JEREMIE stands for Joint European Resources for Micro to Medium Enterprises. It is a joint initiative of the European Commission with EIF and European Investment Bank (EIB) to promote SME access to finance and financial engineering products in regions.
Under the JEREMIE initiative, national and regional authorities can opt to deploy money made available by the European Regional Development Fund (ERDF) in the form of market-driven financial instruments, instead of offering grants. Unlike grants, which can only be spent once, the JEREMIE instruments have the added benefit of a revolving character, meaning that a given pool of funds can be re-invested several times. Global grants are reimbursements of expenses made by the Managing Authorities, on the basis of invoices. JEREMIE is an advanced payment, based on expected operations / use.
JEREMIE will operate as a “tool-box” to create financial instruments for the benefit of SMEs using ERDF funds held and managed by Fund Holders on behalf of national and regional authorities.
It is also possible to use ESF (European Social Fund) means within JEREMIE, but if doing so, a Member State must be in compliance with the investing criteria and reporting obligations of ESF. A “dual account” mechanism may be a way to handle ESF and ERDF funds within JEREMIE.
Clarification of terminology: The Holding Fund or Fund Holder is a compound of a bank account owned by the Member State and a manager (the HF Manager) selected by the Member State.
The Manager of the Fund Holder/Holding Fund manages the funds made available by ERDF and other sources of finance including international finance organisations and domestic sources. Holding Fund Managers are appointed following a public tendering procedure that is arranged by the Managing Authority, since the contract to be concluded will be a public service contract. EIF can be appointed directly. National entities like development banks can be designated as Holding Fund Managers without tendering only under certain circumstances. The conditions is that a national published law, regulation or administrative provision compatible with the Treaty attributes to the national entity an exclusive right to perform the function of the Holding Fund for JEREMIE operations during the 2007-2013 programming period of structural funds’ assistance (see Directive 2004/18/EC, art. 18). Managing Authorities operate on a national or regional level e.g. a national Ministry of Finance or a regional governmental body.
In the first phase of the JEREMIE initiative 2006-2007, European Commission's Directorate General for Regions (DG Regio) mandated EIF to undertake preparatory evaluations of the gaps between supply and demand and related market failures in the regions, and to propose action to be taken. Information on the regional development areas and strategic guidelines is available on the DG Regio’s website.
From 1 January 2007, JEREMIE entered in its second phase, when the programme became operational. Each participating programming authority held tenders to appoint Fund Holders to manage the JEREMIE initiative in close cooperation with the EU Member States or Managing Authorities.
Both the European Commission and EIF are actively liaising with stakeholders throughout the Member States and the regions to present the initiative so that up to date information is readily available. Background information is already posted on DG Regio and EIF websites.
EIF will regularly issue press releases and other communication initiatives and a specific website will be established after the initiative enters its operational phase.
By their nature, the financial instruments contemplated in the JEREMIE initiative will create a leverage effect on the managed funds: Market-based instruments create opportunities for public-private cooperation. In addition to their direct contribution – the funding of SMEs, instruments such as risk capital and equity- or loan- guarantees reinforce the capacity of SMEs to raise additional financing by strengthening their capital base or by addressing a portion of the financing risk which some investors or lenders are not willing to take.
Furthermore, the professional management of JEREMIE funds will provide incentives for the European financial sector, banks and investors, to co-invest or lend to SMEs. For instance, JEREMIE funding, as a “risk reserve”, could take the junior risk in guarantee transactions. Additional leverage from EIB is also envisaged, e.g. through global loans to beneficiary states/regions.
EIF is part of the EIB Group, and operational synergies between EIF and EIB have been enhanced to support the implementation of JEREMIE. Additional resources from EIB and other IFIs may be mobilised to support the initiative. It is possible under JEREMIE that EIB could finance the national component of the contribution from operational programmes to the JEREMIE Holding Fund.
The flexibility of the JEREMIE instruments is optimal: each Fund Holder will be able to implement various types of instruments varying from equity and quasi-equity to venture capital, loans or guarantees for the benefit of SMEs in the regions, support mechanisms for Business Angels or Technology Transfer funds.
JEREMIE is also a highly adaptable tool as its financial instruments can be managed flexibly over a period of time: During the financial period 2007-2015, in consultation and cooperation with the Managing Authorities of operational programmes, the JEREMIE Fund Holder will be able to re-allocate the resources to one or other financial instrument and product, depending on the effective demand.
Furthermore, invested JEREMIE resources that are repaid become available for reinvestment. This is applicable, for example, when returns are received on venture capital investments, or micro-loans are reimbursed to micro-finance institutions. Resources are reinvested into the JEREMIE instruments and are used again in favour of SMEs.
Generated interest shall be used within the Holding Fund structure to ensure the continuing sustainability of the Fund itself in line with Art. 78 (7) of the EC Regulation 1083/2006.
JEREMIE will principally enhance the supply of SME finance in the regions, by bringing product expertise and decision on investment schemes at a local level. It will also contribute to improve the regional financial conditions. This may be achieved, amongst other means, by decreasing lending interest rates through JEREMIE guarantees, reducing the need for collaterals through the implementation of guarantee instruments, disseminating equity finance, enhancing the availability of micro-credit.
JEREMIE is designed to optimise the use of ERDF funding and to simplify the management of financial engineering by the Managing Authority. It operates as a toolbox of financial instruments that enables regions to set up targeted financial actions in favour of SMEs.
Contributions from the national/regional operational programmes to Fund Holders will be eligible for up-front payment by the ERDF to facilitate the financial programme management. JEREMIE investments in SMEs can take place over a nine-year period, between 2007 and 2015, which will ensure a sustained investment opportunity.
JEREMIE is designed to complement the other current and future actions set in place by the European Commission. For example, the Competitiveness and Innovation Framework Programme (CIP) will be implemented at EU level whilst JEREMIE will be applied at regional level.
JEREMIE will not crowd-out other measures from operational programmes in favour of SMEs and productive sector in general. It will be possible to maintain specific initiatives in favour of SMEs, supported by operational programmes of the Structural Funds, in parallel to JEREMIE.
JEREMIE will focus on repayable “market-driven” instruments and does not aim to encompass the SME support measures spectrum to include grant support, interest subsidies, etc. Of course, Member States or Managing Authorities in consultation with selected JEREMIE Fund Holders, will have to consider the economic rationale of combining JEREMIE actions with non-repayable support to SMEs, such as grant support or interest rate subsidies.
EIF is the EU financial institution for SME finance. Its main shareholders are EIB and the European Commission. Over a decade it has developed an expertise in SME finance across the EU, through venture capital investments and SME guarantees. It has developed operational contacts with a wide network of financial institutions and now manages over EUR 12.4 bn of commitments. EIF is ideally qualified to carry out the evaluations on the basis of its market experience and professional expertise in SME finance.
JEREMIE evaluations will be based on existing SME finance studies and evaluations and on additional updated input, including from EIF contacts with representatives of national and regional governmental bodies, national agencies, SME agencies, specialised financial intermediaries, etc.
Interim JEREMIE evaluation reports will be made available during 2006, to help countries and regions as well as DG Regio in preparing the Operational Programmes. The subject of JEREMIE should be mentioned, but without a great level of detail. Final evaluations will be made available end of 2006 and in the course of 2007.
Interested stakeholders will have the opportunity to meet the EIF team carrying out the JEREMIE evaluations in each concerned Member State or regions.
EIF and the European Commission's Directorate General for Regions (DG Regio), have both organised evaluation kick-off meetings and fact-finding missions in all Member States as well as Bulgaria and Romania, joining the EU on 1 January 2007.
JEREMIE evaluations are carried at free of charge for the regions. The evaluations are co-financed by the ERDF technical assistance budget at the Commission's initiative (75 %) and by EIF (25 %).
EIF will produce interim evaluation reports during 2006. These interim reports will serve as a basis for preparing and adopting operational programmes that are established by the managing authorities participating in the JEREMIE initiative.
The evaluations will serve as background and guidelines for the first steps in the implementation phase of JEREMIE.
DG Regio and the Managing Authorities will use the evaluations to prepare and adopt the operational programmes. OPs will reflect the JEREMIE evaluations of SME finance gaps and the recommendations for financial instruments and ERDF resources needed to plug the gaps.
JEREMIE will be implemented in 3 major phases:
The contributions from operational programmes to JEREMIE Fund Holders should be flexible. The final decision on the amounts allocated to the "JEREMIE accounts" rests with the Member States or Managing Authorities, in agreement with Fund Holder. Recommendations will be made by EIF during the Evaluation Phase.
JEREMIE implementation started in early 2007, meaning that Management authorities were able to select a Fund Holder, setting up JEREMIE accounts and receive contributions from operational programmes. Investments by financial intermediaries in SMEs will be possible until 2015.
Non-grant instruments such as equity or venture capital investments, loans and guarantees are foreseen under the JEREMIE initiative. In addition, technical assistance may be provided by the Managing Authority or the Fund Holder to the financial intermediary, but will not be a part of the JEREMIE 'toolbox' for SMEs but instead will be financed by the ERDF technical assistance budget set aside for the relevant operational programme.
The JEREMIE initiative covers all the EU Member States and is not restricted to Convergence Objective regions. All regions of both Convergence and Competitiveness Objectives are eligible, provided that Member States or Managing Authorities have identified the potential need for JEREMIE in their respective operational programmes.
With the exception of sectors excluded by the ERDF regulation, there are no specific sectors identified under JEREMIE. The specific objectives and market priorities of JEREMIE will be defined by the Managing Authorities based on evaluations and could target a wide range of sectors such as ICT and biotechnology, or other traditional economic sectors.
All SMEs with less than 250 employees are potentially eligible, according to the European Commission's guidelines (European SME definition).
Fund Holders could open regional JEREMIE offices in Member States or regions as appropriate. See JEREMIE representative offices
The Fund Holder will manage contributions from the Operational Programmes, including both the national and ERDF contributions. In general, the Member State can finance its national contribution from existing resources, via the EIB, via a syndicate of commercial banks or even a combination of these if appropriate. Furthermore, additional funding that supplements the Holding Fund may be provided by the private sector or other.
Expenditures under JEREMIE at the closure of programmes will be considered eligible when "out of the Fund", that is out of the financial intermediary investing in SMEs. Furthermore, once JEREMIE resources invested in SMEs will be reimbursed, they must be reinvested in favour of SMEs, preferably recycled into a JEREMIE-like system.
Any amounts not committed to instruments supporting SMEs with JEREMIE-type of financial products by end of 2015, need to be returned to the Commission.
The role of the Fund Holder will be to manage the JEREMIE initiative and the JEREMIE funds on behalf of the region of Managing Authority. The Fund Holder is responsible for developing and implementing a prudent business plan for the Holding Fund as a whole covering the multiple relationships with financial intermediaries.
The Fund Holder will organise calls of expressions of interest to select the financial intermediaries, such as venture capital funds, guarantee funds, banks and micro-credit providers.
On the basis of its specific expertise and working closely with the Managing Authorities, the Fund Holder will evaluate, select, accredit financial intermediaries, and monitor the implementation of JEREMIE. It may also provide technical assistance to the intermediaries as appropriate.
Potentially all public financial intermediaries could become JEREMIE Fund Holders, including those that already manage ERDF instruments. The number of Fund Holders may vary across Member States and there may be one per operational programme. However, in order to have a minimal critical mass and ensure economies of scale, the number of Fund Holders should be limited. There is a possibility to have institutions collaborating as co-Fund Holders, such as national or regional financial institution working with EIF, subject to a tender process.
Fund Holders are appointed following a public tendering procedure that is arranged by the Managing Authority, since the contract to be concluded with the Fund Holder will be a public service contract. EIF can be appointed directly. National entities like development banks can be designated as Holding Fund Managers without tendering only under certain circumstances. The conditions is that a national published law, regulation or administrative provision compatible with the Treaty attributes to the national entity an exclusive right to perform the function of the Holding Fund for JEREMIE operations during the 2007-2013 programming period of structural funds' assistance (see Directive 2004/18/EC, art. 18). Managing Authorities operate on a national or regional level e.g. a national Ministry of Finance or a regional governmental body.
The Managing Authority will have the possibility to make a direct grant from the OP to the Holding Fund (Art 42b of draft ERDF regulation). Should it be another financial institution, the Fund Holder will have to be selected through tendering procedure. However, in some countries, the national law for public procurement may allow some financial intermediaries to benefit directly from a grant.
The Fund Holder will manage JEREMIE on behalf of the Managing Authority. They are the "manager" or "arranger" of the programme, selecting the financial intermediaries and monitoring the programme. A Fund Holder can select various financial intermediaries. A financial intermediary's role is to channel the ERDF/JEREMIE funding to the SMEs. In case a national entity is selected as Holding Fund Manager, the entity itself as well as its subsidiaries cannot be selected as financial intermediaries to be supported with resources of an Operational Programme under JEREMIE, as this would create a conflict of interest.
Under Art 42b of the draft ERDF regulation, EIF may receive a grant from the Managing Authority to manage on its behalf without having to follow JEREMIE tendering procedures. This reduces the Managing Authority's administrative procedures.
EIF's pan-European expertise and wide knowledge of financial instruments and markets across the SME finance spectrum, from technology transfer to buy-out and micro credit, is an asset for the Managing Authorities. EIF may work in cooperation with other specialised financial operators, through the provision of technical assistance to a Fund Holder or by being co-Fund Holder. EIF's remit is not to crowd-out existing operators but rather to bring its operational added value to optimise the implementation of JEREMIE.
Last but not least, EIF can facilitate the leverage of EIB financial means.
The nature of the cooperation will depend on the contractual relationship. A Funding Agreement will be signed between the Managing Authority and the Fund Holder, defining the type of cooperation, the operational modalities (e.g. instruments, targets, participation at Boards, etc.), monitoring, fee amounts, the autonomy of the fund holder in implementing the instruments, etc.
All terms and conditions for contributions from the Operational Programme to the Holding Fund including the plan for draw-down of financial resources should be specified within the Funding Agreement between the Managing Authority and the Holding Fund Manager (Art. 44 2a of the Commission Implementing Regulation).
DG Regio and EIF will propose a model for the Funding Agreement between Managing Authorities and Holding Funds.
The level of detail of the Funding Agreement will be subject to negotiations between the Managing Authority and the Holding Fund Manager. The Funding Agreement should be flexible enough to allow for an initial contribution from the Operational Programme and then for additional contributions to be made to the Holding Fund depending on the effective demand for JEREMIE-type of financial products.
The Funding Agreement should also specify detailed rules for winding-up provisions (Art. 43 (6) of Commission Regulation re: EC 1083/2006). The owner of the assets provided by the EU will be the Member State. All resources paid back to the OP or the relevant public authority as well as any revenue or interest generated by such resources must be reinvested in supporting SMEs.
Financial intermediaries will be selected through calls for expressions of interest (Art. 44.2b and 2c of the Commission Implementing Regulation), and assessed on the basis of objective criteria, including their business plan, professionalism and efficiency of management, and their capacity to channel JEREMIE funding to SME. The Holding Fund Manager would evaluate and formally propose the financial intermediaries to the Managing Authority. Once approved, the Holding Fund Manager will formally contract the financial intermediary and undertake periodic reviews.
JEREMIE anticipates a wide spectrum of SME finance operators, venture capital funds, loan funds, technology transfer vehicles, micro finance providers, banks, guarantee funds, etc.
Each financial intermediary is required to submit a business plan as described in Art. 43 (2) of the Commission Implementing Regulation as a basic criterion for being selected through the open call for proposals procedure. Each of these business plans is required to define clear exit/termination policies appropriate for the instrument in question.
The final draft of the Commission Implementing Regulation re:1083/2006 provides that the business plan submitted by financial intermediaries should also present the policy of the financial engineering instrument concerning exit from investments in enterprise - Art. 43 (2h).
Co-financing partners or shareholders referred to in Art. 43 (2) of the Commission Regulation re: EC 1083/2006 are the owners of financial intermediaries. They can take form of a partnership/association (co-financing partners) or a company (shareholders) depending on the legal form of the financial intermediary.
The ceiling of public money channelled to SME under the JEREMIE operations will be defined by EU "state aid" rules applicable in the regions concerned for each type of financial product.
In general, "de minimis" and "state aid" rules are to be fully applied in case of financial engineering actions (Community Guidelines on State Aid to promote Risk Capital Investments in SMEs). It is one of the responsibilities of the Holding Fund Manager to ensure that each instrument used is in compliance with these guidelines. With JEREMIE, the focus is on market failure through the gap analysis which is reinforced by the new guidelines. A completed market failure or gap analysis report should enable a fast-track process to be adopted. When there is no supply, clearly it is difficult to establish reasonable market conditions, other than from peer groups. The Holding Fund Manager's role includes negotiating the appropriate market conditions with financial intermediaries.
Each contribution from the Operational Programme to the Holding Fund will indeed be considered as an "interim-payment", that is, the Managing Authority will be reimbursed immediately. They are irreversible for the programming period 2007-2013. Managing Authorities will have the possibility to make the payments in several tranches to the JEREMIE Account.
It will be possible with the prior approval of the Commission to reallocated resources within an Operational Programme only for the part of the resources allocated within an OP for JEREMIE which had not yet been declared to the Commission for an interim payment.
The funding belongs to the Member State, the Fund Holder will be its manager, on the basis of an agreement; JEREMIE is a management mandate.
