Financial Instruments in Cohesion Policy

Financial instruments represent a resource-efficient way of deploying cohesion policy resources in pursuit of the Europe 2020 Strategy objectives. Targeting projects with potential economic viability, financial instruments provide support for investments by way of loans, guarantees, equity and other risk-bearing mechanisms, possibly combined with technical support, interest rate subsidies or guarantee fee subsidies within the same operation.

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    The European Commission adopted two new "off-the-shelf", i.e. "ready-to-use" financial instruments for ESI Funds investments, to ease access to funding for young businesses and urban development project promoters.  

    In the 2014-2020 period, the Commission is encouraging Member States to double their European Structural and Investment (ESI) Funds investments used through financial instruments, such as loans, equity and guarantees, in line with the objectives of the Investment Plan.

    Already compliant with the ESI Funds Regulation and State Aid rules, "off-the-shelf" financial instruments are designed to increase the take-up by Member States of revolving financial support rather than traditional grants, and to combine public and private resources. 

    Three instruments of this sort already exist. A risk-sharing loan, based on the sharing of risks between public and private resources, and a capped guarantee instrument, where public money acts as guarantee against default inside a bank's loan portfolio. Both instruments aim to provide SMEs with better access to finance. The third instrument is a renovation loan, for energy efficiency and renewable energy projects in the residential building sector. 

    The Commission is launching two new instruments: 

    • A co-investment facility to provide funding to start-ups and SMEs. This support will enable them to develop their business models and attract additional funding through a collective investment scheme managed by one main financial intermediary. Total investment combining public and private resources can amount to up to €15 million per SME. In the 2007-2013 period, SAS JEREMIE in the French region of Languedoc-Roussillon was an example of such a co-investment facility, using European Regional Development Fund (ERDF) resources to attract private capital and invest in high-tech SMEs in the region. 
    • Urban development funds will support sustainable urban projects, in public transport, energy efficiency or the regeneration of urban areas, for example. Projects must be financially viable and part of an Integrated Sustainable Urban Development strategy. Total investment combining public and private resources can amount to up to €20 million per project. The support will take the form of a loan fund managed by a financial intermediary, with ESI Funds resources and a contribution of at least 30% from private capital. Such an Urban Development Fund has been developed in Pomorskie, Poland, in the 2007-2013 period.

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Besides the obvious advantages of recycling funds over the long term, financial instruments help to mobilise additional public or private co-investments in order to address market failures in line with Europe 2020 and cohesion policy priorities. Their delivery structures entail additional expertise and know-how, which helps to increase the efficiency and effectiveness of public resource allocation. Moreover, these instruments provide a variety of incentives to better performance, including greater financial discipline at the level of supported projects.

Financial instruments have been used for delivering investments for Structural Funds since the 1994-1999 programming period. Their relative importance has increased during the programming period 2007-2013 and they now represent around 5 % of total European Regional Development Fund (ERDF) resources. In the light of the current economic situation and the increasing scarcity of public resources, financial instruments are expected to play an even stronger role in cohesion policy in the 2014-2020 programming period.

ESIF and EFSI complementarities

  • European Structural and Investment Funds and European Fund for Strategic Investments complementarities: Ensuring coordination, synergies and complementarity en pdf

Documents

  • fi-compass is designed to meet the needs of ESIF managing authorities, EaSI microfinance providers and other interested parties, by providing practical know-how and learning tools on financial instruments.
  • Financial instruments in ESIF programmes 2014-2020 - A short reference guide for Managing Authorities en pdf
  • Review of the Role of the EIB Group in European Cohesion Policy en pdf
  • 'EC regulatory guidance and manuals are available on www.fi-compass.eu/resources

Contact

European Commission - DG Regional Policy
Unit B3 - Financial Instruments and relations with International Financial Institutions
Avenue de Beaulieu 5
B-1160 Brussels
Tel: 32 2 29 90808 / 59332
Fax: +32 2 292 0904
REGIO-B3-FINANCIAL-INSTRUMENTS@ec.europa.eu