A new fi-compass case study features a Spanish financial instrument that was set up towards the end of the 2007-2013 period with co-funding from the Extremadura regional Operational Programme. This 'Joint European Resources for Small and Medium-Sized Enterprises' (JEREMIE) Holding Fund used support from the European Regional Development Fund (ERDF) to help small and medium-sized enterprises (SMEs) by financing tangible assets (excluding land), intangible investments, and working capital.
The managing authority signed a funding agreement with the European Investment Fund (EIF), who acted as the fund of funds manager. Spanish bank, Banco Santander was the financial intermediary, disbursing loans to SMEs at favourable conditions. Loans of EUR 25 000 to 250 000 could be repaid over two to ten years and had lower than market interest rates.
Absorption rates were noteworthy with 90% of resources distributed during the first two and a half months. By December 2014, 636 SMEs (of which 563 were microenterprises) had received 674 loans, and over 5% of the principle had already been paid back and reinvested via new loans.
Speaking at a fi-compass event about this financial instrument for Extremadura, Pilar Durán Solano from the Ministry of Finance and Public Administration of Extremadura, underlined the important role of the financial intermediary. Banco Santander contributed EUR 11 million of its own resources and was also involved in a wide range of marketing activities. These included regional press, radio and TV coverage, corporate communications, webpage, and posters outside the bank’s branches throughout the region.
Success of the fund hinged on the partnership between the EIF and the regional government. Both partners worked closely together to carry out a thorough analysis of the target market. Their joint findings helped to ensure that this financial instrument was very well tailored to the financing needs of Extremadura's SMEs. Close cooperation between the EIF and Banco Santander was also essential. Hence, this case study represents a useful example of what can be achieved by bringing the technical expertise of the EIF and the managing authority’s knowledge of regional SMEs, together with the financial intermediary’s practical know-how of working with debt financing.
Pilar Durán Solano observed that this first experience with financial instruments enabled them to increase their internal capacity. She explained "When facing the launch of a financial instrument we have the impression that it is complicated, however it has been a testing ground to gain experience and to deal with the main problems that arise when you get started. But there are two main reasons that justify going for financial instruments compared to non-refundable grants: their revolving effect and the leverage effect.”
Extremadura's regional government had previously been highly focused on setting up and disbursing grant schemes. Now, thanks to this collaboration with the EIF and successful implementation of the fund, the regional government’s ability to increase support by using financial instruments has improved considerably.
See the fi-compass website's Resource Library for full details about this ERDF case study.