Role of donor agencies

The European Fund for Southeast Europe is a public-private partnership in the truest sense of the term and donor agencies play an essential role for EFSE’s operating mechanism: through the creation of different risk tranches and a waterfall repayment mechanism, grant funds provided by donor agencies are essential to leverage private capital. They constitute the risk cushion (First-Loss Tranche) for private investors that otherwise would be unable to invest in high-risk countries as the target region. Through this mechanism, private capital can be leveraged substantially enlarging the total amount of funds available for development purposes. Up to seven times the First-Loss Tranche can be raised for the target group. This leveraging potential of the Fund is critical for the region's development of capital markets in times when economic growth more than ever depends on access to long-term financing. Importantly, the public funds comprising the Fund’s first-loss tranche are not ‘new’ public funds allocated for development purposes: rather, funds from existing bilateral donor programs were transferred into the EFSE at its inception in December 2005.

Grant funds in the form of risk capital are also relevant to allow starting Fund operations in new countries, and introducing new financial instruments and products of higher risk.

Furthermore, donors can provide grants to the Development Facility of the EFSE. The provision of complementary non-financial services in the form of technical assistance and capacity building to the partner institutions through the Development Facility is a unique feature of the Fund. Its services add significant value to EFSE's investments both from a target group as well as financial sector perspective. In general, grant funds can be earmarked to specific nations/national entities as well as activities to be financed under the EFSE Development Facility.