The National Pension Reserve Fund (NPRF) is to provide €350m in capital to the Strategic Banking Corporation of Ireland (SBCI), meant to boost funding available to Ireland’s small and medium-sized enterprises (SMEs).

The NPRF’s contribution to the entity comes alongside €400m from the European Investment Bank (EIB) and a further €150m from the Kreditanstalt für Wiederaufbau (kfW), Germany’s state-owned development bank.

The initial €800m in funding, to which the SBCI will grant retail banks access, as long as they pass on the lower interest rates, could grow to €5bn over the next five years.

Its initial capitalisation is significantly higher than the €500m pledged when the SBCI was first announced in May.

The NPRF, which will soon become the Ireland Strategic Investment Fund (ISIF), also provided €10m in equity capital to fund the organisation’s start-up costs.

The SBCI’s official launch, attended by German finance minister Wolfgang Schäuble and the heads of the EIB and KfW, comes days after the NPRF announced a 1.9% return for the third quarter of the year.

It said its €7.1bn discretionary portfolio, which is still controlled by the NPRF Commission rather than the Irish government, returned 1.5% over the three months to the end of September and 4.3% over 2014.

The discretionary portfolio’s asset allocation remained largely unchanged over the quarter, with the majority of assets invested in euro-zone bonds or held in cash.

Nearly €1.7bn was invested in equities, and the remaining €1.5bn in alternative assets including commodities and infrastructure.

Detailing its exposure to the Irish economy, made in preparation for the launch of the ISIF, the third-quarter report also noted a €44m investment to a Dublin waste-incinerator project.

The plant, being built by CDM Smith on behalf of Covanta Energy, offers the highest multiple of any commitment so far due to the project’s total €500m cost.

The NPRF has aimed to act as cornerstone investor in all its commitments, attracting significant third-party capital to all ventures.

To date, the NPRF has committed €1.3bn to Irish projects, including a suite of funds to offer financing to local SMEs.

The outgoing head of the National Treasury Management Agency has previously said it would take “years” to re-allocate the NPRF’s holdings toward Ireland

It was unclear at the time of writing whether the NPRF’s commitment to the SBCI would be drawn from the discretionary portfolio or the fund’s directed portfolio.

The investment is a political decision agreed by government and directed by finance minister Michael Noonan, rather than a commercial decision signed off by the NPRF Commission.