Financial Instruments are an efficient way to invest in the sustainable growth and development of businesses and resources in the agriculture and forestry sectors as well as in the broader rural economy. Taking shapes such as loans, guarantees and equity, financial instruments can support a broad range of projects and beneficiaries, with the potential to raise further private capital for investing in our rural areas.
With a total budget of almost €100 billion for the period 2014-2020, the European Agricultural Fund for Rural Development (EAFRD) works to strengthen the EU’s agriculture, forestry sector and rural areas. Rural Development projects can receive support from the EAFRD via grants – support that does not have to be repaid – but also, increasingly, through financial instruments.
Financial Instruments come in many shapes. They can take the form of loans, guarantees or equity. But they also have a number of things in common:
- they are expected to be repaid
- they are revolving, i.e once funds are being repaid, they can be used again in the same area
- they target financially viable projects, i.e. those which are expected to generate enough profit to pay back the support
- they are designed to increase the total amount of investments in rural areas by also attracting investments from other sources
- they can be used together with grants
- they may be managed by national or regional banks, international organisations such as the European Investment Bank or the European Investment Fund, by financial intermediaries, and (for loans and guarantees only) by managing authorities
Financial instruments can be used to support the investment priorities outlined in the Member States' and regions' Rural Development Programmes (RDPs) but it is a requirement that they are activated where there are market gaps – where farmers and other rural entrepreneurs cannot raise funds from banks and other private investors.
Read more about loans, microcredits, guarantees and equity instruments potentially available under Rural Development Policy
After signing a Memorandum of Understanding in July 2014, the European Commission and the European Investment Bank have developed a Work Programme. The Work Programmes sets out the work ahead in five major areas:
- the development of new financial products
- advise to help Member States draw up thematic investment strategies for agriculture
- direct lending by the EIB to Member States but also private bodies such as EIP Operational Groups
- funding of agri-food research under Horizon 2020
- awareness raising activities related to the Work Programme
More information about the MoU, the Work Programme, the new financial products and how farmers and other rural entrepreneurs can access the financial instruments supported under Rural Development is available in the Q&A on the Work Programme. In April 2015 the European Commission and the EIB hosted an event on the MoU, which was recorded on video.
Specific guidance is also available on the advisory platform for European Structural and Investment Funds (ESIF) financial instruments “fi-compass”, which will progressively become the knowledge hub for ESIF Financial Instruments in the 2014-2020 period.