WORKING DOCUMENT. FI Moninaisuudessaan yhtenäinen FI. European Parliament

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1 European Parliament Committee on Budgetary Control WORKING DOCUMENT on ECA Special Report N 8/2015 (2014 Discharge) on "Is EU financial support adequately addressing the needs of micro-entrepreneurs?" Committee on Budgetary Control Rapporteur: Inés Ayala Sender DT\ doc PE v01-00 Moninaisuudessaan yhtenäinen

2 Introduction Micro-entrepreneurs in the EU are those entrepreneurs with fewer than 10 employees, a turnover and balance sheet total below EUR 2 million. They represent around 91% of all EU enterprises and often face difficulties in acceding to the conventional credit market to launch or develop new businesses. Therefore, the EU offers financial support to micro-entrepreneurs to address this funding gap and also to address exclusion and increase employment, especially among persons previously unemployed. The EU thereby contributes to the achievement of the EU2020 strategy objectives, in particular smart, sustainable and inclusive growth through increasing employment, productivity and social cohesion. Microfinance is defined in the EU as financial support of up to euros ensured through financial instruments. The financial instruments to support micro-entrepreneurs analysed in the context of this audit are - under the European Progress Microfinance Facility (EPMF) - loans and guarantees, and - in the context of the European Social Fund (ESF) -, grants - provided to launch or develop new businesses -, loans and guarantees. European Social Fund The ESF aims at facilitating the employment of workers (including self-employment), as well as to increase their geographical and occupational mobility, and facilitate their adaptation to professional changes (article 162 of the TFEU). In addition, and for the programming period , the ESF should support measures to improve the financial and social inclusion of less-favoured persons and give access to employment. Support to micro-entrepreneurs financed by the ESF includes measures implemented through grants and financial instruments and is defined in Operational Programmes (OPs) which are prepared by Member States and approved by the Commission. According to the Court of Auditors, during the programming period, Member States have set up 117 ESF OPs, 96 of which funded measures classified as "support for self-employment and business start-ups", totalling around 2.4 billion euro, mostly through grants. The ESF financial instruments providing support to micro-entrepreneurs had an endowment of 680 million euro by the end of The same information was not available for the grants. European Progress Microfinance Facility The EPMF aims at increasing access to microfinance for people unemployed, vulnerable people in disadvantaged position to access the conventional credit market and to microenterprises. It is implemented on behalf of the Commission by the European Investment Fund (EIF), acting as funds manager for funded instruments and as entrusted entity for guarantees. The EIF selects financial intermediaries (banks and other institutions) interested in providing support to micro-entrepreneurs at conditions that are as close as possible to market conditions. As of 30 June 2014, 55 banks or other financial intermediaries in 20 Member States (AT, BE, BG, HR, CY, DK, FR, GR, IE, IT, LT, NL, PL, PT, RO, SK, SLO, SP, SE, UK) had been selected and more than micro-loans amounting to 208 million euro had been disbursed to micro-entrepreneurs. PE v /6 DT\ doc

3 For the programming period the EU programme for employment and social innovation (EaSI) will progressively replace the EPMF (which will be in place until April 2016). The audit was based on the examination of documents at Commission and Member States level (for ESF) and the EIF (for EPMF); the examination of a sample of 27 projects providing financial support to micro-entrepreneurs for 6 ESF OPs (14 grants, 3 loans and 3 guarantee funds) and 7 EPMF financial instruments (2 providing loans and 5 providing guarantees), in 5 Member States (Germany, Greece, Italy, Poland and Romania); interviews with experts in the field; analysis of client files at the level of banks and other financial intermediaries and a survey of 18 additional managing authorities in 14 Member States in charge of 22 ESF OPs with spending on self-employment and business start-ups. European Court of Auditors (ECA) observations and conclusions The Court of Auditors' special report assessed whether the needs of micro-entrepreneurs were addressed through the ESF and the EPMF financial support, in particular it examined a) whether the programming and design of the EU support addressed the needs of microentrepreneurs, if b) robust performance reporting systems were in place and c) sufficient information was available on the implementation costs of the different funding mechanisms. First and with regard to the ESF, the Court observed that there was a lack of specific needs assessments and proper risk management systems for ESF support to micro-entrepreneurs. Their needs were not specifically addressed by managing authorities at the design stage of the operational programmes. The funds were allocated without an assessment on the most appropriate way to use them. However, it should be noted that during the programming period there was not a regulatory requirement to conduct needs assessment. Also, an investment strategy was missing in half of the ESF financial instruments examined. This includes an analysis of the potential target population to avoid an over or under sized endowment of the fund. The Court also observed inadequate risk management systems for the majority of the ESF financial instruments examined. In fact, the financial instrument's portfolio-at-risk analysis, which is important to assess whether the fund's endowment is adequate and, in particular to establish whether potential losses from loans and guarantees can be covered, was undertaken only in one ESF financial instrument. Furthermore, the Court found that exit policy and/or winding up provisions were in place for three of the six ESF financial instruments. Moreover, the ESF financial instruments did not attract sufficient private funding. According to the Court, this possible leverage effect in the financial instruments is an advantage when compared with grants, which only have public funding. With regard to the EPMF, the set-up arrangements were generally satisfactory. EPMF final intermediaries only apply for European Investment Fund (EIF) if have demands for loans or guarantees, therefore the specific needs assessment is not needed. The EIF establishes a set of rules which includes an assessment of risk management systems and portfolio-at-risk procedures. There are regular monitoring and reporting by the financial intermediary that are integral part of the contract between the former and the EIF. According to the Court, all DT\ doc 3/6 PE v01-00

4 EPMF financial instruments examined had the required portfolio-at-risk analysis and they attracted some private funding. Secondly, the Court assessed the monitoring and performance reporting systems and in particular whether the reports had information on the social profile of recipients of financial support for micro-entrepreneurs and information on the survival rate of the micro-enterprises after a certain period beyond the end of the support. The Court observed in the programmes examined that there was limited information on outreach and survival rates for the ESF OPs. Thus the lack of sufficient and reliable information on performance makes it impossible to reach an overall conclusion to what extent the ultimate objectives of the ESF financial support to micro-entrepreneurs have been achieved. On the other hand, the Court found that EPMF projects had more complete information on outreach and survival rates. The average EU financial support commensurate with the needs of micro-entrepreneurs, however the analysed projects - through grants or ESF and EMPF financial instruments - did not target the unemployed. Thirdly, with regard to information on the implementation costs of EU support to microentrepreneurs, the Court assessed whether sufficient information was available to the Commission and the Member States on public administrative costs and costs charged for the financial instruments. As far as administrative costs are concerned, the Court concluded that the information was incomplete for implementing ESF OPs and therefore not comparable. As regards the costs charged for ESF financial instruments, they have different structures based on varying sub-components, leading to a deficient overview of which were management costs, implementation costs and whether they were justified. As for the EPMF, the Commission attained an estimation of costs. Overall the Court considers that these issues may have a negative impact on the effectiveness of EU financial support addressing the needs of micro-entrepreneurs. ECA s recommendations In light of its findings and in order to improve the EU financial support to the needs of microentrepreneurs, the ECA recommends that: 1. For the programming period, the Member States should consistently perform needs assessments when designing funding instruments and preparing operational programme that include EU financial support for micro-entrepreneurs under the guidance of the Commission. This would help to allocate the appropriate level of funding to the alternative funding mechanisms (grants or loans/guarantees); 2. The Commission should make the use of ESF financial instruments by the Member States conditional not only on compliance with regulatory requirements but also in the existence of a robust risk management system to avoid fund oversizing; 3. In order to improve outreach in the future, the Commission together with the member States should design ESF financial support measures for micro-entrepreneurs and define eligibility criteria which aim at reaching the unemployed and vulnerable persons who are in a PE v /6 DT\ doc

5 disadvantaged position with regard to access to the conventional credit market; 4. For the programming period, the Commission should carry out a comparative analysis of the implementation costs of ESF grants, ESF financial instruments and EaSI financial instruments with a view to establishing their actual levels. This assessment should allow the identification of 'good practices' on how small amount grants, loans and guarantees can be disbursed at a reasonable cost. European Commission's replies The Commission accepted recommendations 1 to 3 and confirmed that those were already part of the regulatory framework for the programming period. On recommendation 4, the Commission disagrees with the Court analysis on the added value of comparing implementation costs. It is difficult to implement, it will compare structurally different things and will not serve the purpose of drawing good practices. Esittelijän suositukset, jotka voidaan sisällyttää mietintöön varainhoitovuotta 2014 koskevan vastuuvapauden myöntämisestä komissiolle Euroopan parlamentti, joka pitää tilintarkastustuomioistuimen kertomusta "Vastaako EU:n antama taloudellinen tuki riittävän hyvin mikroyrittäjien tarpeita?" myönteisenä ja kannattaa periaatteessa siinä annettuja suosituksia; toteaa, että vaikka pienluottoa pidetään edelleen kehittymättömänä, se yleistyy vakaasti unionissa ja on vaikuttanut yli työpaikan syntymiseen (tiedot vuodelta ); katsoo, että Euroopan sosiaalirahastossa (ESR) ja eurooppalaisessa Progress-mikrorahoitusjärjestelyssä (EPMF) on tuntuvia eroja rahoitusvälineinä, jotka palvelevat eri tarkoitusperiä; katsoo, että nämä erityispiirteet vaikuttavat tarkastussuoritteeseen ja saattavat vääristää tuloksia; pitää valitettavana, että tilintarkastustuomioistuin vertailee kahta erilaista rahoitusvälinettä, joissa sovelletaan erilaisia lähestymistapoja ja tavoitteita; korostaa, että ESR ja EPMF poikkeavat toisistaan monissa kohdassa, eli rakenteen, sääntöjen ja kohderyhmien suhteen ja EMPF:ssä keskitytään yksinomaan mikrorahoitukseen, kun taas ESR kattaa paljon laajemman kirjon; korostaa sitä seikkaa, että nämä kaksi rahoitusvälinettä ovat toisiaan täydentäviä ja tuottavat mikroluoton ottajille merkittävää hyötyä avustuksina, lainoina ja takuina; katsoo, että avustukset - joita tarjotaan ainoastaan ESR:n avulla ovat mikroluotoille yhtä olennaisia kuin kaksi muuta välinettä ja että niiden tuloksellisuutta arvioitaessa olisi otettava huomioon niiden täydentävä rooli; korostaa, että mikrorahoituksella pyritään parantamaan sosiaalista osallisuutta, torjumaan työttömyyttä ja lisäämään työttömien, muiden epäedullisessa asemassa olevien ja mikroyritysten rahoituksensaantimahdollisuuksia; katsoo, että tämän vuoksi avustuksilla ja 1 European Microfinance Network Overview, s. 11. DT\ doc 5/6 PE v01-00

6 rahoitusvälineillä on pyrittävä ensisijaisesti auttamaan ihmisiä ja mikroyrityksiä, joilla on vaikeuksia näiden tavoitteiden saavuttamisessa; on huolissaan siitä, että tilintarkastustuomioistuin on tässä erityistarkastuksessa asettanut sääntöjen noudattamisen tuloksellisuuden edelle; toteaa, että tilintarkastustuomioistuin olisi saattanut päätyä toisenlaiseen lopputulokseen, jos kertomuksessa käsiteltyjä elementtejä olisi arvioitu Eurooppa strategian tavoitteiden perusteella; katsoo, että avustukset ovat olennaisia, jotta voidaan saavuttaa kasvua, osallisuutta ja työllisyyttä koskevat tavoitteet sellaisina kuin ne on asetettu ihmisarvoista työtä kaikille koskevassa komission tiedonannossa, yhteistä sitoutumista työllisyyteen koskevassa komission tiedonannossa sekä asetuksessa (EU) N:o 1296/2013, joka koskee työllisyyttä ja sosiaalista innovointia koskevaa EU:n ohjelmaa; korostaa, että on lisättävä mikrorahoitusta, joka on taloudellisen ja sosiaalisen kehittämisen väline niille, jotka todella tarvitsevat sitä; toteaa, että työllisyyttä ja sosiaalista innovointia koskevassa ohjelmassa on ratkaistava ohjelmakaudella se ongelma, että pyrittäessä parantamaan haavoittuvassa asemassa olevien ryhmien oloja ei ole juurikaan keskitytty rahoitusvälineisiin; katsoo, että EPMF ja ESR eivät täydennä toisiaan riittävällä tavalla, jotta voitaisiin noudattaa vaatimusta, jonka mukaan kaikkien mikroluoton antajien on tehtävä työtä koulutus- ja mentorointipalveluja tarjoavien ja erityisesti ESR:stä tuettavien yksiköiden kanssa; pitää myönteisenä, että komissio on jo reagoinut uudessa sääntelykehyksessään ( ) useimpiin tilintarkastustuomioistuimen havaitsemiin heikkouksiin ja sen antamiin suosituksiin. PE v /6 DT\ doc