Is EU financial support adequately addressing the needs of micro-entrepreneurs?

Executive  summary

I Micro‑entrepreneurs are experiencing problems with accessing the conventional credit market which hampers the creation of new micro enterprises and self‑employment. EU support aims to address to some degree the existing funding gap by providing grants to micro‑enterprises (under the ESF) or making access to loans easier thanks to financial instruments for microcredit providers namely loans and guarantees.

II The EU support is provided mainly by two different instruments: the European Social Fund (ESF) and the European Progress Microfinance Facility (EPMF). The ESF includes measures implemented mainly through grants and also through financial instruments (loan or guarantee) which are included in the operational programmes prepared by the Member States and approved by the Commission. On the other hand EPMF is implemented on behalf of the Commission by the European Investment Fund.

III The Court assessed whether the programming and design of the EU support was addressing the actual needs of micro‑entrepreneurs and whether robust performance reporting systems were in place. In addition, the Court examined whether sufficient information is available on implementation costs of the different EU funding mechanisms supporting micro‑entrepreneurs.

IV The Court concludes that for ESF financial support to micro‑entrepreneurs there are weaknesses in the programming and the design of the support and a lack of sufficient and reliable monitoring information on performance. In addition, the Commission and the Member States do not have sufficient information available on the administrative cost for each Member State and for each funding mechanism (i.e. grants or financial instruments, such as loans or guarantees). V Overall the Court considers that these issues may have a negative impact on the effectiveness of EU financial support addressing the needs of micro‑entrepreneurs.

VI In order to address the issues identified in this report, the Court recommends that:

(a) For the 2014–20 programming period, Member States consistently perform needs assessments when designing funding instruments and pre‑ paring operational programmes that include EU financial support for micro‑entrepreneurs. This would also help to allocate the appropriate level of funding to the alternative funding mechanisms, i.e. grants or financial instruments (loans or guar‑ antees). The Commission should provide guidance in this regard.

(b) The Commission makes the use of ESF financial instruments by the Member States conditional not only on compliance with regulatory requirements but also on the existence of a robust risk manage‑ ment system to avoid fund oversizing.

(c) In order to improve the outreach, the Commission, together with the Member States, should design ESF financial support measures for micro‑entrepreneurs and define eligibility criteria which aim at reaching the unemployed and vulnerable persons who are in a disadvantaged position with regard to access to the conventional credit market.

(d) For the 2014–20 programming period, the Commission carries out a comparative analysis of the implementation costs of ESF grants, ESF financial instruments and EaSI financial instruments with a view to establishing their actual levels. This assessment should allow the identification of ‘good practices’ on how small amount grants, loans and guarantees can be disbursed at a reasonable cost.

It is the synthesis of the  ECA’s special reports

The ECA’s special reports set out the results of its performance and compliance audits of specific budgetary areas or management topics. The ECA selects and designs these audit tasks to be of maximum impact by considering the risks to performance or compliance, the level of income or spending involved, forthcoming developments and political and public interest. This performance audit was produced by Audit Chamber II — headed by ECA Member Henri Grethen — which specialises in structural policies, transport and energy spending areas. The audit was led by ECA Member Iliana Ivanova; supported by Tony Murphy, head of private office; Mihail Stefanov, attaché of private office; Emmanuel Rauch, head of unit; Dennis Wernerus, team leader; Romuald Kayibanda, team leader; Piotr Senator, auditor and Christian Wieser, auditor.

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