Pilot Project for Loans to Social Economy Entities under HC.OP

1. Pilot project of loans for social economy entities under the Human Capital Operational Programme 2007-2013 (HC OP) Warsaw, 20 May 2016

2. Thesocialeconomy in Poland – central level Ministry of Family, Labour and Social Policy (MFLSP) - responsible for the coordination of social economy development: Department of Public Benefit responsible for the implementation and promotion of the solutions adoptedin the Act of law on Public Benefit and Volunteer Work; the EFS Implementation Department acting as the Intermediate Body for the Priority I Employment and Social Integration of theHumanCapital OperationalProgramme 2007-2013 (HC OP). Ministry of EconomicDevelopment(MED) acting as the Managing Authority of the HC OP. Social EconomyWorking Group for Systemic Solutions appointed by the Prime Minister in 2008 (high level group gatheringgovernmentrepresentatives, represenatives of institutionsgatheringsocialeconomyentitites (SEEs) and indepedentsocialeconomyexperts).

3. Thesocialeconomy in Poland – diversity Legaltypes of socialeconomyentities: socialcooperatives, labourcooperatives, disabled-persons’ cooperatives, non-governmental institutions (funds and associations), religious unions, organizational units running public benefit activity, local governments’ associations, entitiesoperating as non-for- profit companies (limited liability, joint stock companies and sport clubs); No legal act defining social enterprise and social entrepreneurship; SEEs with no legalpersonalitysuch as institutions of social assistance and social integration (social integration centers, clubs and vocational training centers include in this sector; income-generating activities can be conducted as statutory paid public benefit activities). SEEsconducting and not conductingcommercialactivities (eg. of not conducting: NGO’s and institutions of social assistance and social integration).

4. Limited access of SEEs to financial resources Bigdemand for financial resources combined with major barriers to enter commercial financing system: the dominance of social aims over the economic ones (low financial effectiveness); dependence of SEEs on granting system; lack of legal regulations defining the status of SEEs and supporting their economic activities (legalforms not serviced by the banks); lack of credit repayment history; lack of appropriate securities; low competitiveness on the economic market; insufficient length of running registered commercial activities; lack of competencesnecessary to apply for and incurdebt.

5. Development of repayable support concept In 2010 the Financial Team within the WorkingGroupconcentrated on the conception of providingloans and guarantees to SEEsand together with MFLSP initiatedtalks with MED on possibilities to launch a system of supportunder the HC OP; In February 2011 BGK was invited by MED to participate in works on the SEEs’ repayable support concept development. The main assumptions wereelaborated in cooperationbetween the Financial Team of the WorkingGroup, MFLSP, MED and BGK and evolved thanks to the consultations organized by MED with loan funds’ representatives; The pilot projectobjectives: providingSEEs with the access to repayablefinancialresources; testing the demand for repayableresources to design optimalparameters of supportafter 2013; prepareinstitutionsresponsible for ESF implementationafter2013.

6. Forms of support • Preferentialloans: • max. term of 60 months • max. grace period of a capital repayment – 6 months • max. amount of the loan: PLN 100,000 (ca. EUR 24,000) • annualinterest rate –currently0.88%, with a possibility to lower it into 0.25 of the promissory note discount rate (currently0.44%) • loansecurity: borrower’s blank promissory note (additional securityrequiredwhencreditworthiness not sactisfactory) • no fees and commissions • de minimis aid • Consultingservices: • provided by Financial Intermediaries after signing the loan agreement (max. 30 hours for each SEE) • scope of the consulting services provided under the Project is dependent on individual borrower’s needs, eg.accounting / reporting,tax issues related to the operation,settlement of investment projects,human resource management / personnel policies,information and promotion • free of charge • de minimisaid

7. Institutional system of implementation

8. Agreed Project assumptions (1) The division of Project resourcesalong the country • division to macro-regions ensuredflexibilitynecessary to meetProject implementationschedule

9. Agreed Project assumptions (2) EligibleSEEs: micro- and small SEEs (legalformsindicated in the Detailed Criteria of HC OP Priorities); runningregisteredcommercialactivities; registered min. 12 monthsbeforesubmittingloanapplication. • The aim of the loan: • financing development needs (undertakings serving the extension of activities through implementation of actions aiming to increase income or employment) • The method of calculation of FI’s management fee: • percentage value of the volume of loan agreements signed, disbursed quarterly.

10. Agreed Project assumptions (3) The investment schedule: at least 40% of allocated resources – up to March 31, 2014, at least 80% of resources – up to December 31, 2014 and 100% of resources up to – do 30 June 2015. Factual pace of utilization of allocation in the 1st turn of resources

11. Agreed Project assumptions (4) • The way of provision of FI with financial resources: • provision in two tranches (60% after signing the operational agreement and 40% one year later subject to reports approval). The tranches encompass FI’s management fee which is withdrawn after BGK’s confirmation of withdrawal application (upon quarterly reports approval). • No recovery floor / no loan default rate determined: • FI is obliged to adhere to the principles of diligence in the process of providing loans, servicing the debt and vindication, however, the allowed level of losses was not determined; possible losses will be charged against project resources. • Advisory services rendered by FI: • PLN 400k available = 4k hours of advisory (max. 30 hours for each final beneficiary). The scope of services dependent on individual borrower’s needs (increasing the loan effectiveness), eg. accounting / reporting,tax issues, operational issues,settlement of investment projects,human resource management / personnel policies,information and promotion. The cost reimbursed to FI after quarterly report approval.

12. FI selection criteria Pricecriteria – 45 points, qualitycriteria – 55 points: Loan fund management fee (38 points): Reimbursement for one hour of consulting services (7 points): Business plan assessment (55 points):

13. Lessons learned (1) • Division of resourcesalong the country: • allocation to macro-regions helpedto ensure timely and effective distribution of resources (low demand for loans in some regions did not cause delays in macro-region resourcesutilization). • Finalbeneficiaryassessmentguidepreparation by HFM: • uniformassessmentciteriafor allborrowersthroughout the country; • application of imposedassessmentproceduresimplieslack of risk-sharingmechanism. • The way of FI selection: • inflexiblepublic procurement selection procedure; • the procedureshouldenableadditionalprovision of resources to FI in anefficientmanner (for the purpose of makingavailable 2nd turn of resources); • the procedureshouldenableentrusting FI role to institutionswhichare not commercial nor cooperative banks (no bank applied in the pilot project); • FI’slocalpresenceis less importantthanthe information and promotioneffectiveness of FI.

14. Lessons learned (2) • Remunerationprinciples for both Holding Fund Manager (HFM) and Financial Intermediary: • not recommended for long-term implementationalthoughoptimal for pilot project; • reimbursement of costsincurred by HFM - the reimbursementworkload disproportionate to project size; • recommendable method of FI’sremuneration should include the quality and repayment of loans granted. • Principles of rendering advisory services: • services should not be limited to the borrowers exclusively; due to significant shortages in financial skills SEEs show advisory needs in the undertaking conceptualization and financial planning stage. • Promotion activities: • regional promotion and marketing efforts should be assigned to both HFM and FI equally.

15. Lessons learned (3) • SEEs as reliabledebtors: • no write-offsreported in the project in the end of its implementation (according to the Financing Agreement, non-collectible receivables will be charged to the project resources); • the ratio of overdue receivables (over 180 days) to the value of the portfolio of loans (as of 31 December 2015) was 2.9 %. • Loans for SEEsas unemployment combating tool: • great potential of SEEs to create and preserve workplaces – the number of established work places reported by TISE - 436 new workplaces (237 for women and 199 for men) whereas the target was 50 workplaces (33 for women and 17 for men). • BGK involvement in the social economy sector exceeding project engagement: • since 2014 BGK is the partner and sponsor in the national contest for the best SEE of the year; • BGK’s representativesare members of:appointed by MFLSP NationalCommittee for SocialEconomy Development, appointed by MED Task Force for Financial Instruments under Operational Programme Knowledge Education Development 2014-2020, appointed by MFLSP CertificationCommitteefor the Systemof Social Economy Support Centres).

16. Thank you for your attention! EuropeanProgrammesDepartment Bank Gospodarstwa Krajowego