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Local financing in rural areas

[ Summary ]




Access to funding is a key local development issue. Indeed, difficulties in securing finance may seriously hamper the emergence of projects - especially small-scale ones - and new business creation.

The ability to grant funding and/or facilitate the search for such funding is the primary lever which LEADER groups are able to use in their area.

However, despite the existence of a wide variety of potential financing instruments, we have noted that virtually all LEADER groups since LEADER I have confined themselves to a sole financial instrument, namely subsidies. Even though this has enabled them to exploit the diverse possibilities afforded by this formula, by focusing on the beneficiaries’ levels of co-partnership, LEADER has largely ignored the multiple advantages offered by other forms of financing, including ethical alternatives, guarantee funds, venture capital, etc., as well as a carefully considered combination of these various formulas.

LEADER’s lack of experimentation has not been due to insufficient resources or financial engineering possibilities. Indeed, ever since they were created, Community regulations have authorized the use of the European Structural Funds for financial engineering purposes. However, only a few of the 217 LEADER I local action groups (LAGs) and the thousand LEADER II groups have seized this opportunity to create financial engineering structures suited to specific needs that subsidies fail to address.

At a time when we are drawing lessons from LEADER II (1994-1999) in order to prepare the new LEADER+ Initiative (2000-2006), it appears essential to analyse these financing experiments which have been all too isolated and little-publicized. This dossier addresses a number of questions, including: What lessons can be drawn from these interventions today? What are their limitations? And what are the challenges for the future, in particular for LEADER+?

With respect to the limitations encountered by these formulas, have any alternative experiments been conducted in another context which may be of use to rural development and to LEADER LAGs? For example, at present most of the consultations, initiatives and innovations in local financing are emerging in urban areas. In what ways could this proliferation of experiments in the towns interest rural areas? What are the limitations? Which points require further experimentation?

The purpose of this dossier, which results from discussions during the seminar on local financing held in Tarazona (Aragon, Spain) in January 1999, is to sketch out answers to these various questions.

The document has been structured into four chapters:

  • In Chapter One, we seek to ascertain why the issue of local financing is so important to rural development and what this involves. What are the needs and issues at stake? What problems and doubts do they raise?

  • In Chapter Two we attempt to present a brief outline of current funding provision for rural areas from sources other than LEADER. Within this diverse range we distinguish between two types of structure: those based on a purely financial rationale which, in the current globalization context, increasingly tend to diverge from some of the specific needs of rural areas, and “alternative” forms of financing, which obey different rules of a social, ethical, local development or similar nature. This second phase of analysis leads us to evaluate the gap that exists in rural areas between funding needs and funding provision.

  • Chapter Three focuses on the principal financing formulas tested under LEADER I and LEADER II. What characterizes these experiments? In what way are they different and/or complementary? What parallels are there? What are their limitations? What needs do they fail to address? In which fields is further experimentation required?

  • Finally, Chapter Four identifies a number of challenges to be taken up in the future: What issues must financial instruments address, especially in the context of the new rural development Regulation and the LEADER+ Initiative? Two factors will be key to this analysis. The first is that after 2006, there is nothing to guarantee continued support from either the Structural Funds or LEADER, and so from now on it is absolutely essential to think in terms of the survival of initiatives after 2006. The second is that the local territorial framework is no longer adequate for long-term solutions and that higher levels of intervention must be considered that span several rural areas and/or are linked in a variety of ways with urban areas.



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