The European Commission (EC) and the European Investment Bank (EIB) have today presented a model guarantee instrument which aims to help ease access to finance for farmers and other rural businesses.
Member States and regions can adapt and use the model to set up financial instruments funded by their rural development programmes (RDPs) under the European Agricultural Fund for Rural Development (EAFRD) – to secure loans for investments in farm performance, processing and marketing, business start-ups and many other areas.
EC (DG AGRI) and the EIB Group intend to make available more specific financial products in support of EU rural development policy and agri-food research.
These will include tailored loans to support Rural Development Programmes, and financial instruments for agriculture. The newly created EC/EIB fi-compass advisory platform on financial instruments will also be introduced.
Speaking at the launch European Agriculture Commissioner Phil Hogan said there are plenty of farmers who want to make their farm more efficient, or diversify, or restructure; plenty of entrepreneurs who want to start a business; plenty of authorities which want to provide public services more efficiently.
“But to get those ideas off the drawing-board, they need money,” he said.
According to Commissioner hogan that’s where financial instruments come in – and in particular, the EIB Group’s excellent work on developing them and helping us to use them.
“As we know, financial instruments are essentially magnets designed to pull in private money.
“For example, a guarantee fund offers security for loans to be provided by banks or other bodies –for up to 80 % of the value of the loan. Once this security is available, someone with a business idea is much more likely to find that the door of the bank opens when he goes knocking,” he said.
Commissioner Hogan said if things go well, under this approach a sum of, say, €100,000 provided as a guarantee could turn into a loan worth much more than that – perhaps €200,000, €300,000 or more.
“And when loans are repaid, the security is released and that money can be used again. So overall, in effect we can potentially turn one euro of public money into two euros, three euros or more, he added.
EIB Vice-President Wilhelm Molterer said the need to invest in EU’s rural economies is huge while public support is constrained by scarce public financial resources.
“What we therefore need is a smart way of using public cash to attract private investors and unlock investment.”
He said financial instruments supported by the EAFRD represent a real paradigm shift.
“Making use of these instruments is in the best interest of the recipients of EAFRD funds as they go further than simple grants.”