European Court of Auditors critizises effectiveness of financial instruments for SMEs under ERDF – positive assessment of guarantee leverage

Le document n'est pas accessible en français.

On 28^th March, the European Court of Auditors issued it Special Report (No. 2/2012) on the effectiveness of ERDF financial instruments for SMEs. The ECA based its findings on an audit of the efficiency and effectiveness of the financial engineering measures co-financed by the ERDF during the 2000-2006 and the 2007-2013 programming periods, based on a relatively small sample of projects (34 in all) in the United Kingdom, Germany, Slovakia, Hungary and Portugal as well as an examination of the Commission and Member States' management, monitoring and information systems. This e.g. leads to the fact that the findings by the Report on guarantees instruments is based on guarantee instruments in only 3 countries (Portugal, Hungary and Slovakia). Given the very limited number of projects analysed and Member States concerned, it is difficult in AECM's perception to show a fully representative picture of the use of ERDF funds throughout the Union.

According to the Court, there have been significant shortcomings in defining correctly the financing gap of the beneficiary SMEs when designing the programmes. This should be undertaken in the future, in close cooperation with the Commission. The ECA also criticizes that the Structural Funds regulatory frameworkused for this SME support through financial instruments was originally designed for grant spending, and thus unfit to take into account the specific characteristics of the debt and equity instruments used. It suggests that the Commission set up a technically reliable and robust reporting system allowing to account for financial instruments separately from pure subsidies.

The European Court of Auditors (ECA) finds that in its opinion, there are insufficient provisions for defining the leverage ratio and revolving nature of the financial instruments. The ECA defined the leverage ratio for its purposes as the “finance to final recipients divided by public contributions”, the latter containing both EFRD and national cofinancing funding. However, while the report finds that the leverage factor for equity finance and loans is too low when compared to benchmark programmes, it gives a positive assessment of the leverage achieved by the guarantee measures investigated in the framework of the ERDF, which in AECM's view makes case for the effectiveness of guarantee programmes under structural funds. For the future, the ECA calls for a small number of measurable, relevant and specific performance indicators for financial instruments. It also suggests fixing contractually binding minimum leverage ratios and leverage dispositions for the respective holding funds or funds.

Finally, the ECA calls for managing all ERDF co-financed SME Financial instruments under one single operational programme to achieve cost reductions and faster programme implementation. It concludes by stating that if these goals should not be realized in the framework of the ERDF, the European institutions should consider using alternative vehicles for SME finance, either through centrally managed Commission programmes, over specialized investments vehicles co-managed by the Commission and the Member States or via the Member States directly.

Link: http://eca.europa.eu/portal/pls/portal/docs/1/13234738.PDF

Source: ECA Press release and Report