Guide to Research and Innovation Strategies for Smart Specialisation

Financial engineering instruments
Why should financial engineering instruments be part of smart specialisation?
For more than ten years, the EU budget has been using financial instruments such as loans,
guarantees and equity investment for SMEs. In the 2007-2013 financial framework a new
generation of financial instruments was put in place in cooperation with the EIB Group. In the
area of structural funds, financial instruments have been set up to support enterprises, urban
development, energy efficiency and renewable energies through revolving funds. Financial
instruments have been set up to support farmers, rural micro- and tourism businesses, through
the Rural Development Fund.
The Europe 2020 Strategy envisages an increased use of financial instruments as part of an
approach to pull together EU and national public and private funding in order to pursue the
Strategy's objectives of smart, sustainable and inclusive growth. In this context, on 6 October
2011, the European Commission adopted a draft legislative package which will frame
Cohesion Policy for the period 2014-2020 which provides a common framework for all EU
policies in shared management including, rural development policy and maritime policy).
This proposal emphasizes that the role of innovative financial instruments will be enhanced,
by extending their scope and by rendering their implementation frameworks more flexible and
effective, encouraging their use as a more efficient alternative of support or in a
complementary way with traditional grants. The proposal represents a more solid legal and
operational framework that provides clear and simplified rules concerning key
implementation matters such as the financial management of EU contributions or the
combination of financial instruments with grants.
Subject to feasibility, financial instruments can be applied to the full bandwidth of policy
objectives reflected in programmes, in order to deliver investments in projects which
demonstrate appropriate repayment capacity in situations of market imperfection. They can be
deployed by Member States and managing authorities either as tailor-made instruments or on
the basis of pre-defined models for national or regional instruments which allow for efficient
roll-out of operations in line with standard terms and conditions proposed by the Commission.
Managing authorities may also contribute to financial instruments set up at EU level, with
resources that will be ring-fenced for investments in line with the programmes concerned, for
example a guarantee facility to incentivise financial intermediaries to extend loans to SMEs in
the cultural and creative sectors (CCS) under the new Creative Europe Programme is being
launched.
Barriers and Challenges
Given the relative newness of many of the financial instruments dissemination of information
and exchange of experiences and good practices among Member States, regions and financial
intermediaries implementing the financial instruments will remain essential for the ongoing
implementation in the present programming period. But also due to increased role of financial
instruments as stated in the cohesion policy post-2013 further focus will need be put on the
promotion allowing new potential users to get familiar with this innovative way of financing
and contribute to a smooth and rapid implementation of these instruments.
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