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JEREMIE: A Joint REGIO-EIF / EIB initiative supporting improved access to finance for SME
Commission Européenne - MEMO/06/219 30/05/2006
Brussels, 30 May 2006
The Commission stressed the importance of improving access to finance for small and medium enterprises in the context of cohesion policy, in its Communication of July 2005, “Cohesion Policy in support of growth and jobs, Community strategic guidelines 2007-2013”. In particular, the Commission refers to the need to enhance support for start-ups and micro-enterprises, through technical assistance, grants, as well as non-grant instruments such as loans, equity, venture capital or guarantees, and highlights the added value of undertaking these actions in cooperation with the EIB group (European Investment Bank and European Investment Fund).
Evaluations and studies demonstrate a clear correlation between, on the one hand, access to finance and risk capital for small and medium enterprises and, on the other hand, economic growth and competitiveness. Improving access to finance and risk capital for SMEs is therefore a key element of the Lisbon agenda and in this context, ERDF resources allocated to this objective in the new programming period will count in full to Lisbon earmarking targets.
DG REGIO and the EIB Group have prepared a joint initiative to support improved access to finance for SMEs and development of micro-credit for the next programming period, presented under the acronym “JEREMIE” (Joint European Resources for Micro to Medium Enterprises).
The proposal for the JEREMIE initiative was first presented by Commissioner Danuta Hübner and the EIB Group, at a Ministerial meeting of 11 October in Brussels. Ministers responsible for the Structural Funds in the 25 Member States and in the candidate countries participated actively and contributed to the discussion, welcoming the JEREMIE initiative. In their interventions, Ministers agreed on enhanced involvement of national and regional actors, including Banks and financial intermediaries.
In the light of the comments from Ministers, the Commission has updated, consequently, its proposal and presented it at the regional conference of 24 November 2005 on “Financing growth and cohesion in the enlarged EU”. Representatives from all the regions of the European Union eligible for support by the ERDF, along with representatives from the International Financial Institutions, the European banks, SMEs associations, the social partners, welcomed the JEREMIE initiative and declared their wish to participate in it.
HOW JEREMIE WORKS
JEREMIE is a framework providing a series of coherent actions to promote increased access to finance for micro to medium enterprises. Its main features are as follows:
A. Preparatory phase in 2006 and 2007- Evaluations
During the preparatory phase, which will be concentrated in the years 2006-2007, the EIF (European Investment Fund) and the Commission will pool their resources in order to undertake, in cooperation with the national and regional authorities, evaluations of the gaps between the supply and demand for financial engineering in the regions (“gap analysis”). For this exercise, the EIF would contribute 25% of the required resources while the remainder will come from the ERDF technical assistance budget at the initiative of the Commission.
The objective of JEREMIE evaluations is to identify gaps between, on the one hand, the potential demand for financial engineering products in support of SMEs and micro-credit operations in the regions and, on the other hand, the existing supply capacity of the local specialised financial intermediaries for such products. The evaluations will also include a proposed action plan to achieve better balance between supply and demand in the regions.
It could also be envisaged to extend the evaluations to the sub-regional level, for example, in order to prepare the ground for the JEREMIE initiative to be accessible to urban authorities.
The results of evaluations will be made freely available to the regions and the competent programme authorities in the Member States, as well as to interested holding funds and financial intermediaries.
B. Implementation during 2007-2013
All agreements and arrangements presented will be subject to Community law, including state aid and public procurement law.
Programming - selection of holding fund
This gap analysis, evaluation and proposed action plan, will be used for the preparation of the next generation of operational programmes to be financed by the Structural Funds in the programming period 2007-2013. These programmes are prepared in partnership between the authorities in the Member States and the Commission. The programmes will set out objectives and the relevant grant resources specifically for actions to improve access to finance, based on the gap analysis and proposed action plan.
The implementation of programmes and projects is the responsibility of the programme authorities. For actions to improve access to finance, two essential steps would have to be taken at the initiative of the programme authority in the Member State:
• frst, it is envisaged that the authorities will identify a suitable holding fund to act as a “fund-of-funds”, either by awarding a grant to the EIF to carry out this task, or by awarding a contract in accordance with public procurement law.
• second, a formal “Funding Agreement” setting out funding arrangements and deliverables, would be concluded between the programme authority and the selected holding fund.
Funding Agreement with selected holding fund
The funding agreement with the holding fund shall include provisions for: i) the terms and conditions for contributions from the operational programme to the holding fund, ii) the call for expression of interest addressed to financial intermediaries, or to urban development funds, iii) the appraisal by the holding fund, selection and accreditation of financial intermediaries, iv) setting up and monitoring the investment policy, including the targeted small and medium enterprises and the financial engineering products to be supported, v) reporting by the holding fund to Member States or managing authorities, and monitoring implementation of actions, vi) the investment exit policy, and the winding up provisions for the holding fund.
Where a Member State, a region or a managing authority signs a Funding Agreement with a holding fund, it is also recommended that the holding fund undertakes to ensure a sufficient presence on the ground, possibly in local offices. This local presence will help to provide information, marketing and similar contacts with the financial intermediaries, and the SMEs in the regions concerned.
The operational cost to the holding fund for this presence on the ground will be included in the management cost for the amounts and on the conditions to be specified by the Funding Agreement. Management cost of the specific JEREMIE accounts in the selected holding fund will be eligible expenditure to the ERDF for the operational programme(s) concerned, on the conditions and for the amounts provided by the Funding Agreement.
The detailed rules for the implementation of JEREMIE to be laid down as provided by art 42 bis of the new draft general regulation for the Structural Funds, will set ceilings for the cost of managing JEREMIE by holding funds or funds. These ceilings will not exceed those defined by rules 8 and 9 in Commission regulation 448/2004 laying down detailed rules for the implementation of Council Regulation 1260/99.
Contributions from operational programmes to selected holding funds
The resources contributed from the programme to the accounts with the selected holding fund consist of an ERDF component and a national public component (the ratio depending on the ERDF co-financing rate of the relevant priority axis of the operational programme).
The EIB could, in accordance with its operational procedures (notably when the EIF is selected as holding fund), refinance through loans the national public component of these programme grants, if the Member States or regions request it and on terms that take account of the nature of the financial product.
Each contribution from the operational programme to the selected holding fund will be irreversible for the programming period 2007-2013. It will constitute an eligible interim payment for the ERDF under the rules of the Structural Funds already in force.
These rules also require that by the end of 2015 at the latest, the totality of contributions from the operational programme to funds or holding funds would have to have given rise to an equivalent level of payments by the financial intermediaries for investments in micro- to medium enterprises.
In this context, the Funding Agreements between the holding fund and Member States or managing authorities should be sufficiently flexible as to allow for a prudent initial contribution from the relevant operational programme(s), and then for additional contributions to be made to the JEREMIE specific accounts within the holding fund over the programming period.
Selection of financial intermediaries – support for SMEs
The holding fund would make an open call for expression of interest. The call will be addressed to all financial intermediaries (including venture capital, loan or guarantee funds or micro-credit providers), offering them the possibility to participate in the initiative. The call should be sufficiently flexible and remain open for at least the first half of the programming period 2007-2013.
The holding fund would evaluate, select and formally accredit financial intermediaries. Such accreditation will be subject to periodic review. Drawing on the resources in the specific national or regional accounts, the selected holding fund will provide equity, guarantees or loans, to the accredited financial intermediaries (that is, funds and micro credit providers).
The terms and conditions for contributions to financial intermediaries, from holding funds supported by operational programmes, including deliverables, investment strategy and planning, monitoring implementation, investment exit policy and winding up provisions, will be set up in a funding agreement, to be concluded between the fund and the holding fund.
Member States or managing authorities could decide to make in parallel available technical assistance credits to accredited financial intermediaries or to supported SME’s, from the relevant operational programme(s). This should take place in accordance with operational details to be agreed between the managing authority of the operational programme and the holding fund.
The selected financial intermediaries would in turn make available equity, loans or guarantees, on competitive terms the principles of which would be agreed between the programme authority and the holding fund, to micro, small or medium sized enterprises. Special emphasis should be given to supporting technology transfer, start-ups, technology and innovation Funds, micro credit. The financial intermediaries will monitor investment implementation by supported SMEs, and report to the holding fund, as specified by the funding agreement between them.
Recycling contributions from operational programmes
Resources returned to the holding fund from investments undertaken by it, from reimbursement of loans, or left over after all guarantees have been honoured shall be reused by the Member States for the benefit of micro to medium enterprises, possibly under the JEREMIE holding fund, on the terms and conditions specified by the funding agreement. This revolving character of operational programmes resources contributed and used for improved access to finance for micro to medium enterprises will be a key point for ongoing and sustainable support for the social and economic fabric of the regions.
Leverage for contributions from operational programmes
Contributions from operational programmes to JEREMIE actions, are expected to
give rise to a significant leverage effect, bringing in additional loan capital
from banks, the EIB, notably where the EIF ensures the holding fund tasks, and
other IFIs. Such loan capital and financial products to be contributed would be
used to co-finance complementary actions with the operational programme(s)
concerned, to support micro to medium enterprises in the region(s).
Contact for JEREMIE team in Luxembourg:
Assistance for Project Preparation – JASPERS
The enlargement of the European Union in 2004 added ten new Member States to the Union. Virtually all regions in these countries are covered by the top priority Convergence Objective for aid provided under the EU Structural Funds. Two other countries, Bulgaria and Romania, will join the EU in the near future. These countries will be major beneficiaries of a huge increase in EU assistance from 2007 onward which has the potential to have a significant impact on growth and employment. The challenge they face is to make best use of these resources.
Last year the European Commission decided to join forces with the European Investment Bank and the European Bank for Reconstruction and Development, which have a long record of successful cooperation in financing projects in central and eastern Europe, to develop a new technical assistance instrument to improve the preparation of projects to be financed by EU’s Structural and Cohesion Funds. The objective of this instrument is to help the Member States to use the grant finances provided by the Union more quickly and more effectively. This initiative is called JASPERS (“Joint Assistance to Support Projects in European Regions”).
The project preparation facility is available for infrastructure projects aimed at upgrading transport networks and the environmental and for investments improving energy efficiency and using renewable energy. It also covers the improvement of urban transport as well as large projects in other sectors such as health, education and urban redevelopment.
JASPERS will provide assistance as required for any stage of the project cycle from the early stages of project conception through to the final application for EU funding or the decision to provide EU funding by the national authorities (the responsibility for decisions depends on the size of the project).
This assistance may cover technical, economic and financial aspects and any other preparatory work needed to deliver a fully developed project. It is geared to providing advice, ensuring coordination, developing and reviewing project structures, removing bottlenecks, filling gaps and identifying problems not addressed, e.g. state aid, environmental impact assessment, etc. However, much of the detailed technical work remains the responsibility of the respective Beneficiary States.
JASPERS focuses on larger projects with total costs exceeding € 25 million for environmental projects and € 50 million for transport or other sectors. However, there will be flexibility about these thresholds in the case of the smaller countries or where projects serve as pilot actions for best practice.
JASPERS is implemented by a team made up of experts from the Commission, EIB and EBRD based in the European Investment Bank, in Luxembourg and in regional offices to be established shortly in central and eastern Europe. However, the project preparation activities of the JASPERS unit will be clearly separated from the lending activities of the EIB and the EBRD. A total of 54 professional staff will work in the JASPERS unit when it is fully operational. The recruitment of 30 new staff to reach the target for JASPERS is now underway.
Assistance from JASPERS is provided free of charge to the beneficiaries.
JASPERS: Method of Operation
JASPERS operates on the basis of action plans drawn up each year for each country in cooperation with the national authorities concerned and with the European Commission. These action plans take into account the specific conditions of individual countries and can be modified, if required, taking account of changed circumstances.
The action plans for 2006 have already been prepared for the twelve priority countries following detailed discussions with them and the JASPERS team is now waiting for the final confirmation of the agreement of the last few countries to the draft action plans so that operations can begin in the coming weeks.
There is no obligation to combine EU Funds with EIB and EBRD loans if JASPERS assistance is used and the national authorities may borrow if they wish from the EIB or EBRD for projects prepared with assistance from JASPERS.
There is no change to existing legal responsibilities. The decision to provide a EU grant for a project remains the responsibility of the European Commission.
Whom to Contact?
The Managing Authorities for the Structural and Cohesion Funds operating in
the beneficiary States act as central coordinators for each country. They can
request assistance directly from JASPERS headquarters in Luxembourg and will be
able to approach JASPERS’ regional offices once they are operational. It
is planned to open offices in Warsaw and Bucharest in the near future and in a
third location covering the Czech Republic, Slovakia, Slovenia and Hungary, yet
to be decided.
Contact for JASPERS team in Luxembourg:
JESSICA: Sustainable investment for urban development (Joint European Support for Sustainable Investment in City Areas)
JESSICA is a new policy initiative, creating a framework for enhanced cooperation on financial engineering for sustainable urban development policy between, on the one hand, the authorities in the Member States, and on the other hand, the Commission in cooperation with the European Investment Bank (EIB) and the Council of Europe Development Bank (CEB). Other International Financial Institutions (IFIs), as well the European banking and private sector are also expected to participate and contribute. JESSICA has been launched by the Commission, in cooperation with EIB and CEB, with a view to offering help and providing new opportunities to managing authorities responsible for the next generation of cohesion policy programmes by:
The European Commission, in the draft Community Strategic Guidelines for Cohesion for the period 2007-2013 (July 2005) has called for special attention to be given to the specific needs of certain territories, such as urban areas, with a view to achieving balanced development and removing obstacles to growth. This is a field that has attracted much interest and political support as a key priority for the next period.
First, in the context of the consultation on the draft Community Strategic Guidelines, including with Member States, the need to do more at European level in this field was a recurring theme.
Second, a high-level conference organised by the Commission and involving the Council Presidency, the regions and financial institutions of the European Union, held in Brussels on 24 November 2005 on the theme of Financing growth and cohesion in the enlarged EU, called for more innovation in this field. In particular, the announcement by the Commission, the EIB and the CEB, of their intention to enhance and coordinate their action to promote sustainable urban development, received widespread support.
Third, Ministers responsible for urban policy stressed the substantive contribution that cohesion policy can make to urban development, at their meeting on sustainable communities in Bristol on 6-7 December 2005. Ministers called for a reflection on ‘how to enhance the impact of EIB loans’ for sustainable urban development.
Fourth, the European Parliament in its report ‘The urban dimension in the context of enlargement’ (rapporteur Jean Marie Beaupuy’) welcomed the incorporation of sustainable urban development into the mainstream of cohesion policy. In addition, the report invites the Commission to ensure enhanced interventions in the cities and urban areas.
The JESSICA initiative and its aims
In the light of these developments, the European Commission is launching, in cooperation with the European Investment Bank and the Council of Europe Development Bank, an initiative for sustainable urban development: Joint European Support for Sustainable Investment in City Areas (JESSICA).
Its objective is to provide Member States and managing authorities a tailored solution to financing projects for urban renewal and development, using an appropriate combination of grants and loans, or other financial products as appropriate.
Under the JESSICA initiative, operational programmes and the managing authorities will be able to:
How the JESSICA initiative works
As indicated above, the JESSICA initiative is inspired by, and has many similarities with, the JEREMIE initiative to enhance access to finance for SMEs, especially in methodological terms.
As with JEREMIE, JESSICA provides a framework that, based on a contribution from the Structural Funds operational programmes to urban development funds or holding funds, adds specialist expertise, levers-in additional loan resources, and facilitates the relationships with project promoters leading to new investments on the ground.
The JESSICA and JEREMIE initiatives will be complementary in the context of integrated urban development plans. JEREMIE can support improved access to finance for micro to medium enterprises in urban areas, while JESSICA can support urban infrastructure projects and networks, energy efficiency or ICT projects, or any other project or group of projects falling within the scope of intervention of the ERDF (or the ESF where appropriate), not relating to access to finance for SMEs, and included in an integrated urban development plan.
Under JESSICA, the basic steps leading from programming and contributing from a programme to a fund or holding fund, to support for a project on the ground are as follows:
A. Programming JESSICA.
In accordance with the new regulations, the next generation of programmes will contain, where appropriate, priorities relating to integrated urban renewal and development.
Integrated urban development plans should be elaborated under the initiative or responsibility of managing authorities, in the context of such priorities. The projects to be supported under integrated urban development plans are those to be targeted by JESSICA. Where programmes address urban development, the managing authorities will be able to follow one of two routes (or both if appropriate) in using the JESSICA framework.
B. Implementing JESSICA
Route1: Operational programmes contribute directly to Urban Development Funds.
Under Route 1, managing authorities deciding to use the JESSICA framework will launch one or more calls for expression of interest, addressed to urban development funds and the resulting submissions would then be evaluated on the basis of appropriate criteria. These would include the investments and projects to be targeted, the terms and conditions under which they would be financed, ownership and contributions of co-financing partners of the fund, the justification and intended utilization of the ERDF contribution, the winding up provisions of the fund, etc.
As a result of the appraisal, a funding agreement would be signed between the managing authority or the Member State and the selected urban development fund(s), specifying the terms and conditions for contributions from operational programmes to the funds, including deliverables, investment strategy and planning, monitoring implementation, investment exit policy and winding up provisions.
Operational Programme’s Contribution to Urban Development Funds
Following the signature of a funding agreement, the managing authorities responsible for operational programmes will contribute resources to the urban development fund(s). Such contributions from programmes to urban funds will be used to support urban projects with non-grant financial instruments such as equity, loans or guarantees.
As it is the case for the other financial engineering instruments, contributions from the programmes to urban development funds shall be considered as eligible interim payments under the ERDF. At the closure of the operational programmes, the eligible expenditure for the ERDF will be the total of payments for investment in urban development projects from the fund.
Financing selected projects
Urban development funds will select and support PPPs and other urban projects, providing them loans, equity or guarantees, but not grants. It would be possible for a given project to be supported partly with non-grant financial instruments by urban development funds, and partly by public grants (including from operational programmes). Other private banks or investors may also participate in financing the projects.
Project promoters could be public, municipal or private sector enterprises, or joint enterprises involving these actors in any possible combination between them.
As indicated above, an urban development project receiving grant assistance from an operational programme can also be supported by urban development funds with equity, loans or guarantees. Equity contribution to urban projects by urban development funds, financed by the Structural Funds, shall be taken into account in calculating the rate of contribution from the Funds. Loans or guarantees for loans financed by the Structural Funds provided to urban projects by urban development funds shall not be taken into account in calculating the rate of contribution from the Funds.
Urban development funds receiving contributions from the Structural Funds, can use them to finance new greenfield or brownfield urban projects within integrated urban renewal and development plans. Contributions from the Structural Funds to urban development funds cannot finance acquisitions or participation in already completed or existing projects.
Supported urban development funds will monitor the implementation of projects by final beneficiaries and will report to the managing authorities on their activities (selection of projects, implementation by final beneficiaries).
Route 2: Organising JESSICA through Holding Funds
Under Route 2, managing authorities have the possibility to organise financial engineering for sustainable urban development through the intermediary of holding funds. Holding funds are those investing in more than one urban development fund, providing them with equity, loans or guarantees.
In such cases, Member States or managing authorities will have the option of awarding a grant to the EIB entrusting it with the holding fund tasks.
A funding agreement would be signed between the Member States or managing authorities and the holding fund, specifying the terms, conditions, targeted investments, monitoring and reporting, etc.
The holding fund should in its turn publish calls for expression of interest addressed to urban development funds, evaluate and select them. The holding fund should sign a funding agreement with selected funds, and support them with equity, loans or guarantees. The holding fund shall monitor selection, financing and implementation of projects by funds, and report regularly to the managing authority.
C. Leverage and recycling contributions from operational programmes
Under both routes 1 and 2, and subject to the conditions and operational procedures applied by the EIB and the CEB (or other international financial institutions where involved), it is expected that additional loan capital could be contributed for individual PPPs or other projects supported by urban development funds.
The conditions for levering in such capital will be enhanced where the EIB has the role of holding fund. It is expected that private Banks and investors will contribute long term loans or equity as appropriate, either to urban development funds or to co-finance individual projects supported by them.
Resources returned to the operational programme or the competent public authority, from investments undertaken by urban development funds or holding funds, or left over after all guarantees have been honoured, shall be reused for the benefit of urban development projects. Interest generated by payments from operational programmes to urban development funds or holding funds, shall be used to finance urban development projects.
D. Adaptation to local context- Preparatory studies
It should be noted that the implementation of JESSICA will need to take into account the existing urban, social and economic, as well legal and administrative context at national and regional level. This could require preparatory studies for regions and cities of the EU, taking into account the general principles set out above for the JESSICA initiative.
The Commission with the EIB and the CEB, in cooperation with Member States
and managing authorities, will seek to identify the needs for such preparatory
studies, and to ensure their financing and timely completion and
 EP(2005)0272 Report on the urban dimension in the context of enlargement