantee. However, these public resources must be combined with co-financing from the financial intermediary (in most cases, amounting to 20—30 % of the total financing of the financial instrument), which applies market rates. That is why the financial products offered to final recipients could not possibly have the form of interest-free or grant financing.

For certain types of activities and products, the structure of financial instruments allows a combination of funds from a financial instrument and from grant support. In those cases, depending on the structure of the financial instrument, the final recipient and/or the financial intermediary will participate in the grant financing procedure which is subject to approval and coordination by the managing authority of the EU programme providing the public resources.
Does Fund Manager of Financial Instruments in Bulgaria EAD / the Fund of Funds provide financing to final recipients?

At present, the FMFIB does not provide direct support. The public resources managed by the company reaches final recipients via financial intermediaries selected in a transparent procedure in accordance with the Public Procurement Act.
What is a financial instrument?
Financial instruments are special financing schemes using resources from the European Structural and Investment Funds (ESIFs), from the national budget, and funds raised in addition to that, from the private and public sectors. These can be debt instruments (credit, credit guarantees) or equity / quasi-equity investments.

The purpose of financial instruments is to use the public resources more efficiently than through grants. They provide financial support to target groups of final recipients to implement economically viable projects. Thus they contribute to overcoming identified market inefficiencies, as well as to the achievement of the EU strategic goals and to the implementation of EU policies.

Advantages of financial instruments
- Overcoming market inefficiencies
Financing is available to target groups that have limited access to financial resources from the private sector and whose economic activity is important for the achievement of the goals of the respective EU programme.

Financial instruments are provided under more relaxed terms in comparison to other similar financial products on the free market.
- Leverage effect
In addition to the public funds, financial instruments mobilise private financing, which increases the total amount of support available to final recipients.
- Recycling of resources
Resources repaid by the financed projects and potential other income earned by them are re-used to provide support to other eligible final recipients and projects.
- Fiscal discipline
Resources provided by way of financial instruments are subject to repayment by final recipients. This results in more efficient use of the public resources compared to grant support and reduces the likelihood of enterprises becoming dependent on public support.
- Transfer of knowledge and experience
Final recipients can benefit from the expertise of financial intermediaries and other partners from the private sector in designing economically viable projects.
What are the requirements applying to financial intermediaries implementing financial instruments?
In accordance with Article 7 of Delegated Regulation (EU) No 480/2014 and the Commission Guidance for Member States on the selection of bodies implementing financial instruments (2016/C 276/01), the FMFIB selects financial intermediaries on the basis of their legal status, financial, economic and organisational capacity to manage financial instruments (FIs).

Financial intermediaries must meet the following minimum requirements:
- the entitlement to carry out relevant tasks of implementing the financial instruments under the applicable Union and national law;
- economic and financial viability;
- the capacity to implement the financial instruments, including organisational structure and governance framework;
- an effective and efficient internal control system;
- an accounting system providing accurate, complete and reliable information in a timely manner;
- agreement to be audited by the FMFIB, the managing authority of the EU programme providing the financing, the certification body, the European Commission, national and EU audit bodies and the European Court of Auditors.
In selecting financial intermediaries, the FMFIB takes account of the nature of the respective financial instrument, the applicant's experience in implementing financial instruments, the expertise and experience of its team, and the operational and financial capacity of the applying entity.

In assessing the organisation's capacity to manage a financial instrument, the FMFIB will assess at least:
- the credibility of the methodology for identifying final recipients;
- the level of management costs and fees for the implementation of the financial instrument and the methodology for their calculation, including the presence of performance-based components;
- the terms and conditions applied in relation to support provided to final recipients, including pricing of the individual financial products;
- the ability to raise resources additional to the public resources;
- the ability to perform additional activity in comparison to present activity;
- measures to manage conflicts of interest, including in cases where the financial intermediary invests its own financial resources or shares the risk attached to the respective financial instrument.
How are financial intermediaries implementing financial instruments selected?

The FMFIB conducts the procedures to select financial intermediaries for each financial instrument in conformity with the applicable national and EU law. Financial intermediaries are selected on the basis of open, transparent, proportionate and non-discriminatory procedures, avoiding conflicts of interest.

The observance of these principles is ensured by implementing a selection procedure in accordance with the requirements of the Public Procurement Act.