New plan to finance start-ups must come with more transparency from EIB

9 February 2011, EurActiv

EU plans to finance start-ups must be accompanied by more transparency from the European Investment Bank, writes Isabella Besedova of the CEE (Central and Eastern Europe) Bankwatch Network in an exclusive commentary for EurActiv.

CEE Bankwatch Network welcomes the European Commission’s concerns about funds available for European start-ups and SMEs in this period of capital shortage. European SMEs, and particularly Central and Eastern European ones, need more bold investments, but bold in the way they are designed to reach out to real SMEs in real need.

The Commission plan currently envisages that more taxpayers’ money will be channelled to venture capital facilities and guarantee instruments for start-ups and SMEs, using the EIB as an intermediary.

As EurActiv has revealed, the planning process for these future mechanisms is not yet finalised. Therefore, we take this opportunity to issue an early warning over the role that the European Investment Bank (EIB), the EU’s main lending arm, will have in any future financing schemes.

According to the EIB’s own figures, 13 billion euros’ worth of global loans disbursed in 2009 benefited merely 50,000 European SMEs. This translates into a penetration rate of 0.0025. Our 2010 study ‘Missing in Action’ highlights serious issues of transparency and accountability with the procedures through which the EIB uses commercial banks as intermediaries to distribute money to European SMEs.

There are no clear-cut means to ensure that the banks lend out the money to SMEs as soon as possible. Our study shows that a considerable portion of the EIB money has been kept by the banks in their coffers as a means to make up for their shortage of capital during the crisis.

Rather than helping struggling SMEs to weather the crisis, the EIB loans have just turned into another way of using public money to prop up commercial banks.

There is even more cause of concern about the transparency and accountability of EIB financing carried out through venture investment programmes and guarantee facilities.

Less information is available for the public about these mechanisms than for the so-called global loans offered through intermediary banks. Even with the scarce information provided to us by the EIB about its global loans disbursements, we found serious cause for concern about the effectiveness of these monies.

With even less information available about venture investment programmes and guarantee facilities, how can we make sure that European taxpayers’ money does indeed benefit start-ups and SMEs?

We therefore warn that any increase in financial assistance through the EIB must not go forward without clear guarantees that public money ends up in the right hands.

We urge the EIB to strengthen its transparency and accountability, and its internal procedures for choosing financing partners and for monitoring financial intermediaries. And we call on EU policymakers to carefully analyse how the EIB is progressing towards transparency and accountability before it entrusts new mandates and more funding to the Bank.