Today 2 new “ready-to-use”financial instruments, meant to ease access to funding for young businesses and urban development project promoters, were adopted by the European Commission.
Today, 2 new financial instruments for ESI Funds investments were adopted by the European Commission. These “ready-to-use” instruments are meant to ease access to funding for young businesses and urban development project promoters.
Member States are encouraged by the Commission to double their European Structural and Investment (ESI) Funds investments in the 2014-2020 period. These, in line with the objectives of the Investment Plan, are to be used through financial instruments, namely loans, equity and guarantees.
“Financial instruments are an efficient way to invest in new ideas, businesses and in the talent of EU citizens while using less public resources,” said Corina Crețu, Regional Policy Commissioner, “Their potential to mobilise private capital is huge, and it should be fully exploited when investing the ESI Funds.“
Already compliant with the ESI Funds Regulation and State Aid rules, these financial instruments are conceived as so to have Member States accepting in an easier way revolving financial support rather than traditional grants, and to combine public and private resources.
What are the two new instruments the Commission is launching today?
A co-investment facility is intended to provide funding to start-ups and SMEs and to enable them – through a collective investment scheme managed by one main financial intermediary – to develop their business models as well as attract additional funding. Total investment can amount to up to €15 million per SME by merging public and private resources.
Instead, urban development funds will support, for example, projects in public transport, energy efficiency or the regeneration of urban areas – namely sustainable urban projects. Total investment combining public and private resources can amount to up to €20 million per project, which must be financially feasible and be included in an Integrated Sustainable Urban Development strategy. The support will provided through loan funds managed by a financial intermediary, with ESI Funds resources and a contribution of at least 30% originated from private capital.
Compared to grants, says the European Commission, financial instruments are able to attract more private and public resources to add to the initial public funding. Besides, they can be reinvested over several cycles.
The European Structural and Investment (ESI) Funds framework for 2014-2020
Under the ESI Funds framework for 2014-2020, more flexibility, clarity and possibilities to use financial instruments are provided, since the scope of these instruments has been broadened to investment areas ranging from SME support, energy and resource efficiency, digital technologies, sustainable transport, research and development, and innovation.
Three instruments of this sort already exist. The first is a risk-sharing loan, in which a sharing of risks between public and private resources is envisaged. While in the second, public money acts as guarantee against default inside a bank’s loan portfolio – a capped guarantee instrument. Better access to finance for SMEs is the aim of both instruments. As for the third, it is a renovation loan, intended for energy efficiency and renewable energy projects in the residential building sector.
Throughout 2014-2020, it is planned to provide, through financial instruments, over €20 billion from the ESI Funds. Assistance to Managing Authorities and other stakeholders have been provided by the Commission. In particular, an online platform “FI-compass” aimed to provide practical know-how and learning tools on financial instruments was launched by the Commission in partnership with the European Investment Bank in January 2015.
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