What are innovative financial instruments?
Innovative financial instruments are a range of activities such as
- participation in equity (risk capital) funds
- guarantees to local banks lending to a large number of final beneficiaries, for instance small and medium-sized enterprises (SMEs)
- risk-sharing with financial institutions to boost investment in large infrastructure projects (e.g. the Europe 2020 project bonds initiative or the connecting europe facility financial instruments).
The aim is to boost the real economy through increasing the access to finance for enterprises and industry producing goods and services. Spending through innovative financial instruments is another way of spending EU budget than giving grants or subsidies.
Innovative financial instruments support economic growth
Innovative financial instruments can attract funding from other public or private investors in areas of EU strong interest but which are perceived as risky by investors. Examples include sectors with high economic growth or innovative business activities.
The fact that the EU invests risk capital in a certain fund or covers part of the risk associated with a certain type of projects can reassure other investors and encourage them to invest alongside the EU. Moreover, innovative financial instruments have important non-financial effects such as promotion of best practices.
Where are financial instruments used?
Financial instruments are used under a number of EU programmes, such as
- Horizon 2020
- the programme for the competitiveness of enterprises and small and medium-sized enterprises (COSME)
- the EU programme for employment and social innovation (EaSI)
- the Creative Europe Programme
In addition, the European fund for strategic investments (EFSI), while not itself a financial instrument, is used to increase the scope of support under a number of the EU financial instruments, especially those for small and medium-sized enterprises (SMEs).