The European Investment Fund (EIF), based in Luxembourg City, was established in 1994 to address the need for enhanced financing instruments supporting small and medium-sized enterprises (SMEs) across Europe. Created as a public-private partnership, its main shareholders are the European Investment Bank (with a majority stake), the European Commission, and various private financial institutions.

The EIF is not a traditional bank; it does not directly lend to SMEs. Instead, it operates as a “fund of funds,” providing equity investments in venture capital funds and offering guarantees to banks that, in turn, support SMEs. This model is designed to spread risk and leverage private sector financing for small businesses, especially those focused on innovation and high technology. By 2004, the EIF had reached €10 billion in committed operations and had impacted over 250,000 SMEs in 22 countries.

Luxembourg plays a central role in EIF activities. By June 2015, the EIF had invested €65 million in three venture capital funds managed by Luxembourg-based Mangrove Capital Partners, a significant early backer of companies such as Skype. In partnership with the Société Nationale de Crédit et d’Investissement, the EIF also set up the Luxembourg Future Fund, a €150 million initiative to drive economic diversification by backing innovative technology companies.

The EIF continues to support EU efforts ranging from employment and social innovation guarantees to investments in sectors crucial to Europe’s technological and economic development, reinforcing its role as a facilitator rather than a direct lender.