MDB provides financing for bankable projects, that is, viable projects that have satisfactory revenue-generating potential. All proposals are assessed according to sound banking principles
MDB addresses market failures that ensue from externalities and difficulty in risk assessment. In certain cases, such failures limit the access of certain beneficiaries to the optimal set of financial resources. MDB facilities cater for SMEs which otherwise would not be accommodated by private sector intermediaries despite the underlying viability or social desirability of their activities.
Facilities are extended through intermediaries, mainly commercial banks, that conduct the due diligence process and project appraisal. These intermediaries assess and approve loan applications of end-customers under promotional schemes pre-agreed with the MDB.
This process ensures the non-competitive nature of the relationship between the MDB and the intermediaries. It also enables the MDB to assume a leaner structure, thereby fulfilling its public policy role in a cost-effective manner.
Facilities intermediated through commercial banks can take the form of portfolio guarantees, co-financing or a combination of both.
The MDB offers promotional schemes to support:
- SMEs particularly those involving innovation, digitalisation and, more broadly, the preservation and enhancement of competitiveness;
- Socially-oriented initiatives, particularly those involving knowledge generation, education, health and social inclusion;
- Investment that addresses environmental issues such as water usage, water treatment, waste treatment, reduction and reuse;
- Investment aimed to achieve a high level of sustainability or promote the circular economy.
Private and Public Sector Projects
The MDB engages in direct lending, including co-financing, or as guarantor for commercial banks or other intermediaries. Such operations are typically directed at:
- Physical infrastructure projects carried out by the private sector, public entities and/or public-private partnerships;
- Social infrastructure projects including those associated with health sector, long term care, education, affordable housing and similar initiatives. In such instances, social returns may not be fully internalised by the private investor;
- Syndicated lending which crowds in a group of banks and other funding sources to enable large scale investment projects.
Nature of Financing Operations
The MDB’s financing operations, which can be either on state aided terms or on market terms, include the provision of:
- Aided finance authorised under:
- The General Block Exemption Regulation (GBER);
- Approved aid schemes;
- Approved aid under specific Guidelines issued by the European Commission, or;
- EU financial instruments, where the MDB channels and manages such funds, or where the MDB is a co-investor.
- Aided finance that meets – at the level of the final beneficiaries – the conditions of the de minimis regulation
- Finance offered on market terms to eligible final beneficiaries and compliant with the GBER except for aid intensities or maximum aid amounts. In the case of infrastructure projects participation by private investors shall be at least 50% pari passu with the Bank;
- Participation in EU financial instruments with market terms financing; or other forms of financing subject to prior approval by the European Commission.