Market Gaps on Access to Finance - Bank of Valletta

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Malta Business Bureau – <strong>Market</strong> gaps in access to finance April 2013 One of the main shortcomings observed in the previous programming period were related to gap assessments 84 . Financial instruments are a special category of spending and their successful design and implementation hinges on a correct assessment of market gaps and needs. The amended regulations stipulate that financial instruments should be designed on the basis of an ex ante assessment that has identified market failures or sub-optimal investment situations, respective investment needs, possible private sector participation and resulting added value of the financial instrument in question. Such an ex ante assessment should also avoid overlaps and inconsistencies between funding instruments implemented by different actors at different levels. The EC has already outlined a number of proposals for the inclusion of innovative financial instruments in the next MFF to be implemented through a set of common rules and guidance for equity and debt instruments (referred to as the “EU equity and debt platforms”) 85 . These include 86 : BOX 3.5.4.1: Investments in RD&I under Horizon 2020 Two financial instruments are planned: (1) a debt instrument providing loans to single beneficiaries for investment in RD&I, guarantees to financial intermediaries making loans to beneficiaries, combinations of loans and guarantees and/or counter-guarantees for national or regional debtfinancing schemes, and (2) an equity instrument that would (i) invest in technology transfer and intellectual property vehicles and in venture capital funds providing equity finance to early stage RD&I-intensive SMEs, and (ii) support investments in RD&I sectors by targeting thematically focused, multi-country “funds-of-funds” with a broad investor base, including private institutional and strategic investors. BOX 3.5.4.2: Competitiveness and SMEs Two financial instruments to be funded by the Programme for the Competitiveness of Enterprises and SMEs 2014-2020 (COSME) are being proposed: (1) an equity facility for growth-phase investment, which will provide commercially oriented reimbursable equity financing primarily in the form of VC through financial intermediaries to SMEs. Two measures are envisaged: - Direct investments in VC funds which operate across borders within the EU and are focused on investing in growth-oriented enterprises not primarily based on innovation or research. - “Funds-of-funds” investing across borders in VC funds which subsequently invest in enterprises, in particular in their international expansion phase. (2) a loan facility, providing direct or other risk sharing arrangements with financial intermediaries to cover loans for SMEs and provide cross-border lending or multicountry lending with a high leverage effect. 84 This was one of the main recommendations put forward by the Court of Auditors’ report, also suggesting the inclusion of a quantified analysis of the financing gap (European Court of Auditors (2012), Financial instruments for SMEs – audit report). The same report also provides a good practice example of a gap assessment related to an initiative in Sweden (Ibid, pg. 18) 85 Various documents highlight the need for amendments to the Regulations, improved guidance and technical assistance to be provided to Member States on the basis of experiences from the 2007-2013 Programming Period (European Court of Auditors (2012), Financial instruments for SMEs – audit report; European Commission (2012), Financial Instruments in Cohesion Policy; European Commission (2011), A framework for the next generation of innovative financial instruments – the EU equity and debt platforms). This need for higher assurance will, however, come at the price of flexibility. 86 European Commission (2011), A framework for the next generation of innovative financial instruments – the EU equity and debt platforms, pgs. 11-12 Page | 38
Malta Business Bureau – <strong>Market</strong> gaps in access to finance April 2013 BOX 3.5.4.3: Self-employment, micro-enterprises and social enterprises A Microfinance and Social Entrepreneurship axis is being proposed to build upon and continue the existing EPMF. It extends its coverage through supporting the building-up of the institutional capacity of microcredit providers, and complements it by a financial instrument with an EU contribution to provide equity, debt, and risk sharing instruments to social investment funds and other financial intermediaries for financing social enterprises. Social enterprises are dealt with in further detail in Section 6.2.1. BOX 3.5.4.4: Infrastructure Financial instruments under the Connecting Europe Facility for infrastructure are likely to include: (1) a risk-sharing instrument covering loans and bonds (incl. the Europe 2020 Project Bond Initiative) to respond to the requirements of multiple financing models applied across the EU, the size and sector of projects and the stage of development of project finance and capital markets in general, and (2) an equity instrument to complement the toolbox of infrastructure instruments with the objective of further developing EU-wide risk capital markets. BOX 3.5.4.5: Education and culture Guarantee facilities will be developed to contribute to the EU2020 objectives under the Creative Europe Programme, including: (1) a student loan guarantee facility to enable master level students to undertake studies in another country, contributing to the objective that 20% of higher education students participate in cross-border learning mobility, and (2) a guarantee facility (possibly to be combined with another SME financing instrument) to incentivise financial intermediaries to extend loans to SMEs in the cultural and creative sectors, which include producers, music companies, video game developers, publishers and distributors whose assets are mostly intangible (such as intellectual property rights), often resulting in financial intermediaries perceiving these companies as too risky to finance. BOX 3.5.4.6: Structural Funds An increasing share of support under the structural funds will be delivered by means of financial instruments, in particular support to enterprises and other projects or investment activities that generate revenues, notably in the areas of climate change, environment, innovation, ICT and infrastructure. BOX 3.5.4.7: European Social Fund Member States and regions will also be encouraged to support financial instruments under the ESF (e.g. for students, job creation, mobility of workers, social inclusion and social entrepreneurship). Page | 39
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Market Gaps on Access to Finance - Bank of Valletta

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