EUROPEAN COMMISSION

Brussels, 25.9.2017

SWD(2017) 312 final

COMMISSION STAFF WORKING DOCUMENT

Activities relating to financial instruments

Accompanying the document

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL

on financial instruments supported by the general budget according to Art. 140.8 of the Financial Regulation as at 31 December 2016

{COM(2017) 535 final}

Table of Contents

I. INTRODUCTION    

II. OVERVIEW TABLE    

III. INFORMATION ON FINANCIAL INSTRUMENTS according to Article 140.8 of the Financial Regulation    

1.     Equity Instruments    

1.1.     T he High Growth and Innovative SME Facility (GIF) under the Competitiveness and Innovation Framework Programme (CIP)    

1.2.     The C onnecting Europe Facility (CEF) Equity Instrument    

1.3.     Equity Facility for Growth under COSME    

1.4.     Equity Facility (early-stage capital) for Research and Innovation of Horizon 2020 (InnovFin Equity)    

1.5.     EaSI Capacity Building Investments (EaSI CBI) – 2014 to 2020    

2.     Guarantee Instruments    

2.1.     The SME Guarantee Facility (SMEG07) under the Competitivene ss and Innovation Framework Programme (CIP)    

2.2.     European Progress Microfinance Guarantee Facility (EPMF – G)    

2.3.     EaSI Microfinance and Social Entrepreneurship    

2.4.     Loan Guarantee Facility under COSME    

2.5.     RSI (Pilot guarantee facili ty for R&I-driven SMEs and Small Midcaps) under FP7    

2.6.     SMEs & Small Midcaps R&I Loans Service under Horizon 2020 (Innovfin S ME Guarantee)    

2.7.     The Cultural and Creative Sectors Guarantee Facility    

2.8.     Student Loan Guarantee Facility - ERASMUS+    

2.9.     Private Finance for Energy Efficiency Instruments (PF4EE)    

I. INTRODUCTION 

This Staff Working Document (SWD) accompanies the report of the Commission to the European Parliament and the Council on financial instruments supported by the general budget according to Article 140(8) of the Financial Regulation 1 as at 31 December 2016.

The SWD provides, for each of the 35 financial instruments currently under direct or indirect management by the Commission, the detailed information required in points a) – l) of Article 140(8) of the Financial Regulation. This includes descriptive and quantitative information on performance of financial instruments such as leverage, volume of financing supported and investments injected into the real economy, but also the Commssion's assessment of the contribution to the achivement of the objectives of the programme concerned.

Moreover, in Annex A, it contains analyses of the macro-financial context of potential final recipients and financial intermediaries, outlining general market developments in the supported policy areas and their implications for the financial ecosystem, as well as information on market gaps and failures. In addition, Annex B maps out the three general strategic targets and the corresponding financial instruments.

The detailed information on each individual financial instrument is divided into four chapters according to the different types of instruments: equity instruments, guarantee instruments, risk-sharing instruments and dedicated investment vehicles, complemented with two chapters dealing with instruments in the enlargement and neighbourhood countries and in countries covered by the Development Cooperation Instrument.

Finally, the SWD contains references and an acronym list.

II. OVERVIEW TABLE

III. INFORMATION ON FINANCIAL INSTRUMENTS according to Article 140.8 of the Financial Regulation

1.Equity Instruments

1.1.The High Growth and Innovative SME Facility (GIF) under the Competitiveness and Innovation Framework Programme (CIP)

*Initial commitments (GIF 550 million EUR), including the CBS programme reallocations (73 million EUR).

**Including changes in budget commitments from 2008 to 2013. The initial split of the Competitiveness and Innovation Framework Programme (CIP) budget between the GIF and SMEG instruments was only indicative. During the lifetime of the CIP programme, the share of the SMEG instrument in the total CIP budget was increased in line with market needs, therefore leading to a lower current overall programme budget for GIF, compared to its initial situation. This amount takes also into account the EUR 25 million decommiments done in 2016 (hence the decrease in the figure as compared to 2015).

***Including EUR 19,5 million EFTA contributions and third countries contribution paid by Participating Countries as well as regularised interest, capital repayments and dividends generated on the trust accounts until 31/12/2012. The legal base allowed the possibility of using such additional resources for the purpose of the same instrument only if they were received prior to 31/12/2013. The commitments amount takes also into account the EUR 25 million decommitments done in 2016 (hence the decrease in the figure as compared to 2015).

A -Summary

The overall objective of GIF is to improve the access to finance for the start-up and growth of small and medium-sized enterprises (SMEs) in order to support their investment in (eco-) innovation activities. GIF used 96,4% of its allocated budget of EUR 600,2 million, with a leverage ratio of 5,7 to 1. It invested in 43 venture capital funds, therefore supporting 570 final recipients 37 and creating more than 3 000 jobs as of December 2016.

GIF's added value is to contribute to the establishment and financing of SMEs and the reduction of the equity financing gap, which prevents SMEs from exploiting their growth potential, with a view to improving the European venture capital market. Moreover, it supports innovative SMEs with high growth potential, including in their cross-border expansion of their business activities. In this context, GIF provided a critical lifeline of public support to the European VC market throughout the recent crisis. The leverage effect of more than 5 means that the impact of the aggregate budgetary commitments on the overall economy is expected to reach EUR 3 billion of funding to recipient SMEs.

B - Description

(a)Identification of the financial instrument and the basic act;

Decision No 1639/2006/EC of the European Parliament and of the Council of 24 October 2006 establishing a Competitiveness and Innovation Framework Programme (2007 to 2013). 38

(b)Description of the financial instrument, implementation arrangements and the added value of the Union contribution;

Policy objectives and scope

GIF is part of the Entrepreneurship and Innovation Programme (EIP), one of the three specific programmes under the Competitiveness and Innovation Framework Programme (CIP), the overall objective of which is the improvement of access to finance for small and medium-sized enterprises (SMEs) in order to support their investment expenditures in innovation activities, including eco-innovation. Under GIF, this is done by increasing volumes of risk capital funds and other financial investment vehicles.

Implementation arrangements

GIF is implemented by the EIF on behalf of the Commission. The Commission empowers and mandates the EIF to provide EU venture capital investments in its own name but on behalf of and at the risk of the Commission, under a Fiduciary and Management Agreement ('FMA', signed 22/11/2007). The EIF is responsible for identifying, evaluating and selecting the Financial Intermediaries ('FI') by applying selection criteria and processes set out in the Investment Policy, which is part of the FMA. Under the FMA, the EIF examined, on a continuous basis, proposals collected based on a published call for expression of interests. Investment proposals by financial intermediaries are selected based on a notice of implementation (OJ C 302, 14.12.2007). GIF funds equity or quasi-equity investments in intermediaries 39 , which then must provide long term equity or quasi-equity capital (including subordinated or participating loans and convertible bonds) to innovative SMEs.

Moreover:

   i)The GIF EU Investments typically consist of 5-12 year positions in intermediaries, the amount committed to a single such vehicle requiring a critical mass and not exceeding EUR 30 million (or equivalent). The GIF Facility consists of 2 different windows (GIF1 and GIF2). GIF1 was required to invest at least 10%, but not more than 25% of the total commitments to an intermediary (the maximum limit could reach 50% exceptionally, including for eco-innovation focused venture capital funds). GIF2 had to invest at least 7,5% and no more than 15% of total commitments to an Intermediary (the maximum limit could reach 25% exceptionally, including for eco-innovation focused venture capital funds). GIF may co-invest with other EIF-managed resources.

ii)The GIF EU Investment is required to rank pari passu (i.e. Like Risk, Like Reward) with market-oriented investors investing in the same intermediary.

   Added value

The added value of the GIF instrument consists in addressing a) specific market needs, b) structuring input, and c) providing catalytic effects.

a) As response to market needs, GIF supported a multitude of first time teams, composed of motivated professionals, to raise their first independent fund. It also addressed regional equity and risk capital market failure, including by developing an appropriate private equity infrastructure in the less-developed Member States and participating countries.

GIF contributed to filling the sizable gap in access to finance for local young SMEs in their development phase, as well as helping companies in their international expansion strategy. It also increased competition in the market, spread best practices around the region, and highlighted to other private equity teams the support the European Union is providing as well as motivated them to raise independent funds of their own. 40

b) In terms of structuring input, EIF, as entrusted entity for the GIF Facility, assisted Fund Managers to fine-tune their investment strategies, including by positioning themselves in relation to current and future competition. It also contributed to the alignment of interest between the investors and the managers, including by increasing the management team's commitment and optimising the composition of the Managers' Boards.

c) In terms of catalytic effects, the GIF provided a strong signalling effect, which helped attract private and institutional investors, therefore ensuring viable and timely closings of funds, which offered the possibility to implement the envisaged strategy and provide proper risk diversification and risk-commensurate return expectation. The venture capital funds' reaching critical mass, enabled by the GIF investment, allowed the intermediaries to support longer their investee SMEs, thus optimizing the exit timing, and therefore valuations for all participating investors.

(c)The financial institutions involved in implementation;

European Investment fund (EIF).

C - Implementation

(d)The aggregate budgetary commitments and payments from the budget 41 ;

Aggregate budgetary commitments as at 31/12/2016         EUR 580 682 329

Aggregate budgetary payments as at 31/12/2016         EUR 444 976 538

(e)The performance of the financial instrument as of 31/12/2016, including investments realised;

GIF Impact on employment

In addition, for the entire period as of 31 December 2016, GIF programme achievements 48 were as follows:

·Number of employees at final recipients (SMEs) at date of first investment (number of jobs created or maintained): 6 844

·GIF number of employees at the assessment date: 9 908

The estimated number of jobs created (difference between number of employees at assessment date and number of employees at date of first investment) under GIF is over 3 000; the number of employees in GIF-final recipients as at 31 December 2012 was 9 908.

Additional GIF operational information

Given that the EIF is entitled to fees up to 6% of its net commitments to Financial Intermediaries, the maximum amount available for deals under GIF was of EUR 589,8 million over the period 2007-2013. This implies that the GIF budget had an utilisation rate of 92,2% of commitments available for deals.

Out of the afore-mentioned 43 funds, 18 funds have a multi-country focus and the remaining 25 funds target investments in specific countries. 13 venture capital funds are investing in eco-innovation, supported by signed EU investments for a total amount of EUR 220,4 million. 49

(f)An evaluation of the use of any amounts returned to the instrument as internal assigned revenue under paragraph 6;

More than 90% of EUR 19,5 million has been used for the venture capital transactions under the instrument.

(g)The balance of the fiduciary account;

Aggregate balance of the fiduciary account as at 31/12/2016     EUR 423 174 130

(h)Revenues and repayments;

Revenues of the year 2016                     EUR 887 265

Repayments of the year 2016                     EUR 31 410 180

Aggregate additional resources regularised for the instrument as at 31/12/2016

                                    EUR 53 223 444 51

(i)The value of equity investments, with respect to previous years;

As at 31 December 2016 a total of EUR 307,8 million 52 of the GIF had been invested in final recipients, and that investment has a valuation of EUR 333,5 million.
The difference between the two figures reflects Realized Investment Gains/Losses on Exits, Realized Investment Losses through Write-Offs, and Unrealized Investment Gains/Losses.

(j)The accumulated figures on impairments of assets of equity;

(k)The target leverage 53 effect, and the achieved leverage 54 effect;

The aggregate budgetary commitments for 2007-2013 amounted to EUR 600,2 million. The expected leverage 55 effect on GIF is around 5 which means that the impact of the aggregate budgetary commitments on the overall economy is expected to reach EUR 3 billion of funding to recipient SMEs.

The achieved leverage effect for CIP GIF is around 5,7. 56  

D -Strategic relevance

(l)The contribution of the financial instrument to the achievement of the objectives of the programme concerned as measured by the established indicators, including, where applicable, the geographical diversification 57 ;

As at 30/09/2016, the GIF already contributed to provide more than 1,4 billion EUR of financing to 484 eligible Final Recipients (SMEs) and had thus an important impact on the real economy of the EU as described below.

The impact of the EU's Financial Instruments for SMEs

In 2016 the GIF component (providing venture capital) of the CIP programme again provided an essential contribution to SMEs' support in the eligible participating countries, as outlined above and confirmed by independent final evaluation results 58 , summarised hereafter, concerning relevance, effectiveness, efficiency, utility, sustainability and European added value 59 .
As regards Relevance, the EIP final evaluation concluded that the instrument met a clear need for finance on the part of the recipients and demonstrated that gaps in SME finance can be addressed. GIF recipients stated in 39% of cases that this financing scheme was the only option available for them; another 23% stated that without this instrument they would have been able to receive only part of the funding needed. In total, 62% of the GIF recipients indicated that the support was crucial to find the finance needed.

As regards Effectiveness, the overall evaluation conclusion was that the funds are getting through to the intended recipients and have the desired effects in terms of innovation, growth and employment. 77% of GIF recipients stated that receiving the equity financing made it easier to obtain additional financing. More than 90% of the GIF recipients indicated that the financial support had a positive or fairly positive impact on their long term growth prospects. 62% of GIF recipients expected an increase in turnover and in most of these cases, a growth of between 26% and 100% was expected. 83% of GIF recipients identified themselves as engaged in product or service innovation.

Apart from the financial means, GIF recipients also received other support (appointment of a non-executive director, advice on general business planning, access to a network, financial advice, special business advice or mentoring).

As regards Efficiency, the evaluation noted that general stakeholders have the impression that the instruments are administered efficiently and that money is not wasted.
As regards Utility, a large part of GIF recipients indicated that the financial support received was the only option for obtaining the funds needed.

As regards Sustainability, the evaluators noted that possible improvements raised by EIPC 60 members and representatives of business organisations, related only to more general issues and that no improvements were suggested relating to the details of the instruments.
Finally, as regards European value-added, the evaluation report recognised the leverage effect achieved, the fact that 80% of GIF recipients operate on an international market and that venture capital funds i) have a broader geographical focus and ii) operate across boundaries
Although the overall effect of EU programmes on SMEs' financing remains limited (by nature, EU intervention is limited to market gaps or sub-optimal market situations, meaning by far the largest part of financing is provided by banking and finance market players), the GIF components of CIP contributed very positively to the development and sustainability of EU SMEs throughout 2016.

Graph: Geographical distribution of actual intermediary size as at 31/12/2016

E -Other key points and issues

·Main issues for implementation:

oEuropean venture capital remains fragmented and dependant on a lifeline from public investors. The support via EU-level financial instruments is key in tackling this fragmentation, as truly multi-country funds often face difficulties in obtaining support from national programmes.

oThe programmes are also essential to maintain venture capital in Europe and support it until it becomes fully sustainable.

·Main risks: implementation under control, no specific risks identified.

oThe monitoring visits carried out for GIF during 2016 by the Commission allowed to confirm the eligibility of international financial intermediaries (IFI's) and final recipients, contractual compliance (transposal of the Commission's requirements into the contractual documentation), process compliance (observance of processes prescribed by the Commission) and performance (achievement of predefined targets/objectives). Compliance reporting covering the situation did not indicate major deviations.

oAudits and internal controls:

§as confirmed in ECFIN's AAR 2016, no issue is pending,

§In February 2012 IAS and ECFIN IAC finalised their audit on the implementation by the EIF of the High Growth and Innovative SME Facility. The audit resulted in 6 recommendations, which were all implemented during 2013. No additional findings or recommendations were made in 2016.

§During 2016, the Designated Service continued to follow-up the implementation of OLAF's recommendations in two cases (OF/2011/1176 and OF/2013/0107), where fraud was detected at the level of the fund manager and at the level of a final beneficiary. Corrective actions for both cases were progressing normally during 2016.

§A positive Statement of Assurance has been received from the EIF as at 19/4/2017.

oEfficiency:

§number of findings/observations (stemming from ECFIN L2's monitoring activities) for Equity: 0 (out of 0, 100% closed).

§Number of OLAF inquiries: 2 inquiries (implementation of recommendations ongoing).

§Number of IAC inquiries for Equity: NONE.

§Number of open recommendations in action plans established following ECA, IAS, IAC or ex-post control recommendations: NONE.

§Number of operations outside official procedures (2016): NONE.

§Number of erroneous operations (2016): NONE.

§Return to Trust Account (2016) linked to errors: NONE.

§Results on the checks on the balance of the TA (2016): no errors/discrepancies.

·General outlook:

oDemand for investments by venture capital funds is larger than the budgets of EU-funded programmes.

oThe EU programmes therefore need to focus specifically on areas, sectors and stages where the EU added value and policy impact can be maximised, and, if possible, increase the budgetary contributions to achieve a better critical mass.

1.2.The Connecting Europe Facility (CEF) Equity Instrument

A -Summary

The CEF Equity instrument is foreseen to establish the Connecting Europe Broadband Fund. The Fund will provide equity and quasi-equity to smaller-scale, higher-risk broadband projects, which do not have sufficient access to financing, in (under-served) suburban and rural areas. Five public institutions are expected to invest in it, namely the Commission, the EIB and three National Promotional Banks and Institutions (NPBIs): CDC, CDP and KfW, alongside private investors. Its target size is EUR 500 m – 600 m. We estimate that the fund will unlock investments up to 1,7 bn EUR and demonstrate the advantages of investing in high capacity broadband networks. The Fund will be one of the two EFSI investment platforms with a full EU-28 coverage. Investments will be made in a minimum of 10 Member States and will target 20 Member States and aim at investing in at least five projects per year by 2021.

B -Description

(a)Identification of the financial instrument and the basic act;

Regulation (EU) No 1316/2013 of the European Parliament and the Council of 11 December 2013 establishing the Connecting Europe Facility, amending Regulation (EU) No 913/2010 and repealing Regulations (EC) No 680/2007 and (EC) No 67/2010 (OJ L 348, 20.12.2013, p. 129). Regulation (EU) 2015/1017 of the European Parliament and of the Council of 25 June 2015 on the European Fund for Strategic Investments, the European Investment Advisory Hub and the European Investment Project Portal and amending Regulations (EU) No 1291/2013 and (EU) No 1316/2013 — the European Fund for Strategic Investments (OJ L 169, 1.7.2015, p. 1).

(b)Description of the financial instrument, implementation arrangements and the added value of the Union contribution;

Policy objectives and scope

Given the current market failures in the financing of infrastructure projects and in view of recent developments, in particular the establishment of the European Fund for Strategic Investments (EFSI), an Equity instrument was established under CEF by way of 2016 CEF Work Programme for a contribution to financial instruments (C(2015) 8847 final). The establishment of EFSI greatly enhanced the available financing opportunities in the form of Debt and made it possible to optimise the use of scarce CEF resources by re-directing a part of the available budget to finance smaller and more risky projects, especially in the area of

broadband. The Debt instrument will nonetheless remain the main delivery mechanism for the financial instruments under CEF.

Currently, the contribution to CEF Equity instrument is foreseen for broadband (100 million €) for the establishment of he Connecting Europe Broadband Fund. The Fund will provide equity and quasi-equity to smaller-scale, higher-risk broadband projects, which do not have sufficient access to financing, in (under-served) suburban and rural areas. Five public institutions are expected to invest in it, namely the Commission, the EIB and three National Promotional Banks and Institutions (NPBIs): CDC, CDP and KfW, alongside private investors.

Implementation arrangements

The fund will be implemented under the CEF Equity instrument by setting up of a dedicated investment vehicle to allow the pooling of contributions from multiple investors (direct management). The fund will be managed by a Fund Manager selected in a competitive selection process. The Investment Manager will be a professional asset manager with extensive experience in infrastructure and, in particular, broadband investments in Europe. For alignment of interest, the Investment Manager will also subscribe to the fund.

Added value

The CEF Equity Instrument optimises the use of scarce CEF resources by re-directing a part of the available budget to finance smaller and more risky projects, especially in the area of

broadband.

(c)The financial institutions involved in implementation;

The Connecting Europe Broaband Fund will be implemented under direct management in cooperation with the EIB and national promotional banks. A fund manager has been selected by the EIB in a public procurement and will be formally appointed subject to the outcome of the ongoing negotiations.

C -Implementation

(d)The aggregate budgetary commitments and payments from the budget;

Aggregate budgetary commitments as at 31/12/2016         EUR 100 000 000

Aggregate budgetary payments as at 31/12/2016     EUR 0

(e)The performance of the financial instrument, including investments realised;

Not applicable. The Broadband Investment Fund under the CEF Equity Instrument is still in a preparatory phase.

(f)An evaluation of the use of any amounts returned to the instrument as internal assigned revenue under paragraph 6;

NA

(g)The balance of the fiduciary account;

Impact of negative interest on RSI: no impact as at 31/12/2016. 61

(h)Revenues and repayments;

N/A

(i)The value of equity investments, with respect to previous years;

N/A

(j)The accumulated figures on impairments of assets of equity;

N/A

(k)The target leverage effect, and the achieved leverage effect;

The target leverage effect is 5 to 17, which – given the current budget envelope of 100m – will support a financing amount of 500 million to 1700 million.

D -Strategic importance/relevance

(l)The contribution of the financial instrument to the achievement of the objectives of the programme concerned as measured by the established indicators, including, where applicable, the geographical diversification;

N/A (the Instrument is too new to have produced any achievements as at 31/12/2016)

E -Other key points and issues

The Broadband Investment Fund under CEF Equity Instrument is in preparatory phase. The scope of envisaged operations will depend on the outcome of negotiations with investors, in particular the capacity of the Fund to attract private capital.

1.3.Equity Facility for Growth under COSME

A -Summary

The equity investments offered for funds investing into European SMEs at the growth and expansion stage are implemented by the EIF under the COSME Delegation Agreement signed in July 2014.

The overall value of risk capital investments, including venture capital and mezzanine finance, such as subordinated and participating loans, to be mobilised by the EU contribution is expected to range from EUR 2,6 billion to EUR 3,9 billion.

Nine fund agreements were signed by the end of 2016 under which investments into 12 SMEs already took place.

B -Description

(a)Identification of the financial instrument and the basic act:

Regulation (EU) No 1287/2013 of the European Parliament and of the Council of 11 December 2013 establishing a Programme for the Competitiveness of Enterprises and small and medium-sized enterprises (COSME) (2014 – 2020) and repealing Decision No 1639/2006/EC (O.J. L347 of 20 December 2013).

(b)Description of the financial instrument, implementation arrangements and the added value of the Union contribution;

Policy objectives and scope

In line with the Europe 2020 strategy, the COSME financial instruments are designed to address the market gaps in access to finance for SMEs in their start-up, growth and transfer phase and to support the creation of a pan-European finance market.

The overall policy objective of the COSME financial instruments is to improve access to finance for SMEs in the form of equity and debt. Actions shall aim to stimulate the take-up and supply of both equity and debt finance, which may include seed funding, angel funding and quasi-equity financing subject to market demand but excluding asset stripping.

In line with the above, the Equity Facility for Growth (EFG) provides enhanced access to risk capital for which significant market gaps exist in Europe and supports the development of a pan-European risk capital market. The later will be achieved by focusing predominantly on those risk capital funds which invest cross-border.

Implementation arrangements

The EFG is implemented by the EIF on behalf of the Commission, as a window of a single Union equity financial instrument supporting EU enterprises’ growth and research and innovation from the early stage, including seed, up to the growth stage. It focuses on funds that provide venture capital and mezzanine finance, such as subordinated and participating loans, to expansion and growth-stage enterprises, in particular those operating across borders, while having the possibility to make investments in early stage enterprises in conjunction with the equity facility for Research, Development and Innovation (RDI) under Horizon 2020. Support is given in the form of direct investments made by the entrusted entity in financial intermediaries that provide equity or quasi-equity financing to SMEs or indirect investments via funds-of-funds as part of the Pan-European VC funds-of-funds project.

The Delegation Agreement signed with the EIF on 22 July 2014 ensures that the EFG is accessible for a broad range of financial intermediaries provided that these are professionally and independently managed and that the funds are located in one of COSME participating countries. They must display the capacity to successfully support SMEs in their growth and expansion phase (to be verified by the EIF during the due diligence phase). From a technical point of view, the EIF is instructed to invest on a pari-passu basis with other private and public investors. Target final recipients are SMEs in their growth and expansion stage without a specific sector focus. The equity instrument is planned to last until 31 December 2034 (until last operations are wound down).

The EIF is responsible for evaluating and selecting the financial intermediaries by applying selection criteria and processes set out in the Delegation Agreement. The related continuous open call for expression of interest for financial intermediaries published by the EIF is available at http://www.eif.org/what_we_do/equity/single_eu_equity_instrument/cosme_efg/index.htm

An additional implementation mechanism under the EFG in the form of a contribution to the Pan-European VC funds-of-funds project has been put in place in February 2017 with the signature of the fourth amendment to the Delegation Agreement.

Added value

The added value for the Union of the Financial Instruments lies, inter alia, in strengthening the internal market for venture capital and in developing a pan-European SME finance market, in transfering best practices and the standardisation of documentation across participating countries, as well as in addressing market failures that cannot be addressed by Member States.

(c)The financial institutions involved in implementation;

European Investment Fund (EIF ).

C -Implementation

(d)The aggregate budgetary commitments and payments from the budget;

Aggregate budgetary commitments as at 31/12/2016     EUR 172 901 364

Aggregate budgetary payments as at 31/12/2016     EUR 56 102 505

(e)The performance of the financial instrument, including investments realised;

Additional EFG operational information

Out of the nine operations signed at the end of 2016, six relate to Growth and Expansion Stage funds and three to Multi-Stage funds, in combination with the InnovFin Equity Facility for Early Stage set up under Horizon 2020.

Eight of these operations have been unconditionally closed and the respective fund agreement with all investors have been signed. One signature has occurred on a conditional basis, meaning that the EIF committed to invest in these funds provided that the fund managers are able to attract sufficient additional funding commitments from other private and public investors to reach a minimum fund size.

(f)An evaluation of the use of any amounts returned to the instrument as internal assigned revenue under paragraph 6;

Internal assigned revenues of EUR 10,9 million of repayments generated by the second window of the High Growth and Innovative SME Facility established under the predecessor Competitiveness and Innovation Programme (GIF2 repayments) have been committed towards the EFG in 2016, thereby generating an additional net amount of EUR 10,1 million available for the signature of fund agreements.

(g)The balance of the fiduciary account;

Aggregate balance of the fiduciary account as at 31/12/2016     EUR 51 250 418

Impact of negative interest rates on COSME-Equity:

At the end of 2016, the net interest charge on short term deposits amounted to EUR 66 195. This was due to the deteriorating remuneration conditions for both EUR and SEK deposits held under the EFG. As at year end 2016, the average interest rate for the deposits in EUR was -0,119% (2015: 0,0003%) and in SEK -0,8%. Measures taken in 2016 to minimize the impact of negative interests included

·the temporary reduction of the EFG Minimum Reserve, to be reviewed from time to time in the context of the payment estimate/disbursement forecast exercise between the EIF and the Commission;

·the opening of a new financial instrument account with more favorable conditions.

(h)Revenues and repayments;

Aggregate revenues as at 31/12/2016     EUR 6 202

Aggregate repayments as at 31/12/2016     EUR 8 375

(i)The value of equity investments, with respect to previous years;

EUR 12 162 196

(j)The accumulated figures on impairments of assets of equity or risk-sharing instruments, and on called guarantees for guarantee instruments;

EUR 0

(k)The target leverage effect, and the achieved leverage effect;

The target leverage effect indicated in the COSME legal base is in the 1 to 4 – 1 to 6 range for the equity instrument over the lifetime of the programme, with an overall value of risk capital investments expected to be mobilised by the EU contribution ranging from EUR 2,6 billion to EUR 3,9 billion and the number of firms ranging from 360 to 540. 67

The achieved leverage effect 

Based on the cumulative budgetary commitments for the EFG (i.e. EUR 172,9 million) and the total amount of investments already made into eligible final recipients, the achieved leverage effect computed at the end of 2016 amounts to 0,4.

The "Expected Leverage for Signed Operations" 

Based on the cumulative budgetary commitments for the EFG (i.e. EUR 172,9 million) and taking into account the total amount expected to be invested into eligible final recipients under the fund agreements already signed, the expected leverage at the end of 2016 is 2,7.

D -Strategic importance/relevance

(l)The contribution of the financial instrument to the achievement of the objectives of the programme concerned as measured by the established indicators, including, where applicable, the geographical diversification;

At the end of 2016, the EFG contributed to provide more than EUR 64 million of financing to 12 eligible SMEs in 7 countries (see graph below).

E -Other key points and issues

·Main issues for the implementation:

oCompared to the due diligence required for the signature of guarantee agreements, the due diligence process for equity is much more complex, and necessitates more time (e.g. due to the fund-raising process involved from various investors) which results in a slower implementation of the EFG.

oThe implementation of the EFG may slow down even further due to the setting up of a new Expansion and Growth Window under the EFSI Equity instrument which has largely the same investment focus as the EFG. As a result, an order of priority has been established whereby the EIF shall endeavour to first absorb investment capacity available under the EFSI Expansion and Growth Window before making use of EFG resources for investments taking place in Member States. The EFG is however broader in scope as it targets also investments in third countries participating to the COSME programme and these investments will continue to be made under the EFG only.

·Main risks:

oDue to the setting up of the Expansion and Growth Window under EFSI for equity investments for SMEs and small mid-caps and the established order of priority (see explanation above), not all EFG resources may be absorbed (due to lack of sufficient market demand). Should this be the case, resources will be shifted from the EFG to the LFG.

·General outlook:

oBased on the pipeline report received early 2017, it is expected that the 2014-2016 aggregate budgetary commitments (net of fees) will be fully used for the signature of EFG operations (direct investments).

1.4.Equity Facility (early-stage capital) for Research and Innovation of Horizon 2020 (InnovFin Equity)

*This amount includes EFTA appropriations for 2014 and is subject to the outcome of discussions on the budget profile.

A -Summary

The InnovFin Equity facility succeeds and refines the GIF-1 scheme under CIP, and is part of a single equity financial instrument supporting the growth of enterprises and their R&I activities. It is designed to improve access to risk finance by early-stage R&I-driven SMEs and small midcaps through supporting early-stage risk capital funds that invest, on a predominantly cross-border basis, in individual enterprises.

SMEs and small midcaps located in Member States or in Associated Countries are eligible as final recipients. The COSME programme's Equity Facility for Growth complements this facility, which, supported by a set of accompanying measures, supports the achievement of Horizon 2020 policy objectives.

In terms of Union added value, the InnovFin SME Venture Capital complements national and regional schemes that cannot cater for cross-border investments in R&I. The early-stage deals also have a demonstration effect that can benefit public and private investors across Europe. For the growth phase, only at European level is it possible to achieve the necessary scale and the strong participation of private investors that are essential to the functioning of a self-sustaining venture capital market.

Current Overall (2014-2020) Programme Budget amounts to EUR 495 million.

B -Description 68

(a)Identification of the financial instrument and the basic act;

Regulation (EU) No 1291/2013 of the European Parliament and of the Council of 11 December 2013 establishing Horizon 2020 - the Framework Programme for Research and Innovation (2014-2020) and repealing Decision No 1982/2006/EC. 69

Regulation (EU) No 1290/2013 of the European Parliament and of the Council of 11 December 2013 laying down the rules for participation and dissemination in "Horizon 2020 - the Framework Programme for Research and Innovation (2014-2020)" and repealing Regulation (EC) No 1906/2006. 70  

Council Decision of 3 December 2013 establishing the specific programme implementing Horizon 2020 - the Framework Programme for Research and Innovation (2014-2020) and repealing Decisions 2006/971/EC, 2006/972/EC, 2006/973/EC, 2006/974/EC and 2006/975/EC. 71

Regulation (EU) No 1296/2013 of the European Parliament and of the Council of 11 December 2013 on a European Union Programme for Employment and Social Innovation ("EaSI") and amending Decision No 283/2010/EU establishing a European Progress Microfinance Facility for employment and social inclusion 72

(b)Description of the financial instrument, implementation arrangements and the added value of the Union contribution;

Policy objectives and scope

This facility succeeds and refines the GIF-1 scheme under CIP, 73 and is part of a single equity financial instrument supporting the growth of enterprises and their R&I activities. It is designed to improve access to risk finance by early-stage R&I-driven SMEs and small midcaps through supporting early-stage risk capital funds that invest, on a predominantly cross-border basis, in individual enterprises. SMEs and small midcaps located in Member States or in Associated Countries are eligible as final recipients. The COSME programme's Equity Facility for Growth (EFG) complements this facility.

Implementation arrangements

The implementation of the InnovFin Equity facility is made through an entrusted entity, the European Investment Fund (EIF) in Luxembourg, further to the signature of 2 amendments to the Delegation Agreement with the Commission on 15 June and 22 July 2016.

Financial intermediaries, selected by entrusted entities for the implementation of financial instruments pursuant to Article 139(4) of Regulation (EU, Euratom) No 966/2012 on the basis of open, transparent, proportionate and non-discriminatory procedures, may include private financial institutions as well as governmental and semi-governmental financial institutions, national and regional public banks as well as national and regional investment banks.

The European Investment Fund (EIF) manages equity investments into risk-capital funds, while investing in a wide range of financial intermediaries, including those cooperating with business angels. The funds concerned make VC and quasi-equity (including mezzanine capital) early-stage investments in enterprises, which are likely to be mainly SMEs. In the case of multistage funds (i.e., covering both early- and growth-stage investments), funding can be provided pro rata from this facility and COSME's growth-stage equity facility, EFG.

This is a demand-driven facility, with no prior allocations between sectors, countries, or regions. However, the Commission incentivises EIF, via an appropriate performance indicator, to make a particular effort to ensure that a proportion of final recipients are eco-innovative SMEs and small midcaps. R&I-driven SMEs or small midcaps wishing to apply for an investment should contact one or more of the funds signing an agreement with EIF.

Added value

In terms of Union added value, the InnovFin Equity facility complements national and regional schemes that cannot cater for cross-border investments in R&I. The early-stage deals also have a demonstration effect that can benefit public and private investors across Europe. For the growth phase, only at European level is it possible to achieve the necessary scale and the strong participation of private investors essential to the functioning of a self-sustaining venture capital market.

(c)The financial institutions involved in implementation;

European Investment fund (EIF)

C -Implementation

(d)The aggregate budgetary commitments and payments from the budget;

Aggregate budgetary commitments as at 31/12/2016         EUR 256 050 000

Aggregate budgetary payments as at 31/12/2016         EUR 234 050 000

(e)The performance of the financial instrument, including investments realised;

(f)An evaluation of the use of any amounts returned to the instrument as internal assigned revenue under paragraph 6;

EUR 0,4 million

(g)The balance of the fiduciary account;

Aggregate balance of the fiduciary account as at 31/12/2016     EUR 229 020 413

Impact of negative interest rates on InnovFin Venture Capital (Horizon 2020): no impact as at 31/12/2016. 75

(h)Revenues and repayments;

EUR 406 355

(i)The value of equity investments, with respect to previous years;

Equity investments as at 31/12/2016             EUR 8 427 088

(j)The accumulated figures on impairments of assets of equity;

nihil

(k)The target leverage effect, and the achieved leverage effect;

The target leverage of the Equity facility - defined as the total funding (i.e. Union funding plus contribution from other financial institutions) divided by the Union financial contribution - is around 6, depending on market specificities.

The achieved leverage effect :0,06

The total amount invested in eligible final recipients as at 31/12/2016 amounts to EUR 15 004 321 for an EU contribution of EUR 256 050 000

The "Expected Leverage for Signed Operations":2,21

For the 10 operations signed with financial intermediaries as of 31/12/2016, the maximum investment volume available to SMEs amounts to EUR 565,15 million. Based on the cumulative 2014-2016 budgetary commitments for InnovFin SME VC in (i.e. EUR 256,05 million), the expected leverage for the operations signed in 2016 is 2,21.

D -Strategic importance/relevance

(l)The contribution of the financial instrument to the achievement of the objectives of the programme concerned as measured by the established indicators, including, where applicable, the geographical diversification;

The InnovFin Equity facility , supported by a set of accompanying measures, supports the achievement of Horizon 2020 policy objectives. To this end, they are dedicated to consolidating and raising the quality of Europe's science base; promoting research and innovation with a business-driven agenda; and addressing societal challenges, with a focus on activities such as piloting, demonstration, test-beds and market uptake. The budget envelope of EUR 495 million is targeted to mobilize EUR 2,9 billion of new equity investments.

Generally speaking, the following generic comments can be outlined, based on the Innovation Union Europe 2020 Flagship Initiative of 2010, which contains the following commitment: 76

On the basis of Commission proposals, the EU should put in place financial instruments to attract a major increase in private finance and close the market gaps in investing in research and innovation. Union contribution should create a major leverage effect and expand on the success of FP7 and CIP.

The Commission works with the European Investment Bank Group, national financial intermediaries and private investors to develop proposals addressing the following critical gaps: (i) investment in knowledge transfer and start-ups; (ii) venture capital for fast growing firms expanding in EU and global markets; (iii) risk-sharing finance for investments in R&D and innovation projects; and (iv) loans for innovative fast growing SMEs and midcaps. The proposals shall ensure a high leverage effect, efficient management and simple access for businesses.

In 2011, the Commission proposed 77 that Horizon 2020 and COSME, the programmes succeeding FP7 and CIP, should jointly support an equity and a debt financial instrument designed to foster the growth of SMEs and small midcaps and their ability to undertake R&I, with Horizon 2020 also providing debt finance for larger entities.

For equity, the Commission proposed that both programmes should make seed, early-stage and growth-stage investments, with Horizon 2020 mainly focusing on risk-capital funds investing in seed, start-up and early-stage R&I-driven SMEs and small midcaps, and COSME mainly focusing on venture capital, (VC), and mezzanine funds investing in SMEs in the expansion and growth phases.

Graph: Geographical distribution of target intermediary size in participating countries

Graph: Geographical distribution of investments in final beneficiaries ( in EUR million)

E -Other key points and issues

·Main issues:

oThe Union-level InnovFin Equity facility is needed to help improve the availability of equity finance for early and growth-stage investments and to boost the development of the Union venture capital market. During the technology transfer and start-up phase, new companies face a 'valley of death' where public research grants stop and it is not possible to attract private finance. Public support aiming to leverage private seed and start-up funds to fill this gap is currently too fragmented and intermittent, or its management lacks the necessary expertise. Furthermore, most venture capital funds in Europe are too small to support the continued growth of innovative companies and do not have the critical mass to specialize and operate transnationally.

oSpecific support actions such as information and coaching activities for SMEs should be provided. Regional authorities, SMEs associations, chambers of commerce and relevant financial intermediaries may be consulted, where appropriate, in relation to the programming and implementation of these activities.

oIn the case of conditional closings, despite the EIF making a firm commitment of investing into a fund it may be that fund managers fail to raise the required additional private and public funding to reach the first closing of a fund.

·Main risks:

oNo specific risks identified at this stage of implementation.

·General outlook:

oGiven the generally pro-cyclical nature of the activities of equity investors, the health of the economy overall is very likely to dominate the evolution of both Europe's VC and BA industries, though some analysts advocate and predict a considerable downsizing of the VC sector in both Europe and the USA in order for a smaller number of funds to enjoy a reasonable level of return and profitability. 78

oThe implementation of the Horizon 2020 InnovFin Equity facility has started end of 2015, after the EIF FAFA and the Delegation Agreement for the Horizon 2020 Financial Instruments between the EU (represented by the Commissioner for Research and Innovation), EIB and EIF were signed.

1.5.EaSI Capacity Building Investments (EaSI CBI) – 2014 to 2020

A -Summary

EaSI Capacity Building will be implemented by the European Investment Fund in accordance with the amendment of the Delegation Agreement entered into on 19/12/2016 between the European Union, represented by the Commission and EIF. Under the Agreement, the Commission mandated EIF to implement EaSI Capacity Building investments through direct and indirect equity investments in financial intermediaries and loans with an “equity-like” risk profile in term of subordination or maturity profile to financial intermediaries that are not allowed to receive equity investments by law or due to regulatory restrictions.

The estimated budget allocation foreseen for the total programming period amounts to EUR 16 million. The EU contribution (excluding repayments) may be committed until 31 December 2020, however "annual repayments generated by one financial instrument shall be assigned to that financial instrument until 1 January 2024" (source: EaSI Regulation, article 30(4).

Based on the target leverage 79 of the instrument (minimum of 2), it is estimated that the total amount of 16 million used will generate around EUR 32 million investments made to 8-10 Financial Intermediaries and Sub-Intermediaries for the purpose of capacity building.

As regards the duration, the instrument's winding up date is 31/12/2033.

B -Description

(a)Identification of the financial instrument and the basic act;

Regulation (EU) No 1296/2013 of the European Parliament and of the Council of 11 December 2013 on a European Union Programme for Employment and Social Innovation (‘EaSI’).

(b)Description of the financial instrument, implementation arrangements and the added value of the Union contribution;

Policy objectives and scope

The EaSI Capacity Building is one of the Financial instruments foreseen under the Employment and Social Innovation (‘EaSI’) program. The objectives of this financial instrument have been described in Regulation (EU) No 1296/2013 and can be found in Article 4:

General objective

- To promote employment and social inclusion by increasing the availability and accessibility of microfinance for vulnerable people who wish to start up a micro-enterprise as well as for existing micro-enterprises, and by increasing access to finance for social enterprises.

Specific objectives under Article 26:    build up the institutional capacity of microcredit providers

EaSI Capacity Building Investments will be implemented through direct and indirect equity investments in financial intermediaries and loans with an “equity-like” risk profile in term of subordination or maturity profile to financial intermediaries that are not allowed to receive equity investments by law or due to regulatory restrictions.

Implementation arrangements

EaSI Capacity Building financial instrument is implemented by the European Investment Fund (EIF) on behalf of the European Commission. The amended EaSI Delegation Agreement introducing the set up and the implementation procedures of EaSI Capacity Building was signed between the EC and the EIF on 19/12/2016.

Added value

EaSI Capacity Building Investments aim at building up the institutional capacity of financial intermediaries that have not yet reached sustainability (i.e. break-even, operational capacity, etc.), including greenfield financial intermediaries, or financial intermediaries that are in need of risk capital to expand further their operations, both in the microfinance and in the social entrepreneurship space. The absorption capacity of the market due to the envisaged capacity building investments will be improved.

(c)The financial institutions involved in implementation;

European Investment Fund (EIF).

C -Implementation

(d)The aggregate budgetary commitments and payments from the budget;

Aggregate budgetary commitments as at 31/12/2016         EUR 12 725 384

Aggregate budgetary payments as at 31/12/2016         EUR 10 780 407

(e)The performance of the financial instrument, including investments realised;

(f)An evaluation of the use of any amounts returned to the instrument as internal assigned revenue under paragraph 6;

Not yet applicable

(g)The balance of the fiduciary account;

Aggregate balance of the fiduciary account as at 31/12/2016    EUR 10 780 407

Impact of negative interest rates:

No impact as at 31/12/2016 due to the fact that the amended EaSI Delegation Agreement introducing the set up and the implementation procedures of EaSI Capacity Building was signed between the EC and the EIF on 19/12/2016 and the relevant payment was made on 22/12/2016.

(h)Revenues and repayments;

Not yet applicable

(i)The value of equity investments, with respect to previous years;

Not yet applicable

(j)The accumulated figures on impairments of assets of equity;

Not yet applicable

(k)The target leverage effect, and the achieved leverage effect;

The target minimum leverage effect set is 2 over the lifetime of the financial instrument.

Based on the target leverage of the instrument, it is estimated that the total budget envelope of 16 million will generate around EUR 32 million investments made to Financial Intermediaries and Sub-Intermediaries for the purpose of capacity building.

D -Strategic importance/relevance

(l)The contribution of the financial instrument to the achievement of the objectives of the programme concerned as measured by the established indicators, including, where applicable, the geographical diversification;

The amended EaSI Delegation Agreement introducing the set up and the implementation procedures of EaSI Capacity Building was signed between the EC and the EIF on 19/12/2016, therefore, no operations have been inititated within 2016.

E -Other key points and issues

·Main issues:

·EaSI Capacity Building investments are needed to help improve the availability of equity and building up the institutional capacity of financial intermediaries that have not yet reached sustainability (i.e. break-even, operational capacity, etc.), including greenfield financial intermediaries, or financial intermediaries that are in need of risk capital to expand further their operations, both in the microfinance and in the social entrepreneurship space.

·EaSI Capacity Building Investments will be implemented through direct and indirect equity investments in financial intermediaries and loans with an “equity-like” risk profile in term of subordination or maturity profile to financial intermediaries that are not allowed to receive equity investments by law or due to regulatory restrictions.

·Main risks:

·No specific risks identified at this stage of implementation.

·General outlook:

·The implementation of the EaSI Capacity Building has started at the end of 2016, following the signature of the amendment of the Delegation Agreement of the EaSI Guarantee financial instruments between the EC and the EIF on 19/12/2016. Indicative target results are 8-10 capacity building investments made to Financial Intermediaries and Sub-Intermediaries. The target has been based on relevant past experience and market testing.

2.Guarantee Instruments

2.1.The SME Guarantee Facility (SMEG07) under the Competitiveness and Innovation Framework Programme (CIP)

*Initial voted commitments (SMEG07 506 million EUR).

**Including increase in budget commitments from 2008 to 2013.

***Including EFTA contributions and third countries contribution paid by Participating Countries as well as regularised interest.

****Including EFTA contributions and third countries contribution paid by Participating Countries as well as regularised interest generated on the trust accounts until 31/12/2012. The legal base allowed the possibility of using such additional resources for the purpose of the same instrument only if they were received prior to 31/12/2013.

A -Summary

SMEG 07 is part of the CIP market-oriented instruments and has shown high efficiency and relevance to the current market conditions. Indeed, SMEG07 acts as counter-cyclical measure, ensuring provision of finance to a vulnerable SME segment, which was one of the most hard hit market segments in the wake of the financial crisis. It is a cost-effective financial instrument which is demonstrated by the high leverage ratio: compared to grants, where 1 EUR of budgetary resources provide 1 EUR of financing, the SMEG is expected to support 40 EUR of finance to SMEs for 1 EUR of the Union contribution.

SMEG07 has a wide geographical coverage: as at 30/12/2016, the instrument involves 52 financial intermediaries, which have been providing finance to SMEs in 23 participating countries (the loans associated with that guaranteed amount account for EUR 21,1 billion).

According to the 2011 ECA's Performance Audit, the Facility should be able to reach the number of 315 000 supported SME recipients as foreseen in the ex-ante assessment under CIP. This target has already been trespassed, as 385 772 SMEs were already supported by the end of December 2016.

B - Description

(a)Identification of the financial instrument and the basic act;

Decision No 1639/2006/EC of the European Parliament and of the Council of 24 October 2006 establishing a Competitiveness and Innovation Framework Programme (2007 to 2013). 80

(b)Description of the financial instrument, implementation arrangements and the added value of the Union contribution;

Policy objectives and scope

SMEG 07 is part of the Entrepreneurship and Innovation Programme (EIP), one of the three specific programmes under the Competitiveness and Innovation Programme (CIP).

The overall objective of the financial instruments under the CIP is the improvement of access to finance for the start-up and growth of SMEs in order to support their investment in innovation activities, including eco-innovation. Under the SME Guarantee Facility, this is done by providing leverage to SME debt financing with a view to increasing the supply of debt finance to SMEs.

Implementation arrangements

SMEG 07 is operated by the EIF under a Fiduciary and Management Agreement ('FMA', signed on 20/9/2007).

It provides counter- or co-guarantees to guarantee schemes and direct guarantees to Financial Intermediaries operating in eligible countries with the aim of increasing lending volumes available to SMEs. The Facility is a demand-driven instrument, with only indicative country-based allocations, in order to ensure wide geographical coverage. The EIF provides a capped guarantee that covers potential losses against a commitment of the financial intermediary to provide more debt financing (loans, leases or guarantees that support loans and leases) to target SMEs.

Until the end of budgetary commitment period in 2013,

- the EIF was responsible for identifying, evaluating, and selecting the Financial Intermediaries ('FIs') according to the Guarantee Policy, which is part of the FMA. The EIF examined, on a continuous basis, proposals collected based on a call for expression of interests.

- the Designated Service was actively involved in financial intermediary approval process. Each deal was to be approved by the EIF Board of Directors and the Commissions Designated Service. The Designated Service will continue its monitoring and reporting obligations until the wind-up of the facility (estimated 2026).

Value added

Thanks to the guarantee provided by the EIF, financial intermediaries either provide more financing to SMEs, or extend their financing to more risky and previously not serviced segments of vulnerable SMEs, such as start-ups, young companies and companies lacking sufficient collateral.

Regarding the sustainability and European value-added, 81 the effectiveness of the instruments used has increased over time; notwithstanding the scope for further improvements, European value-added is evident in the development of facilities that are at the cutting-edge of provision for SMEs.

(c)The financial institutions involved in implementation;

European Investment Fund.

C -Implementation

(d)The aggregate budgetary commitments and payments from the budget;

Aggregate budgetary commitments as at 31/12/2016        EUR 649 886 744

Aggregate budgetary payments as at 31/12/2016        EUR 424 703 607

(e)The performance of the financial instrument, including investments realised;

Additional operational information

For the period 2007-2013, EUR 1 275,1 89 million of commitment appropriations were made available for the CIP financial instruments, of which EUR 649,9 million for SMEG. The appropriations were fully committed.

Regarding the payments appropriations for the period 2007-2016, out of the EUR 889,2 million made available for the CIP financial instruments, EUR 424,7 million were paid to the SMEG fiduciary account, managed by the EIF on behalf of the Commission. Funds are drawn down from the fiduciary account as and when defaults occur under SMEG.

By the end of December 2016 (latest available figures as at writing date),

- SMEG 07 consisted of 70 guarantee agreements with 52 Financial Intermediaries from 23 countries, with a total of EUR 523,4 million guarantee cap from the Union budget for direct and counter-guarantees;

- 385 772 SMEs had received debt finance facilitated by financial support provided under SMEG07, 90 through nearly 469 269loans;

- the EIF had signed agreements for a cumulative total amount guaranteed of EUR 15 162,91 million. 91 The loans associated with that guaranteed amount account for EUR 21,1 billion. 

SMEG impact on employment

For the entire period as of 31 December 2016 (latest available figures as at writing date), SMEG achievements under CIP were as follows:

·number of employees at final recipients (supported SMEs) at inclusion date: 1 337 555;

·number of jobs created or maintained: 385 772. 92

(f)An evaluation of the use of any amounts returned to the instrument as internal assigned revenue under paragraph 6;

For the period 2007-2016, the amount of EUR 12,1 million returned to the instrument (point (h)) has been more than 60% used for further transactions in line with the policy objectives of the Programme.

(g)The balance of the fiduciary account;

Aggregate balance of the fiduciary account as at 31/12/2016    EUR 99 616 452

Impact of negative interest rates on SMEG 07: no impact as at 31/12/2016 93

(h)Revenues and repayments (Art.140. 6);

Revenues of the year 2016                     EUR 2 124 043

Repayments of the year 2016                         EUR 0

Aggregate additional resources regularised for the instrument as at 31/12/2016

                                    EUR 21 773 583 94

(i)The value of equity investments, with respect to previous years;

NA

(j)The accumulated figures on called guarantees for guarantee instruments;

(k)The target leverage effect, and the achieved leverage effect;

The achieved leverage effect for CIP SMEG 07 at the level of entrusted entity (total loan volume received by the recipient SMEs / EU guarantee cap amount) is approx. 40. 95  

The expected CIP SMEG07 leverage effect for signed operations (calculated as "Estimated SME financing" / EU guarantee cap amount) is estimated around 44 96 for the entire duration of the programme.

D -Strategic importance/relevance

(l)The contribution of the financial instrument to the achievement of the objectives of the programme concerned as measured by the established indicators, including, where applicable, the geographical diversification;

As at 31/12/2016, the SMEG07 already contributed to provide more than 21,1 billion EUR of financing to nearly 386 000 Final Recipients (SMEs) through more than 469 000 underlying loans, accounting for an estimated 30,86 billion EUR investment amount, and had thus an important impact on the real economy of the EU as described below.

The latest evaluations related to GIF and SMEG financial instruments reiterated that the financial instruments appeared to be on track to achieve the targets set and confirmed that the effectiveness of the financial instruments has increased over time. In more detail, regarding:

a) Effectiveness and efficiency

The financial instruments appear to be on track to achieve the targets set and seem to be acquiring a certain momentum that may lead them to exceed expectations.  97

In addition, there have been improvements in monitoring systems at the level of both EIF (entrusted entity) and financial intermediaries involved in implementation which contributed to tracking comprehensively performance of the instrument and thus more effectively pursuing the policy objectives of the instrument.

b) Relevance

The relevance of the instrument as assessed by the recipient SMEs is significant 98 :

·46% stated that the EU financing scheme was the only option available for them to get financing,

·18% stated that without the EU support they would have received only part of the funding needed, 42% stated that the EU support helped them to get additional finance and

·64% stated that EU support was crucial to find the finance needed.

In this regard, the SMEG Facility has a wide geographical coverage. The instrument involves 52 financial intermediaries, which have been providing finance to SMEs in 23 participating countries.

Based on the financing volumes supported so far (see the relevant sections above), the CIP market-oriented instruments under both GIF and SMEG have shown high efficiency and relevance in addressing current market conditions, dominated in recent years by a tightening of credit conditions and more difficult access to finance for SMEs. The SMEG Facility is a counter-cyclical instrument and has helped final recipients to face difficulties arising from the economic conditions since the crisis, namely to obtain or maintain access to finance and to create or maintain jobs over the period.

In this respect, although the overall effect of EU programmes on SMEs' financing remains limited (by nature, EU intervention is limited to market gaps or sub-optimal market situations, meaning by far the largest part of financing is provided by banking and finance market players), the Facility did, however, make a very positive contribution to the development and sustainability of EU SMEs.

Graph: Geographical distribution of SMEG Loan amounts, million EUR 99

E -Other key points and issues

·During the SMEG implementation period, the following presumptions have been identified as necessary:

oa clear and complete target goal of the financial instrument so as there is no ambiguity as to what needs to be achieved in terms of SME access to finance (including keeping potential deadweight as small as possible);

oa first class delivery mechanism, such as the EIF, that has proven expertise in working with the SME loan and guarantee provision chain at European level;

osufficient flexibility in the structure of the programme to accommodate and sustain shifts in the SME credit market (including force majeure and crisis conditions);

oin line with suggestions from the European Court of Auditors, the new generation of guarantee financial instruments has been designed by considering, inter alia, the following:

§improved definition of the target group (final recipients) and reduced deadweight of the instrument;

§selection of the Financial Intermediaries performed on the basis of open, transparent, objective and non-discriminatory procedures.

·The monitoring visits carried out by both the EIF and the Commission for SMEG07 during 2016 allowed to confirm the eligibility of financial intermediaries (FI's) and final recipients, contractual compliance (transposal of the Commission's requirements into the contractual documentation), process compliance (observance of processes prescribed by the Commission) and performance (achievement of predefined targets/objectives). The EIF monitoring report 2016 did not indicate major deviations.

·Audits and internal controls:

oAs stated in ECFIN L2's 2016 Annual Activity Report, no issue is pending.

oA positive Statement of Assurance was received from the EIF as at 19/4/2017.

oIn August 2012 the ECFIN Unit R4 has launched an ex-post control of the EIF guarantee calls paid under CIP-SMEG 07 Facility. The provisional scope and objective of this ex-post control includes reviewing of the sample of guarantee calls initiated since 2007 to-date with the objective to examine their legality and regularity and to review related sound financial management aspects. L2 Financial Intermediaries (FI) have been sampled. ECFIN L2 received R4's related report on the 31st of August 2015. After thorough investigations and detailed review of R4's observations in coordination with the EIF, ECFIN L2 replied to R4 as at 9/11/2015 (ref. ARES(2015)5484815), rejecting most of the observations. R4 accepted those extensive explanations in its final report (officially finalized on 23/12/2015 and sent to ECFIN L Director on 4/1/2016 – ref. ARES(2015)6031782), which confirms a Most Likely Error Rate (MLER) nearing 0% (0,002%), hugely below the materiality threshold and acceptable error rate of 2%. Thus, R4 concludes that "there is reasonable assurance that SMEG07 guarantee calls and related payments and recoveries were implemented in compliance with the legal, regulatory and contractual provisions".

oThe ECA carried out a performance audit on the guarantees supported by the EU budget , for which ECFIN L2 accompanied the ECA on a visit to a FI on 14/7/2016: the final report on the overall audit has not been communicated to ECFIN as at writing date.

oThe second part of the monitoring of the EIF on 'return and de-commitments of funds' was successfully carried out as of 11/11/2016, with a view to assessing the compliance of the effective operations under the procedure on the “Transfer of revenues and repayments to Horizon 2020 and COSME (Ares(2015)4949413)", based on the relevant Recovery Orders issued in 2016.

o As regards the 2016 monitoring visit to the EIF, having as scope the review of the performance and findings of the EIF in a desk-review of a FI carried out by the EIF, no finding was identified.

oEfficiency indicators regarding SMEG:

§number of findings/minor observations (stemming from ECFIN's monitoring activities): no findings, 3 minor observations (of which, 100% closed as at writing date);

§number of OLAF inquiries: none;

§number of IAS inquiries: none;

§number of open recommendations in action plans established following ECA, IAS, IAC or ex-post control recommendations: none;

§number of operations outside official 2016 procedures: none;

§number of erroneous operations in 2016: none;

§return to fiduciary account in 2016 linked to errors: none;

§results on the checks on the balance of the TA in 2016: no errors/discrepancies.

·Regarding the SMEG, which is a counter-cyclical instrument, there was a high demand for guarantees by financial intermediaries during the period 2007-2013; indeed, the share of the SMEG instrument in the total CIP budget (SMEG and GIF) was increased compared to the original split between the two Facilities, in line with the specific market needs.

The commitment period for the SME Guarantee facility ended on 31 December 2013 but the instrument will exist until it is wound up after 2026.

The successor of SMEG is the Loan Guarantee Facility (LGF) under COSME, further detailed in this document.

* including regularized interest of EUR 0,34 million.

A -Summary

The EPMF Guarantee Facility has been implemented by the European Investment Fund in accordance with the Fiduciary and Management Agreement entered into on 1 July 2010 between the European Union, represented by the Commission and EIF. Under the Agreement, the Commission mandated EIF to provide direct guarantees and counter guarantees on micro credit loans in its own name, but on account and risk of the European Union.

In accordance with the Agreement, the Project Signing Period runs from July 1, 2010 until 31 December 2016, or any later date as notified in writing by the Commission to EIF.

The aim of the instrument is to increase access to and availability of microfinance. The instrument covers part of the losses incurred under the guarantees up to a pre-determined cap amount by setting maximum Guarantee rate of 75% and maximum Guarantee cap rate at 20% - hence requiring a minimum leverage effect of 6,67.

As of 30/09/2016, EIF has signed 36 guarantee agreements in 18 member states for a total cap amount of EUR 20,96 million, supporting EUR 235,63 million of aggregate volume of micro-loans. During the implementation of the Facility, 19 713 micro-borrowers and vulnerable persons and 37 038 jobs have been supported.

As of 30/09/2016, the European Progress Microfinance Facility including both Guarantees (EPMF-G) and Funded instruments (EPMF – FCP FIS) already provided 56 221 micro-loans to final recipients reaching the volume of EUR 471,7 million.

B -Description

(a)Identification of the financial instrument and the basic act;

Decision No 283/2010/EU 100 of the European Parliament and of the Council of 25 March 2010 establishing a European Progress Microfinance Facility for employment and social inclusion. 101

(b)Description of the financial instrument, implementation arrangements and the added value of the Union contribution;

Policy objectives and scope

The aim of the European Progress Microfinance Guarantee Facility is to enhance access to microfinance by reducing microfinance providers' risk.

The EPMF Facility provides Union resources to increase access to, and availability of, microfinance for:

1.persons who have lost or are at risk of losing their job, or who have difficulties entering or re-entering the labour market, as well as persons who are facing the threat of social exclusion or vulnerable persons who are in a disadvantaged position with regard to access to the conventional credit market and who want to start or further develop their own micro-enterprise, including self-employment,

2.micro-enterprises, especially in the social economy, as well as micro-enterprises which employ persons referred to in point (a).

Implementation arrangements

The Commission empowers and mandates the EIF to provide EU Guarantees in its own name but on behalf of and at the risk of the Commission, under a Financial management Agreement ('FMA', signed 01/07/2010).

The EIF is responsible for identifying, investigating, evaluating and selecting the Financial Intermediaries ('FI') by applying selection criteria and processes set out in Annex 1 of the FMA: Operational Guidelines. Under the FMA, the EIF examines, on a continuous basis, proposals collected based on a call for expression of interest.

The EPMF Guarantee Facility provides capped guarantees up to 20% to portfolios, which include micro-credit loans granted by intermediaries to micro–enterprises, including self-employed persons. The micro-credit guarantee covers up to 75% of the individual micro-credit loans included in the respective portfolio.

Guarantees provided by the EIF in accordance with the Agreement shall be open to any intermediaries being public or private bodies established on national, regional and local levels in the Member States, which provide microfinance to persons and micro-enterprises in the Member States, such as financial institutions, microfinance institutions, guarantee institutions or any other institution authorised to provide microfinance instruments.

The EPMF Guarantee Facility is implemented via direct guarantees and counter-guarantees. The implementation foresees also support measures, such as communication activities, monitoring, control, audit and evaluation which are directly necessary for the effective and efficient implementation of the Decision No 283/2010/EU and for the achievement of its objectives.

EPMF Guarantee Facility is subject to the following requirements and restrictions that have to be respected by the participating Microfinance providers:

·Additionality

·Promotion and visibility

·Monitoring, control and audit

·Compliance with State aid rules

·Reporting

The Facility also seeks to promote a balanced geographic distribution and the set target is to cover at least 12 Member States until 31 December 2016. As of 30/09/2016, the Facility covers 18 Member States. The EPMF Guarantee Facility shall remain in full force and effect until 31 December 2020. However, as the budget of the EPMF Guarantee Facility has been fully utilised by Q2 2014, no new transactions took place.

Added value

This Facility allows microfinance providers to reach out to target groups, who could normally not be served; for instance, because persons from these groups could not provide sufficient collateral or because the interest rates, which they would have to pay in accordance to their actual risk, profile are too high.

(c)The financial institutions involved in implementation;

European Investment fund (EIF).

C -Implementation

(d)The aggregate budgetary commitments and payments from the budget;

Aggregate budgetary commitments as at 31/12/2016     EUR 23 600 000

Aggregate budgetary payments as at 31/12/2016         EUR 22 549 387

(e)The performance of the financial instrument, including investments realised (as of 30/09/2016); 102

Impact on employment

For the entire period as of 30 September 2016, EPMF achievements for the Guarantee Facility component of the programme were as follows:

·Number of micro-loans: 20 980

·Total amount of micro-loans: EUR 235,6 million

·Total number of employees (in the supported micro-enterprises): 37 038

Additional operational information

·As of 30/09/2016, 36 Guarantee Agreements have been signed in 18 Member States for a total guarantee cap amount of EUR 20,96 million.

·In 2017, the demand from microfinance providers will remain significant and the new EaSI Microfinance Guarantee (EPMF-G successor programme) is already covering fast and effectively the needs of the microfinance market.

Additional information at the aggregate EPMF level, including both Guarantee facility and Funded instruments

·As of 30/09/2016 the European Progress Microfinance Facility including both Guarantees (EPMF- G) and Funded instruments (EPMF – FCP FIS) already provided 56 221 micro-loans to final recipients reaching the volume of EUR 471,7 million, compared to the initial programme target of 46,000 micro-loans with the volume of EUR 500 million. The Facility has already surpassed the micro-loans initial target by 22%.

(f)An evaluation of the use of any amounts returned to the instrument as internal assigned revenue under paragraph 6;

Given the high demand for additional commitments due to the success of the EPMF Guarantee facility all the proceeds (see point (h)) received of the fiduciary account were used for the purposes of the Facility (as foreseen in the FMA).

(g)The balance of the fiduciary account;

At the end of the financial year 31/12/2015 EUR 9 597 622

Impact of negative interest rates on EPMF-G : no impact as at 31/12/2016. 107

(h)Revenues and repayments;

Revenues of the year 2016     EUR 47 228

Aggregate revenues as at 31/12/2016     EUR 1 007 305

Repayments of the year 2016    EUR 0

Aggregate repayments as at 31/12/2016    EUR 0

Additional resources regularised in 2016 for the instrument    EUR 0

Aggregate additional resources as at 31/12/2016    EUR 349 387

(i)The value of equity investments, with respect to previous years;

NA

(j)The accumulated figures on impairments on called guarantees for guarantee instruments;

(k)The target leverage effect, and the achieved leverage effect;

As of 30/09/2016, based on the signed Guarantee agreements, the expected volumes of micro-loans to final recipients are estimated to EUR 286,48 million and the total EU contribution committed is EUR 23,6 million which brings the expected leverage effect to 12,14 which is much higher than the minimum target leverage estimated at 6,67.

As for achieved leverage until 30/09/2016, the total EU contribution commmitteed of EUR 23,6 million has supported so far EUR 235,6 million of new micro-loans, implying a leverage nearing 10.

D -Strategic importance/relevance

(l)The contribution of the financial instrument to the achievement of the objectives of the programme concerned as measured by the established indicators, including, where applicable, the geographical diversification;

As at 30/9/2016, the EPMF-G already contributed to provide more than 235,6 million EUR of financing to 19 713 Final Recipients through 20 980 underlying loans, accounting for an estimated 336,5 million EUR investment amount.

See below some information on the impact of EU Financial Instruments for micro-entrepreneurs SMEs (The economic environment for micro-finance). 108  

At the aggregate EPMF Facility level (including both Guarantee and Funded Instruments), 109 the gender breakdown for the 14 873 natural persons benefitting from loans under the Facility show that considerable outreach to females was achieved (36,8% of the micro-borrowers guaranteed were women).

In addition, 48,8% of individual micro-borrowers who received support under the Facility so far, were either unemployed or inactive at the time they received their loan.

At Facility level, individuals which were final recipients of micro-loans were, by and large, educated at the secondary level (40,9%). Nevertheless, EPMF continues to be of importance in serving the financing needs of individuals with more substantial education beyond the secondary level (40,8%).

Regarding the age group, with respect to final recipients who are natural persons the outreach to individuals in disadvantaged age groups (younger and older people combined) remains at noteworthy levels (17,9%).

The share of each participating country in the total amount of financing already provided (EUR 235,6 million as of 30/09/2016) by the EPMF – G instrument to eligible final recipients is presented in the following graph.

E -Key points and issues

·Main issues for the implementation & general outlook:

o In terms of the number of micro-loans disbursed, the European microfinance sector as a whole continued to grow in 2016, which is also reflected by the guarantee activity under EPMF. The continuously decreasing bank lending, the limited capacity of national governments to support microfinance and the strong market demand for microfinance still suggest that there is a clear rationale for intervention at EU-level by providing risk-sharing solutions to Microfinance providers.

o Room for improvement has been identified for accompanying mentoring and training for micro-entrepreneurs since it is considered as important factor for the sustainability of the micro-enterprises. The issue of Microfinance providers’ institutional capacity concerning mainly small non-bank microfinance institutions is a bottleneck which hurdles the disbursement of the agreed micro-loans and affects negatively their prospects in the microfinance market.

o The provision of regulatory capital relief under the Guarantee Agreements has been identified as important issue in attracting qualified microfinance providers. During the negotiations with EIF many Intermediaries, mainly banks, raised this issue especially when EIF asked Intermediaries to pass the EPMF benefit to the final recipients through price reduction.

·Main risks and solutions in place to mitigate these:

o Contractual and process compliance of the microfinance providers is ensured through contractual reporting and monitoring after the signature of the guarantee agreements in accordance with the EIF internal procedures.

o In addition, the Commission safeguards that the requirements included in the Facility's Fiduciary and Management Agreement are fully respected by both EIF and the microfinance providers.

o In order to encourage utilisation by the microfinance provider, a commitment fee is charged if not at least specific percentage of the Agreed Portfolio is reached during a contractually defined Availability Period.

o Furthermore, the observance of specific requirements set out in the Facility's Fiduciary and Management Agreement with regard to reporting, monitoring and auditing, data protection, promotion and visibility, protects the interests of the Union against any risks of contractual, processes and performance non-compliance.

2.3.EaSI Microfinance and Social Entrepreneurship

A -Summary

As has been shown by ex-ante evaluations, 112 it is essential to provide financial instruments for microfinance and social enterprises in order to successfully achieve the objectives of the EaSI programme. In line with the outcome of ex ante evaluations, debt finance, risk-sharing instruments, and equity investments are likely to be used.

B -Description

(a)Identification of the financial instrument and the basic act;

Regulation (EU) No 1296/2013 of the European Parliament and of the Council of 11 December 2013 on a European Union Programme for Employment and Social Innovation ("EaSI") and amending Decision No 283/2010/EU establishing a European Progress Microfinance Facility for employment and social inclusion. 113

(b)Description of the financial instrument, implementation arrangements and the added value of the Union contribution;

Policy objectives and scope

EaSI Microfinance and Social Entrepreneurship aims at fulfilling the following objectives:

·to increase access to, and the availability of, microfinance for vulnerable groups who want to set up or develop their business as well as for existing micro-enterprises,

·to build up the institutional capacity of microcredit providers,

·to support the development of social enterprises, in particular by facilitating access to finance.

The instruments provide support not directly to final recipients, but rather to relevant intermediaries, i.e. microfinance providers and social enterprise investors.

"Microfinance Instrument" targets:

·Vulnerable people, i.e. persons who are in a disadvantaged position with regard to access to the conventional credit market and who want to start or further develop their own micro-enterprise, including self-employment; (the Regulation gives special focus to young people as vulnerable group).

·Micro-enterprises, meaning an enterprise, including a self- employed person, that employs fewer than 10 people and whose annual turnover or annual balance sheet total does not exceed EUR 2 million, in accordance with Commission Recommendation 2003/361/EC (OJ L124/36, 20.05.2003).

"Social Entrepreneurship financial Instrument" will target

·social enterprises, regardless of their legal form. 114

Implementation arrangements 

The Delegation Agreement between EC and the EIF was signed on 22/06/2015 and amended on 16/12/2016 introducing the EFSI frontloading provision and on 19/12/2016 introducing the set up and the implementation process of EaSI Capacity Building.

Added value

The Delegation Agreement signed with the EIF ensures that EaSI Microfinance and Social Entrepreneurship is accessible for a broad range of financial intermediaries (microcredit providers, both banks and non-banks, and social enterprise investors) which are experienced in financial transactions with self-employed and micro-entreprises.

From a technical point of view, the EIF is instructed to provide guarantees to the financial intermediaries to cover a portion of expected losses of a portfolio of newly generated self-employed and micro-entreprises transactions with a higher risk profile.

(c)The financial institutions involved in implementation;

European Investment Fund (EIF).

http://www.eif.org/what_we_do/microfinance/easi/

C -Implementation

(d)The aggregate budgetary commitments and payments from the budget;

Aggregate budgetary commitments as at 31/12/2016 EUR 68 799 200

Aggregate budgetary payments as at 31/12/2016 EUR 42 227 944

(e)The performance of the financial instrument, including investments realised (as of 31/12/2016); 115

Impact on employment

For the entire period as of 31 December 2016 (latest available operational data as at 30/09/2016), EaSI achievements for the Microfinance Guarantee Instrument were as follows:

·Number of micro-loans: 13 021

·Total amount of micro-loans: EUR 152,29 million

·Total number of employees (in the supported micro-entreprises): 21 161

EaSI achievements for the Social Entrepreneurship Guarantee Instrument were as follows:

·Number of loans to social enterprises : 64

·Total amount of loan to social enterprises : EUR 5,67 million

·Total number of employees (in the supported social entrerprises): 1 168

Additional operational information

·As of 31/12/2016, 40 Guarantee Agreements (33 Microfinance, 7 Social Entrepreneurship) have been signed in 20 Member States for a total guarantee cap amount of EUR 59,41 million.

EaSI Microfinance Guarantee Instrument

·The original EU contribution of EUR 56 million earmarked for the EaSI Microfinance Guarantee has already been entirely used by the end of 2016, i.e. after 1,5 years of operation. In 2017, the demand from microfinance providers will remain significant but the available resources of the new EaSI Microfinance Guarantee (EPMF-G successor programme) will not be sufficient to cover it. Therefore, apart from the EFSI frontloading signed in December 2016 under the Amendment No. 1 of the Delegation Agreement, a top up of EUR 100 million is envisaged.

EaSI Social Entrepreneurship Guarantee Instrument

•    Based on forecasts subject to variations a further EUR 11,25 million in operations is expected to be signed with Financial intermediaries for Social Entrepreneurship by the end of 2017.

(f)An evaluation of the use of any amounts returned to the instrument as internal assigned revenue under paragraph 6;

Not applicable for 2016. 

(g)The balance of the fiduciary account;

At the end of the financial year 31/12/2016 EUR 38 857 289

Impact of negative interests for EaSi : no impact in 2016. 117

(h)Revenues and repayments;

Revenues of the year 2016 EUR 20 776

Aggregate revenues as at 31/12/2016 EUR 24 561

Repayments of the year 2016 EUR 0

Aggregate additional resources regularised in 2016 for the instrument EUR 0

(i)The value of equity investments, with respect to previous years;

Not yet applicable.

(j)The accumulated figures on impairments of assets of equity or risk-sharing instruments, and on called guarantees for guarantee instruments;

Called guarantees as at 31/12/2016: EUR 552 551

(k)The target leverage effect, and the achieved leverage effect;

The target leverage effect, agreed with the EIF in the Delegation agreement, is 5,5 over the lifetime of the financial instrument for the guarantees part (which with the Union contribution of EUR 96 million is intended to support about EUR 528 million of financing volumes) and not yet available for the funded instruments funds.

As of 31/12/2016, based on the signed Guarantee agreements, the expected volumes of loans to final recipients are estimated to EUR 753,58 million and the total EU Contribution Committed is EUR 69,61 million (EUR 68,79 million of aggregate budgetary commitments plus EUR 0,81 millon of EFSI exposure) which brings the expected leverage effect for Signed Operations to approx. 11 (minimum target leverage was set at 5,5).

As for achieved leverage, until 30/09/2016 (latest operational data available), the total EU Contribution Committed of EUR 68,79 million has supported so far EUR 157,96 million of new micro-loans and loans to social entrerprises, implying a leverage of 2,3.

D -Strategic importance/relevance

(l)The contribution of the financial instrument to the achievement of the objectives of the programme concerned as measured by the established indicators, including, where applicable, the geographical diversification;

As at 30/9/2016, the EaSI -G already contributed to provide more than 157,96 million EUR of financing to 12 804 Final Recipients through 13 085 underlying loans, accounting for an estimated 225,65 million EUR investment amount.

For the EaSI Guarantee microfinance window, 118 the gender breakdown show that considerable outreach to females is already achieved (34,9% of the micro-borrowers guaranteed were women).

In addition, 19,3% of individual micro-borrowers who received support under the Facility so far, were either unemployed or inactive at the time they received their loan.

Individuals which were final recipients of micro-loans were, by and large, educated at the secondary level (36,1%). Nevertheless, EaSI continues to be of importance in serving the financing needs of individuals with more substantial education beyond the secondary level (50%).

Regarding the age group, with respect to final recipients who are natural persons the outreach to individuals in disadvantaged age groups (younger and older people combined) is 10,6%.

The share of each participating country in the total amount of financing already provided (EUR 152,29 million as of 30/09/2016) by the EaSI Guarantee instrument (Microfinance window) to eligible final recipients is presented in the following graph.

For the EaSI Guarantee social entrepreneurship window, 119 the reporting data collected shows that 39% of the social enterprises benefitting from the EaSI Guarantee have as main activity producing and/or distributing healthy and /or affordable food.

The vast majority of social enterprises supported (98,3%) have an annual turnover of less than 2 million EUR.

59,65% of the social enterprises supported reinvest up to 65% of their profits/surplus in the delivery of the social aim within the social enterprise.

The share of each participating country in the total amount of financing already provided (EUR 5,67 million as of 30/09/2016) by the EaSI Guarantee instrument (Social Entrepreneursip window) to eligible final recipients is presented in the following graph.

E -Other key points and issues

·Main issues for the implementation:

oAt the current stage, EaSI Guarantee financial instrument is fully deployed covering the already anticipated increased market demand. The Union budgetary commitments for the years 2017-2020 have been frontloaded in order to make them available as of December 2016, enabling the EIF to sign operations more quickly to keep pace with the market demand. In general, in the area of microfinance, the available funding has reached the available commitments so the main issues arising for the implementation of the instrument are the necessity to ensure additional and on time available funding in order to facilitate the ongoing implementation and increased demand of the Programme.

·Main risks:

oThe risks related to social enterprises are linked to the fact that that market has not yet developed and the EU financial instrument has to help building it. Given the level of its development and the changes in the socio-economic environment, the market also tends to change very rapidly. This might cause a situation where the instrument in question may not be fit anymore for future situations.

·General outlook:

oIn the area of social entrepreneurship there was an initially slower take up but taking into account the novelty of the offer, this is not unusual. Based on the pipeline, we expect significantly higher levels of implementation in the next years. In the area of Microfinance, EaSI has already committed to financial intermediaries the amount of EUR 50,35 million (90% of the total amount of EUR 56 million foreseen for Microfinance) within a period of only 15 months of initial implementation (30/9/2015-31/12/2016).

2.4.Loan Guarantee Facility under COSME

A -Summary

The successful roll-out of the LGF continued in 2016, also thanks to the additional risk bearing capacity available from the SME Window of EFSI, with more than 143 000 SMEs already having received financing, with a strong focus on the smaller and younger SMEs which have more difficulties in getting the financing due to risk considerations.

B -Description

(a)Identification of the financial instrument and the basic act;

Regulation (EU) No 1287/2013 of the European Parliament and of the Council of 11 December 2013 establishing a Programme for the Competitiveness of Enterprises and small and medium-sized enterprises (COSME) (2014 – 2020) and repealing Decision No 1639/2006/EC (O.J. L347, 20.12.2013).

(b)Description of the financial instrument, implementation arrangements and the added value of the Union contribution;

Policy objectives and scope

In line with the Europe 2020 strategy, the overall policy objective of the COSME Financial Instruments is to improve access to finance for SMEs in the form of equity and debt. Under the LGF, this will be achieved by incentivising financial intermediaries to provide financing to those SMEs which the financial intermediary would under its normal business practices not finance due to the higher risks involved.

The Loan Guarantee Facility (LGF) provides:

ocounter-guarantees and other risk sharing arrangements for guarantee schemes;

odirect guarantees and other risk sharing arrangements for any other financial intermediaries meeting the eligibility criteria.

The LGF consists of:

ocapped portfolio guarantees for debt financing covering any type of loans, including subordinated and participating loans, bank guarantees, leasing transactions and working capital financing;

osecuritisation of SME debt finance portfolios, providing guarantee coverage on a part of the mezzanine tranche of a securitised SME lending portfolio coupled with an undertaking by the originating institutions to build up a new SME loan portfolio.

The LGF covers, except for loans in the securitised portfolio, loans up to EUR 150 000 and with a minimum maturity of 12 months. The LGF may also cover loans above EUR 150 000 in cases where SMEs would not meet the innovation criteria specified under the SME window of the Debt Facility of the Horizon 2020 programme (the InnovFin SME Guarantee Facility).

Implementation arrangements

The LGF is implemented by the EIF on behalf of the Commission, as part of the single EU debt financial instrument for EU enterprises’ growth and research and innovation (R&I), together with the InnovFin SME Guarantee Facility set up under the Horizon 2020 programme. The Delegation Agreement signed with the EIF on 22 July 2014 ensures that the LGF is accessible for a broad range of financial intermediaries (guarantee societies, national promotional institutes, commercial banks, cooperatives, etc.) which are experienced in financial transactions with SMEs or which have the capacity to enter into financial transactions with SMEs.

Target final recipients under the capped portfolio guarantees and the securitisation transactions are SMEs without a specific sector focus. The guarantee instrument is planned to last until 31 December 2034 (until last operations are wound down). Individual guarantee agreements to be signed by the entrusted entity will have a maximum duration of 10 years.

The LGF may also contribute to the financial instruments to be deployed under the SME initiative, a joint instrument combining EU funds available under COSME and/or Horizon 2020 and ESIF resources in cooperation with EIB/EIF with a view to generate additional lending to SMEs in specific Member States. This contribution may take the form of uncapped portfolio guarantees or guarantees on the middle mezzanine tranche of securitisation operations.

The EIF is responsible for evaluating and selecting the financial intermediaries by applying selection criteria and processes set out in the Delegation Agreement. The related open call for expression of interest for financial intermediaries published by the EIF is available at

http://www.eif.org/what_we_do/guarantees/single_eu_debt_instrument/cosme-loan-facility-growth/index.htm

Added value

The EIF provides under the LGF (counter-)guarantees for a portfolio of newly generated SMEs transactions which have a higher risk profile than transactions offered by the financial intermediary under its normal business practice, thereby providing financing to SMEs who otherwise would not be able to obtain financing.

(c)The financial institutions involved in implementation;

European Investment Fund (EIF)

C -Implementation

(d)The aggregate budgetary commitments and payments from the budget;

Aggregate budgetary commitments as at 31/12/2016    EUR 375 525 065

Aggregate budgetary payments as at 31/12/2016    EUR 182 966 661

(e)The performance of the financial instrument, including investments realised;

Additional LGF operational information

As the resources available under the LGF were not sufficient to satisfy market demand (i.e. total of applications received from Financial Intermediaries by the EIF) for the financing of SMEs, a second amendment of the COSME Delegation Agreement was signed in July 2015, allowing for the combination of LGF resources with additional risk-bearing capacity under the SME Window of the European Fund for Strategic Investment (EFSI) so as to avoid disruption of the succesful rollout of the LGF. Thanks to EFSI, the COSME LGF Enhancement continued its accelerated roll-out in 2016.

A third amendment to the COSME Delegation Agreement was signed in April 2016 to allow for the implementation of the securitisation option under the SME Initiative. Italy opted in 2016 for a combination of resources with COSME under this option.

(f)An evaluation of the use of any amounts returned to the instrument as internal assigned revenue under paragraph 6;

NA.

(g)The balance of the fiduciary account;

Aggregate balance of the fiduciary account as at 31/12/2016     EUR 160 286 016

Impact of negative interest rates on COSME LGF: No impact as at 31/12/2016. 124

(h)Revenues and repayments;

Cumulative Revenues as at 31/12/2016:         EUR 292 263 125

Cumulative Repayments as at 31/12/2016:     EUR 0

(i)The value of equity investments, with respect to previous years;

NA.

(j)The accumulated figures on impairments of assets of equity or risk-sharing instruments, and on called guarantees for guarantee instruments;

EUR 4 790 471

(k)The target leverage effect, and the achieved leverage effect 126 ;

The target leverage effect indicated in the COSME legal base is in the 1 to 20 – 1 to 30 range for the debt instrument over the lifetime of the programme, with an overall value of financing expected to be mobilised by the EU contribution ranging from EUR 14,3 billion to EUR 21,5 billion and the number of firms ranging from 220 000 to 330 000. 127

The achieved leverage effect 

Based on the amount of financing provided by financial intermediaries to eligible final recipients compared to the aggregate budgetary commitments as at 31 December 2016, including the actual EFSI exposure, the leverage achieved amounts to 9,7.

The "Expected Leverage for Signed Operations" 

Based on the maximum amount of financing available to SMEs under the operations signed with financial intermediaries as at 31 December 2016, the expected leverage is 32,9.

D -Strategic importance/relevance

(l)The contribution of the financial instrument to the achievement of the objectives of the programme concerned as measured by the established indicators, including, where applicable, the geographical diversification;

As at 31 December 2016, the LGF already contributed to provide around EUR 5 547 million of financing to more than 143 000 SMEs, also thanks to the support from the EFSI guarantee.

This shows that the LGF, by providing financing to riskier SMEs that otherwise would not have had access to such financing, has an important impact on the real economy in the EU and other participating countries of the COSME programme. Furthermore, the combination of resources with EFSI allows addressing sub-optimal investment situations in the Member States at a much faster pace than would have been possible under LGF on its own, significantly speeding up the much needed financing of the economy.

At the end of 2016, 67 guarantee agreements have been signed with 61 financial intermediaries located in 25 participating countries, with actual financing already provided to SMEs in 21 countries, as set out in the graphs below.

Available implementation data shows that the LGF more specifically supports the smaller and younger SMEs where it is recognized that they encounter more difficulties to get the financing they need. Under the LGF, more than 91% of the SMEs having got financing have below 10 employees and 45% are start-ups.

While it is still premature to fully assess the impact of the LGF, an initial analysis on a reduced sample base indicates that, on average, SMEs who benefitted from a guarantee under the LGF have significant increases in annual turnover (+ 16,4%) and in employment (+ 9,4%) at the end of 2015.

Graph: Geographical distribution of LGF net signatures in participating countries

Graph: Geographical distribution of SMEs (by amount of financing received)

E -Other key points and issues

· Main issues for the implementation:

oIt is crucial to continue to provide sufficient resources towards the LGF in order to avoid any disruption in later years of the programme as financial intermediaries start to apply for follow-on transactions to their current guarantee or counter-guarantee agreements.

·Main risks:

oNo risks were identified with regard to eligibility of financial intermediaries and final recipients, contractual compliance process and performance.

·General outlook:

oThanks to the conversion of the temporary additional risk-bearing capacity provided under EFSI into a permament top-up mechanism of the resources available for the LGF, it is expected that the continuous strong market demand can be met for the next years.

2.5.RSI (Pilot guarantee facility for R&I-driven SMEs and Small Midcaps) under FP7

A -Summary

RSI (Risk-Sharing Instrument for SMEs and small midcaps, with maximum 499 employees) was launched to improve access loan finance for RDI investments. The RSI guarantee facility is part of the RSFF implementation and is carried out by the European Investment Fund (EIF).

The Risk-Sharing Instrument has so far provided over EUR 2,33 billion in guarantees and counter-guarantees to 35 banks and guarantee societies: this has enabled them to support up to an estimated 4 146 innovative SMEs and small midcaps (estimated corresponding investment amount: EUR 4 660 million). In only two years' time, these financial intermediaries now cover 17 countries in the European Union and Associated Countries.

B -Description

(a)Identification of the financial instrument and the basic act;

Decision No 1982/2006/EC of the European Parliament and of the Council of 18 December 2006 concerning the Seventh Framework Programme of the European Community for research, technological development and demonstration activities (2007-2013) (OJ L 412, 30.12.2006, p. 1).

Council Decision 2006/971/EC of 19 December 2006 concerning the specific programme ‘Cooperation’ implementing the Seventh Framework Programme of the European Community for research, technological development and demonstration activities (2007 to 2013) (OJ L 400, 30.12.2006, p. 86).

Council Decision 2006/974/EC of 19 December 2006 on the Specific Programme: ‘Capacities’ implementing the Seventh Framework Programme of the European Community for research, technological development and demonstration activities (2007 to 2013) (OJ L 400, 30.12.2006, p. 299).

(b)Description of the financial instrument, implementation arrangements and the added value of the Union contribution;

Policy objectives and scope

The RSFF, co-developed by the European Commission and the EIB, was established in June 2007. In early 2012, within this programme a new pilot guarantee facility, RSI (Risk-Sharing Instrument for SMEs and small midcaps, with maximum 499 employees) was launched to improve access loan finance for RDI investments.

Implementation arrangements

The RSI guarantee facility is part of the RSFF implementation (see the relevant section in this report) and is carried out by the European Investment Fund (EIF). No new commitment were made since 31/12/2013.

Added value

RSI is a dedicated guarantee facility for loan and lease finance addressing the finance gap for innovative SMEs and Small Midcaps (with up to 499 employees). Through risk-sharing via guarantees provided by the EIF to financial intermediaries, it made a significant contribution to support innovative smaller companies by improving their access to loan finance.

(c)The financial institutions involved in implementation;

European Investment Fund (EIF).

C -Implementation

(d)The aggregate budgetary commitments and payments from the budget;

Aggregate budgetary commitments as at 31/12/2016         EUR 270 000 000

Aggregate budgetary payments as at 31/12/2016     EUR 270 000 000

(e)The performance of the financial instrument, including investments realised;

The aggregate number of applications from financial intermediaries is 47, including four guarantee increases.

The instrument has so far provided over EUR 2,33 billion in guarantees and counter-guarantees to 35 banks and guarantee societies: this will enable them to support up to an estimated 4 146 innovative SMEs and small midcaps via loans, financial leases, and loan guarantees.

(f)An evaluation of the use of any amounts returned to the instrument as internal assigned revenue under paragraph 6;

EUR 64,1 million have been assigned to InnovFin Horizon 2020 SMEs & Small Midcaps R&I Loans Service Facility which is the successor financial instrument of the pilot guarantee facility for R&I-driven SMEs and Small Midcaps under the FP7 (RSI).

(g)The balance of the fiduciary account;

Aggregate balance of the fiduciary account as at 31/12/2016     EUR 181 825 346

Impact of negative interest on RSI: no impact as at 31/12/2016. 128

Please note that the figures provided are also included in RSFF.

(h)Revenues and repayments;

For the period 2012-2016 the following revenues and repayments were received by the EU on the EU RSI Account:

Total operating revenues 129 : EUR 1 892 423

Repayments: EUR 64 105 752

(i)The value of equity investments, with respect to previous years;

NA.

(j)The accumulated figures on impairments of assets of equity;

Called guarantees as at 31/12/2016         EUR 14 698 037

(k)The target leverage effect, and the achieved leverage effect;

The expected leverage effect is above 12 with an amount of financing expected to be provided by financial intermediaries of EUR 3 301 million and an EU contribution of EUR 270 million.

The achieved leverage effect is above 8,5 with an amount of financing expected to be provided by financial intermediaries of EUR 2 331 million and an EU contribution of EUR 270 million

D -Strategic importance/relevance

(l)The contribution of the financial instrument to the achievement of the objectives of the programme concerned as measured by the established indicators, including, where applicable, the geographical diversification;

The Risk Sharing Instrument (RSI) under the 7th Framework Programme is a guarantee facility dedicated for loan and lease finance addressing the finance gap for innovative SMEs and Small Midcaps (enterprises with up to 499 employees).

As at the end of 2016, the instrument has so far provided over EUR 2,33 billion in guarantees and counter-guarantees to 35 banks and guarantee societies: this will enable them to support up to an estimated 4 146 innovative SMEs and small midcaps via loans, financial leases, and loan guarantees and had thus an important impact on the real economy of the EU as described below. In only two years' time, these financial intermediaries now cover 17 countries in the European Union and Associated Countries.

Graph: Geographical distribution of RSI actual portfolio volume in participating countries

E -Other key points and issues

The Risk Sharing Instrument (RSI) has come to an end, and has paved the way to the financial instrument SMEs & Small Midcaps R&I Loans Service under Horizon 2020 which is implemented on a larger scale as well in term of budget than geographical coverage or specific target groups.

*Please note that the total indicative budget for SME/ small midcap guarantee instruments is EUR 1 060 million that also includes the Horizon 2020 contribution to the SME Initiative. The minimum Horizon 2020 contribution to the SMEs and Small Midcaps Loan Service for R&I is EUR 880 million but might be increased depending on the actual size of the contribution from Horizon 2020 to the SME Initiative.

A -    Summary

This instrument addresses the financing gap for innovative SMEs and Small Midcaps (with up to 499 employees) for their investments in innovative products and processes containing significant technology or application risks.

The EU and the EIF, as risk-sharing partners at EU level, support loan finance to such innovative SMEs and Small Midcaps through direct or indirect guarantees which the EIF will provide to financial intermediaries.

Due to the advantages the InnovFin SME Guarantee offers, notably in the form of risk-sharing and capital relief for banks, guarantee institutions and other financial intermediaries, this instrument is able to successfully address the financing gap for innovative small companies.

Based on the foreseen Union budget coming from Horizon 2020, the risk-sharing arrangements between the EU and EIF as well as between the EIF and its financial intermediaries, a significant loan and lease volume in support of innovative small companies and their investment can be expected. For the period 2014-2020, it is targeted to mobilize a loan and lease volume of approximately EUR 9,5 billion in support of 3 000 innovative companies and their investments in RDI.

The successful roll-out of InnovFin SMEG continued in 2016, also thanks to the additional risk bearing capacity available from the SME Window of EFSI, with more than 5 682 SMEs and small mid caps already having received financing

B -    Description

(a) Identification of the financial instrument and the basic act;

Regulation (EU) No 1291/2013 of the European Parliament and of the Council of 11 December 2013 establishing Horizon 2020 - the Framework Programme for Research and Innovation (2014-2020) (OJ L 347/104, 20.12.2013).

Regulation (EU) No 1290/2013 of the European Parliament and of the Council of 11 December 2013 laying down the rules for participation and dissemination in "Horizon 2020 - the Framework Programme for Research and Innovation (2014-2020)" (OJ L 347/81, 20.12.2013).

Council Decision 2013/743/EU of 3 December 2013 establishing the specific programme implementing Horizon 2020 - the Framework Programme for Research and Innovation (2014-2020) (OJ L 347/965, 20.12.2013).

(b) Description of the financial instrument, implementation arrangements and the added value of the Union contribution;

Policy objectives and scope

This guarantee facility succeeds and refines the RSI pilot under the RSFF in FP7, and is part of a single debt financial instrument supporting the growth of enterprises and their R&I activities. It targets R&I-driven SMEs and small midcaps (up to 499 employees) requiring loans of between EUR 25 000 and EUR 7,5 million. A loan of more than EUR 7,5 million will be considered on a case-by-case basis.

Implementation arrangements

The EIF implements this guarantee instrument, which will be delivered by financial intermediaries (such as banks). Financial intermediaries will be guaranteed against a proportion of their potential losses by EIF, which will also offer counter-guarantees to guarantee institutions.

The European Investment Fund (EIF) is providing direct guarantees to financial intermediaries such as banks, who will extend the actual loans to final recipients. The guarantee covers up to 50% of intermediaries' potential losses. EIF also offers counter-guarantees to financial intermediaries (such as guarantee institutions) providing risk protection to banks extending loans to R&I-driven SMEs and small midcaps. This facility is available since 10 June 2014.

R&I-driven SMEs or small midcaps wishing to apply for a loan should contact one of the financial intermediaries signing an agreement (see Selection procedure) with EIF. This is a demand-driven facility, with no prior allocations between sectors, countries or regions. However, the Commission incentivises EIF to make a particular effort to ensure that a significant proportion of final recipients are eco-innovative SMEs and small midcaps.

Selection procedure: financial intermediaries selected by entrusted entities for the implementation of financial instruments pursuant to Article 139(4) of Regulation (EU, Euratom) No 966/2012 on the basis of open, transparent, proportionate and non- discriminatory procedures, may include private financial institutions as well as governmental and semi-governmental financial institutions, national and regional public banks as well as national and regional investment banks

a) For financial intermediaries: EIF issues calls for expression of interest, with eligibility and selection criteria defined as part of each call after consultation with DG Research & Innovation.

b) For loans: according to the internal processes of the intermediary bank or other financial institution that the SME or small midcap applies to, using normal commercial criteria.

Added value

This is a demand-driven instrument, with no prior allocations between sectors, countries or regions, or types or sizes of firms or other entities.

Expected impact: R&I-driven SMEs and small midcaps able to carry out a greater amount of R&I. The indicators are the number of agreements signed with financial intermediaries and the number and volume of loans made.

(c) The financial institutions involved in implementation;

European Investment Fund (EIF).

C -    Implementation

(d) The aggregate budgetary commitments and payments from the budget;

Aggregate budgetary commitments as at 31/12/2016         EUR 534,47 million

Aggregate budgetary payments as at 31/12/2016         EUR 478,21 million

(e) The performance of the financial instrument, including investments realised;

(f)An evaluation of the use of any amounts returned to the instrument as internal assigned revenue under paragraph 6; 

EUR 1,89 million of 2016 revenues have been assigned to InnovFin Horizon 2020 SMEs & Small Midcaps R&I Loans Service Facility

(g)The balance of the fiduciary account;

Aggregate balance of the fiduciary account as at 31/12/2016    EUR 466 970 441