Special Report Is EU financial  
support adequately 
addressing the needs of 
micro-entrepreneurs?EN 2015  NO 08
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Is EU financial 
support adequately 
addressing the needs of 
micro-entrepreneurs?
(pursuant to Article 287(4), second subparagraph, TFEU)Special ReportEN 2015  NO 08
02
 Audit team
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.
From left to right: C. Wieser, R. Kayibanda, E. Rauch, I. Ivanova, T. Murphy, 
D. Wernerus, P . Senator, M. Stefanov.

03
 Contents
Paragraph
 Abbreviations
 Glossary  
I–VI  Executive summary
1–16  Introduction
17–18  Audit scope and approach
19–63  Observations
19–37  Programming and design of the EU support to micro -entrepreneurs
21–30  Lack of specific needs assessments and proper risk management systems  
for ESF support to micro -entrepreneurs
31–33  Generally satisfactory EPMF set -up arrangements
34–36  Most ESF financial instruments did not attract private funding
37 EPMF financial instruments attracted some private funding
38–54  Monitoring and performance reporting systems
41–44  Limited information on outreach and survival rates for ESF OPs
45–47  More complete information on outreach and survival rates for EPMF projects
48–54 Micro -entrepreneurs were reached, around half of whom were previously unemployed
55–63  Information on the implementation costs of EU support to micro -entrepreneurs
56–58  Incomplete information on the administrative cost of implementing ESF OPs
59–63  Variations in costs charged for ESF financial instruments
64–72  Conclusions and recommendations
 Reply of the Commission
04
 Abbreviations
CGAP : Consultative Group to Assist the Poor
EaSI : EU Programme for Employment and Social Innovation
EIB: European Investment Bank, or European Investment Bank Group when EIB and EIF are referred to altogether
EIF: European Investment Fund
EPMF : European Progress Microfinance Facility
ERDF : European Regional Development Fund
ESF : European Social Fund
EU: European Union
GNI : Gross national income
OP: Operational programme
SME : Small and medium‑sized enterprise
05
 Glossary
Consultative Group to Assist the Poor (CGAP) : The Consultative Group to Assist the Poor (CGAP) is a policy and 
research centre supported by around 30 development agencies and private foundations dedicated to advancing 
financial access for the world’s poor. It is headquartered at the World Bank.
EaSI : The Employment and Social Innovation (EaSI) programme is a financing instrument at EU level to promote 
a high level of quality and sustainable employment, guaranteeing adequate and decent social protection, 
combating social exclusion and poverty and improving working conditions.
EaSI is managed directly by the European Commission. It brings together EPMF and two other EU programmes 
managed separately between 2007 and 2013.
European Code of Good Conduct for Microcredit Provision : A set of ‘good practice’ guidelines and 
recommendations for microcredit providers issued by the Commission in December 2011.
European Investment Fund : The EIF is a specialist provider of risk finance to benefit small and medium‑sized 
enterprises (SME) across Europe. It is part of the EIB Group and its shareholders are the European Investment Bank 
(EIB), the European Commission and a wide range of public and private bank and financial institutions.
European Progress Microfinance Facility (EPMF) : The European Progress Microfinance Facility (EPMF) is 
implemented on behalf of the Commission by the European Investment Fund (EIF) for micro‑credit guarantees and 
for loans to banks and other financial intermediaries.
For the latter, the EIB is a co‑investor in the EPMF.
European Regional Development Fund (ERDF) : The European Regional Development Fund (ERDF) aims at 
reinforcing economic and social cohesion within the European Union by redressing the main regional imbalances 
through financial support for the creation of infrastructure and productive job‑creating investment, mainly for 
businesses.
European Social Fund (ESF) : The European Social Fund (ESF) aims at strengthening economic and social cohesion 
within the European Union by improving employment and job opportunities (mainly through training measures), 
encouraging a high level of employment and the creation of more and better jobs.
Exit policy : Exit policy means a policy/strategy for the liquidation of holdings by a financial instrument according to 
a plan to achieve maximum return.
Financial instruments : Financial instruments are a generic term for contracts which provide their holder with 
a claim on an obligor. The EU provides support for three possible types of financial instruments: equity, loan and 
guarantee instruments. Equity or loan instruments are contracts between an investor and an investee or between 
a lender and a borrower. Guarantees are contracts where a guarantor guarantees the rights of an investor or 
a lender.
Leverage effect : In relation to financial instruments funded from the EU budget and national public funds, leverage 
is expressed in terms of how many euros of funding (public and private) have been effectively been available to 
provide financial support to final recipients for each euro of public funding (EU and national public funds) endowed 
to the instrument.
Managing authority : A national, regional or local public authority (or any other public or private body) which 
has been designated by the Member State to manage an operational programme. This includes in particular the 
selection of the projects to be funded, the monitoring of how these projects are implemented and the reporting on 
both financial aspects and the results achieved to the Commission.
06 Glossary
Micro -entrepreneur : In this report, micro‑entrepreneurs should be understood as self‑employed persons as well 
as micro‑enterprises (i.e. registered as a corporate body).
Micro -enterprise : As specified in Commission recommendation 2003/361, a micro‑enterprise is an enterprise 
employing less than 10 people and whose annual turnover and/or balance sheet total does not exceed 2 million 
euros.
Microcredit : The Commission defines microcredit as loans of up to 25 000 euros to micro‑entrepreneurs (see 
Commission Staff Working Paper ‘Microcredit for European small businesses’, SEC(2004) 1156).
Microfinance : In this report, microfinance is defined as loans to micro‑entrepreneurs and guarantees to banks and 
other financial intermediaries which provide such loans.
Operational programme (OP) : An operational programme sets out a Member State’s priorities and specific 
objectives and how the funding (EU and national public and private co‑financing) will be used during a given period 
(generally 7 years) to finance projects. These projects must contribute to achieve a certain number of objectives 
specified at the level of the OP’s priority axis. OPs exist for each of the funds in the Cohesion area (i.e. ERDF and ESF). 
An OP is prepared by the Member State and has to be approved by the Commission before any payments from the 
EU budget can be made. OPs can only be modified during the period covered if both parties agree.
Outreach : Outreach is the degree to which projects reach the intended target group (e.g. micro‑entrepreneurs).
Oversized financial instrument : A financial instrument is qualified as oversized when its total endowment 
significantly exceeds the funding necessary to cover the actual needs of the targeted population (i.e. 
micro‑entrepreneurs in the context of this audit).
Portfolio -at-risk : The value of all loans outstanding that have one or more instalments of principal past due more 
than a certain number of days (usually 30 days).
Revolving effect : The effect of funds endowed to a financial instrument being reused at least once (through the 
use of loans or guarantees).
Small and medium -sized enterprise : Small and medium‑sized enterprises (SMEs) are enterprises which employ 
fewer than 250 persons and which have an annual turnover not exceeding 50 million euros, and/or an annual 
balance sheet total not exceeding 43 million euros. Within the SME category, a small enterprise is defined as an 
enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does 
not exceed 10 million euros.
Survival rate : The survival rate is an indicator for the success of financial support to micro‑entrepreneurs. It is 
calculated by dividing the number of entities having been supported and still in business at the end of a given 
period (the ‘look‑back period’) through the total number of supported entities.
Winding up : Winding up is a process that entails selling all the assets of a fund, paying off creditors, distributing 
any remaining assets to the principals, and then dissolving the fund. Essentially, winding up is to be understood as 
the liquidation of the fund implementing a financial instrument.
07
 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‑en ‑
trepreneurs 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 Com ‑
mission 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 as ‑
sessment should allow the identification of ‘good 
practices’ on how small amount grants, loans and 
guarantees can be disbursed at a reasonable cost.
08
 Introduction
01 
Micro‑entrepreneurs often suffer 
from a lack of access to the conven ‑
tional credit market. Indeed, the total 
demand for microfinance in the EU 
Member States, estimated to be above 
12 billion euros in 20121, exceeds the 
supply of loans provided by banks and 
other financial institutions. The EU 
financial support for micro‑entrepre ‑
neurs aims to address to some degree 
this funding gap faced by them.
02 
By offering the possibility to launch or 
develop new businesses, financial sup ‑
port for micro‑entrepreneurs is also 
meant to address exclusion and in ‑
crease employment, especially among 
persons previously unemployed. The 
EU thereby contributes to the achieve ‑
ment of the EU2020 strategy objec ‑
tives, namely smart, sustainable and 
inclusive growth through increasing 
employment, productivity and social 
cohesion.
03 
The Commission’s definition of mi ‑
crofinance is financial support of up 
to 25 000 euro which under EPMF 
can be given to micro‑entrepreneurs. 
The increase in their accessibility and 
availability is ensured through finan ‑
cial instruments in the form of loans 
and guarantees. In the context of this 
audit, grants provided to launch or 
develop new businesses respecting 
this threshold of 25 000 euros are also 
considered as financial support for 
micro‑entrepreneurs.EU support to 
micro -entrepreneurs 
through the ESF and 
the EPMF
04 
The EU’s financial support to micro‑en ‑
trepreneurs was mainly provided 
through the European Social Fund 
(ESF) during the 2007–13 programming 
period and through the European Pro ‑
gress Microfinance Facility (EPMF) from 
2010 to 2013.
05 
Other EU instruments provide micro ‑
finance to micro‑enterprises such as 
financial instruments for SMEs under 
ERDF OPs (3 136 million euros in the 
2007–13 programming period2) and 
the SME Guarantee Facility under 
the Competitiveness and Innova ‑
tion Programme (CIP) managed by 
the EIF on behalf of the Commission 
(550  million  euros3 in the 2007–13 
programming period). These are not 
covered by this audit as they are either 
not part of the EU budget (EIB loans) 
or they do not specifically target 
micro‑entrepreneurs.
06 
Examples of projects examined by the 
Court are outlined in Box 1 .1 European Commission, 
Evaluation of the JASMINE 
Technical Assistance Pilot 
Phase, ICF GHK on behalf of 
DG Regional and Urban Policy, 
14 November 2013, pp. 20–22.
2 Source:  Summary of data on 
the progress made in 
financing and implementing 
financial engineering 
instruments reported by the 
managing authorities in 
accordance with Article 67(2)(j) 
of Council Regulation (EC) 
No 1083/2006 of 11 July 2006 
laying down general 
provisions on the European 
Regional Development Fund, 
the European Social Fund and 
the Cohesion Fund and 
repealing Regulation (EC) 
No 1260/1999 (OJ L 210, 
31.7.2006, p. 25), Programming 
period 2007–13, 
September 2014, European 
Commission, Situation as at 
31 December 2013, p. 26.
3 Source:  Figures for the 2007–13 
financial contribution, EIF, 
November 2011  
(http://www.eif.org/
news_centre/publications/
corporate_brochure/
fei_brochure_new/files/
assets/seo/page14.html ).
09 Introduction
European Social Fund
07 
The ESF aims at facilitating the em ‑
ployment of workers (including 
self‑employment), as well as to in ‑
crease their geographical and occu ‑
pational mobility, and facilitate their 
adaptation to industrial changes and 
to changes in production systems4. 
During the 2007–13 programming pe ‑
riod, the Commission advocated that 
the ESF should support measures that 
improve the financial and social inclu ‑
sion of less‑favoured persons and give 
access to employment5.
08 
Support to micro‑entrepreneurs 
financed by the ESF includes meas ‑
ures implemented through grants 
and financial instruments and is 
defined in OPs which are prepared by 
Member States and approved by the 
Commission.09 
During the 2007–13 programming 
period, Member States have set up 
117 ESF OPs, 96 of which funded meas ‑
ures classified under the code ‘support 
for self‑employment and business 
start‑ups’6, totalling around 2.4 bil ‑
lion  euros, mostly through grants. 
However no information on how much 
of this grant funding was allocated to 
micro‑entrepreneurs is available. On 
the other hand, ESF financial instru ‑
ments providing support to micro‑en ‑
trepreneurs had an endowment of 
680 million euros by the end of 20137.4 Article 162 of the Treaty on the 
Functioning of the EU.
5 Commission 
Recommendation 
2008/867/EC of 3 October 
2008 on the active inclusion of 
people excluded from the 
labour market (OJ L 307, 
18.11.2008, p. 11); 
SEC(2010) 1564 final of 
16 December 2010 ‘List of key 
initiatives’.
6 This estimate is based on an 
analysis of spending by 86 
codes specified by the 
Commission for Member State 
reporting according to 
annex II of Commission 
Regulation (EC) 1828/2006 of 
8 December 2006 setting out 
rules for the implementation 
of Council Regulation (EC) 
No 1083/2006 laying down 
general provisions on the 
European Regional 
Development Fund, the 
European Social Fund and the 
Cohesion Fund and of 
Regulation (EC) No 1080/2006 
of the European Parliament 
and of the Council on the 
European Regional 
Development Fund (OJ L 371, 
27.12.2006, p. 1), and in 
particular expenditure under 
code 68 ‘Support for 
self‑employment and business 
start‑up’.
7 The 680 million euros of 
support provided through 
microcredit is partly but not 
exclusively included in the 
2.4 billion of ESF spending on 
supporting self‑employment.Which type of micro -entrepreneurs benefited from EU support?
In a small town in the Voivodeship of Opole (Poland), a micro‑entrepreneur received a 40 000 zloty grant  
(around 9 500 euros) from an ESF project to help her start up a children’s indoor playground and a clothing 
store.
In the Land of Bavaria (Germany), a micro‑entrepreneur benefited from a 7 000 euro microcredit to finance 
a new music installation to attract more clients to his lakeside bar. The loan  was provided by a financial inter ‑
mediary supported by the ESF.
On the Island of Crete (Greece), a micro‑entrepreneur used a 5 000 euro working capital facility to expand his 
city kiosk. This microcredit was provided by a local bank with an EPMF guarantee .Box 1
10 Introduction
8 Decision No 283/2010/EU of 
the European Parliament and 
of the Council of 
25 March 2010 establishing 
a European Progress 
Microfinance Facility for 
employment and social 
inclusion (OJ L 87, 7.4.2010, 
p. 1).
9 SEC(2009) 907 of 2 July 2009.
10 Belgium, Bulgaria, Denmark, 
Ireland, Greece, Spain, France, 
Croatia, Italy, Cyprus, 
Lithuania, Netherlands, 
Austria, Poland, Portugal, 
Romania, Slovenia, Slovakia, 
Sweden and the United 
Kingdom.
11 COM(2014) 639 final of 
20 October 2014 
‘Implementation of the 
European Progress 
Microfinance Facility — 2013’.
12 Regulation (EU) No 1296/2013 
of the European Parliament 
and of the Council of 
11 December 2013 on 
a European Union Programme 
for Employment and Social 
Innovation (EaSI) and 
amending Decision 
No 283/2010/EU establishing 
a European Progress 
Microfinance Facility for 
employment and social 
inclusion (OJ L 347, 20.12.2013, 
p. 238).European Progress  
Microfinance Facility
10 
The EPMF aims at increasing access 
to microfinance for people such as 
the unemployed, as well as to other 
vulnerable people who are in a dis ‑
advantaged position regarding their 
accessibility to the conventional credit 
market8 and to micro‑enterprises. It is 
implemented on behalf of the Com ‑
mission by the European Investment 
Fund (EIF), acting as funds manager for 
funded instruments and as entrusted 
entity for guarantees.
11 
The decision of the European Parlia ‑
ment and of the Council for establish ‑
ing the EPMF was based on an ex ante 
evaluation carried out by the Commis ‑
sion. This document concludes that, 
in addition to the already existing 
EU tools, there was a need to create 
a microfinance facility within the EU 
budget9.
12 
In the period 2010–13, the EPMF had 
an endowment of 203 million euros 
(103 million euros from the EU budget 
and 100 million euros from the EIB): 
25 million euros (12 % of the total) 
were intended for guarantees and 
178 million euros (88 %) for loan fund ‑
ing. The EPMF financial instruments do 
not provide direct financial assistance 
to micro‑entrepreneurs but rather pro ‑
vide support to intermediaries through 
loans and/or guarantees.13 
The EIF selects banks or other financial 
intermediaries interested in provid ‑
ing support to micro‑entrepreneurs at 
conditions that are as close as possible 
to market conditions. These intermedi ‑
aries give loans to eligible final recipi ‑
ents on preferential terms compared 
to those existing in the market for 
borrowers of similar credit risk.
14 
As of 30 June 2014, 55 banks or other 
financial intermediaries in 20 Member 
States had been selected10 and more 
than 23 000 micro‑loans amounting to 
208  million  euros had been disbursed 
to micro‑entrepreneurs11.
15 
For the 2014–20 programming period, 
one of the three strands of the EU Pro ‑
gramme for Employment and Social 
Innovation (EaSI)12 will progressively 
replace the EPMF.
16 
An illustration of how EU support 
to micro‑entrepreneurs is provided 
through ESF grants, ESF financial 
instruments and the EPMF is presented 
in Figure 1 .
11 Introduction Figure 1EU support to micro -entrepreneurs through ESF grants, ESF financial instruments 
and the EPMF (schematised)
Source:  ECA.Micro-entrepreneurs
(Final recipients)National Budgets EU Budget EIB Budget
European Social Fund Operational Programmes (ESF OPs) 
implemented by the Commission and 
the Member States’ Managing Authorities
Grants Financial instruments Financial instruments
Financial intermediaries
(incl. banks) Financial intermediaries
(incl. banks)Project managersESF EPMF
European Progress Micro/f_inance Facility
(EPMF) implemented on behalf of 
the Commission by the EIFfor guarantees for loans
12
 Audit scope 
and approach
13 Projects were examined at the 
level of the managing 
authority or intermediate 
body (in the case of grants) 
or the financial intermediary 
(in the case of financial 
instruments).
14 Germany (five projects), 
Greece (six projects), Italy 
(four projects), Poland 
(eight projects) and Romania 
(four projects).
15 Belgium, Bulgaria, Czech 
Republic, Estonia, Spain, 
France, Latvia, Lithuania, 
Malta, Portugal, Slovenia, 
Slovakia, Finland and the 
United Kingdom.
16 Answers have been received 
from 16 managing authorities 
of 14 Member States, 
concerning 19 OPs.17 
With this audit the Court assessed 
whether the needs of micro‑entre ‑
preneurs were addressed through the 
European Social Fund (ESF) and the 
European Progress Microfinance Facil ‑
ity (EPMF) financial support. The Court 
examined in particular whether:
— the programming and design 
of the EU support was ad ‑
dressing the actual needs of 
micro‑entrepreneurs;
— robust performance reporting 
systems were in place;
— sufficient information is available 
on the implementation costs of the 
different EU funding mechanisms 
supporting micro‑entrepreneurs.
18 
The audit results are based on:
— the examination of documents at 
Commission and Member State 
level (for ESF) and the EIF (for 
EPMF);
— the examination of a sample of 
27 projects13 providing financial 
support to micro‑entrepreneurs: 
for six ESF OPs — 14 grants and 
six financial instruments (three 
loan and three guarantee funds); 
and seven EPMF financial instru ‑
ments (two instruments providing 
loans and five instruments provid ‑
ing guarantees). These projects, 
representing approximately 
1.6 billion euros committed (1.2 bil ‑
lion  euros disbursed), were imple ‑
mented in five Member States14 
(Germany, Greece, Italy, Poland and 
Romania), and were either partly or 
fully completed by the end of 2013 
(see Table 1 );— interviews with experts in the field;
— the analysis of client files (grant 
beneficiaries and borrowers) at the 
level of banks and other financial 
intermediaries;
— a survey of 18 additional managing 
authorities in 14 Member States15 
in charge of 22 ESF OPs with 
spending on self‑employment and 
business start‑ups. The survey’s 
response rate was 89 %16 and 
provided feedback on their experi ‑
ence regarding financial support 
measures to micro‑entrepreneurs. 
The Court analysed the replies 
of 11 managing authorities in 
10 Member States who declared 
that their OP included measures 
for micro‑entrepreneurs.
13 Audit scope and approach Table 1Public funding used (by the end of 2013), to support access to finance to 
micro -entrepreneurs for projects examined by the Court in million euros
Member StateESF EPMF
Total
Grants Guarantees Loans Guarantees Loans
Germany 665.8 100.0 765.8
Greece 368.9 0.8 369.7
Italy 9.1 13.9 9.5 32.5
Poland 21.0 11.6 7.9 40.5
Romania 1.7 6.2 18.9 26.8
Total 1 066.5 13.9 121.1 14.9 18.9 1 235.3
Source:  ECA analysis, December 2013.
14
 Observations
17 Bulgaria, Czech Republic, 
Estonia, France (Mainland, 
Martinique), Latvia, Lithuania, 
Portugal (Madeira), Slovenia, 
Slovakia and Finland.Programming and design 
of the EU support to 
micro -entrepreneurs
19 
Designing funding instruments to 
achieve a certain policy objective is 
a challenging task. Important factors 
in this context are ensuring that the 
nature and type of support (grants or 
financial instruments) as well as the 
amounts available are addressing the 
actual needs of potential beneficiaries.
20 
The Court therefore assessed whether:
— needs assessments had been car ‑
ried out for ESF to determine the 
overall level and type of support 
measures proposed to micro‑en ‑
trepreneurs and, for financial 
instruments, whether appropri ‑
ate investment strategies and risk 
management procedures were 
in place to avoid the funds being 
over ‑ or undersized, and an exit 
policy and/or winding‑up provi ‑
sions had been defined;
— a robust risk management system 
has been put in place for financial 
instruments funded under the 
EPMF and in particular, whether 
the required portfolio‑at‑risk as ‑
sessment has been carried out;
— the financial instruments financed 
by the ESF or EPMF succeeded in 
attracting additional private fund ‑
ing by calculating the leverage 
ratio achieved.Lack of specific needs 
assessments and proper 
risk management sys -
tems for ESF support to 
micro -entrepreneurs
Needs of micro -entrepreneurs 
not specifically addressed by 
managing authorities at the 
design stage of the reviewed 
ESF operational programmes
21 
The Court’s audit showed that ESF 
managing authorities of the examined 
OPs did not carry out an assessment 
of the specific needs of micro‑entre ‑
preneurs before allocating funds and 
determining the most appropriate way 
in which these funds should be used.
22 
When responding to the Court’s 
survey, 11 managing authorities in 10 
Member States17 responded that their 
ESF OPs included support measures 
for micro‑entrepreneurs. The Court’s 
analysis showed however that none of 
these 11 managing authorities had as ‑
sessed the specific needs of micro‑en ‑
trepreneurs prior to the approval of 
the OP . This was also the case for all 
OPs in the five Member States where 
the Court had examined specific 
projects. The Court notes that there 
was not a regulatory requirement dur ‑
ing the 2007–13 programming period 
for Member States to conduct needs 
assessments.
15 Observations
19 Article 43 of Commission 
Regulation (EC) No 1828/2006.23 
Box 2  provides an example out ‑
side of the audited sample where 
a robust needs assessment was 
carried out to establish the need 
for targeted support measures for 
micro‑entrepreneurs.
No investment strategies in 
place for three out of six ESF 
financial instruments examined
24 
In general, ESF financial instruments 
receive a contribution from the OP 
to their endowment when their legal 
structure is set up. They subsequently 
use this money to support projects 
that fall within the scope of the OP 
(i.e. providing loans and guarantees to 
final recipients). In line with the regula ‑
tory requirements for ESF financial 
instruments, an investment strategy 
must therefore be developed for each 
fund. For ESF financial instruments, the investment strategy19 also includes an 
analysis of the potential target popula ‑
tion to avoid an over ‑ or undersized 
endowment of the fund.Example of a study establishing the need for a specific support measure targeted 
at micro -entrepreneurs
In the German Land of Brandenburg a study was carried out in 2006 to determine the specific needs of 
business start‑ups18, and in particular on the adequacy of the financial services provided by banks to 
micro‑entrepreneurs.
This study was based on a qualitative and quantitative assessment of the supply and demand for microfinance 
in this region.
It identified that (i) for traditional banks, the delivery of financial services for micro‑entrepreneurs was not at ‑
tractive, especially for small loans of up to 10 000 euros, and (ii) existing financial support initiatives (e.g. loans 
subsidised by the state) did not offer suitable alternatives to micro‑entrepreneurs.
18 Deutsche Gesellschaft für Internationale Zusammenarbeit  (GIZ , previously GTZ GmbH), Microfinance in Europe — Regional Case Studies from 
France, Germany and Greece, pp. 13–15 (a report co‑financed by the ESF).Box 2
16 Observations
20 Guidance Note on Financial 
Engineering Instruments 
under Article 44 of Council 
Regulation (EC) No 1083/2006, 
COCOF_10 ‑0014 ‑04‑EN, 21 
February 2011, Article 4.1.6.25 
In three out of the six audited ESF 
financial instruments, in Poland and 
Italy (Calabria), the Court found that no 
investment strategy had been devel ‑
oped (see Table 2 ).
Inadequate risk management 
systems for five of the six ESF 
financial instruments examined
26 
In addition to an upfront assessment 
of needs, fund managers should also 
put in place appropriate risk manage ‑
ment procedures. This includes in 
particular the analysis of the finan ‑
cial instrument’s portfolio‑at‑risk to 
assess whether the funds’ endow ‑
ment is adequate, and in particular 
to establish whether potential losses 
from loans and guarantees can be covered. Carrying out such an analysis 
is respecting the principles of sound fi ‑
nancial management, according to the 
Commission’s guidance20 to Member 
States for the 2007–13 programming 
period.Table 2Existence of investment strategy, risk management systems and exit policies/winding 
up provisions in the ESF financial instruments audited
ESF financial instruments 
audited (Member State)Investment strategy Risk management systems  
(PAR analysis)Exit policy/winding up 
provisions
Financial instrument A  
(Germany) yes no yes
Financial instrument B  
(Italy)no no no
Financial instrument C  
(Italy)no no no
Financial instrument D  
(Italy)yes no no
Financial instrument E  
(Poland)yes yes yes
Financial instrument F  
(Poland)no no yes
Source:  ECA analysis (2014).
17 Observations
21 Article 43(2) of Commission 
Regulation (EC) No 1828/2006.
23 Article 43(2) of Commission 
Regulation (EC) No 1828/2006.27 
The Court found that a portfolio‑at‑risk 
analysis had been undertaken only for 
one ESF financial instrument out of the 
six examined by the Court (see Ta-
ble 2 ) and in the case of Italy, the Court 
considers that the three audited ESF 
financial instruments are significantly 
oversized (see Box 3 ).28 
According to the regulation, unused 
endowments of financial instruments 
are to be returned to the EU budget at 
closure21.
Weaknesses in relation to 
exit policy and winding up 
provisions for ESF financial 
instruments
29 
The Court also assessed whether man ‑
aging authorities had put in place exit 
policy and/or winding up provisions in 
accordance with the applicable rules23 
for ESF financial instruments. The pur ‑
pose of these policies and provisions is 
to ensure a sound and orderly liquida ‑
tion of the fund at the time of closure.30 
The Court found that no exit policy 
and/or winding up provisions were 
in place for three out of the six ESF 
financial instruments examined (two in 
Campania and one Calabria).Example of oversized ESF financial instruments
By the end of 2013, disbursement to micro‑entrepreneurs was 9.5 % of the total endowment for the loan fund 
in Campania (set up in in December 2009), while it was 0 % and 26.7 % for the two guarantee funds in Calabria 
(set up in September and November 2012).
To respect the rule on eligibility of expenditure, the support should be paid by 31 December 201522. It is un ‑
likely that the remaining funds will reach the micro‑entrepreneurs by the end of 2015.
22 The end of the eligibility period as defined in Regulation 1083/2006 is currently under discussion.Box 3
18 Observations
24 A leverage ratio below 1.0 is 
possible when part of the 
endowment has been used for 
management fees.Generally satisfactory EPMF 
set-up arrangements
31 
The set‑up of EPMF financial instru ‑
ments differs from those under ESF. 
EPMF financial intermediaries (such as 
banks) have to apply to the EIF to ob ‑
tain funding for their financial instru ‑
ments. If financial intermediaries face 
no demand for loans or guarantees, 
they simply do not call upon the EIF 
funding. Therefore a specific regional 
needs assessment is not necessary.
32 
Moreover, in accordance with EPMF 
rules, each financial intermediary is 
subject to a standard due diligence 
process performed by the EIF. This cov ‑
ers an assessment of risk management 
systems, including the portfolio‑at‑risk 
procedures. The portfolio and the re ‑
spective default rate are subsequently 
monitored by the financial intermedi ‑
ary and periodically reported to the 
EIF. Specific rules on these monitoring 
and reporting arrangements form an 
integral part of the contract between 
the EIF and the financial intermediary.
33 
The Court found that the required 
portfolio‑at‑risk analyses had been 
carried out for all seven EPMF financial 
instruments examined. While microfi ‑
nance activities are by definition high 
risk, the Court’s analysis showed that 
the portfolio‑at‑risk for a loan fund in 
Romania was low when compared to 
similar funds. The fund which was op ‑
erational since March 2012 had 0.3 % 
default risk for its portfolio and no 
write‑offs as of 30 September 2013.Most ESF financial  
instruments did not attract 
private funding
34 
One of the advantages of using 
financial instruments compared to 
grants is that they potentially attract 
private funding in addition to the 
public funding (from EU and national 
budgets). This is also referred to as 
leverage effect, which is measured 
as the ratio of total funding to public 
funding. A leverage ratio over 1 means 
that private funding was attracted. 
The Court examined whether financial 
instruments used under ESF or EPMF 
to support micro‑entrepreneurs suc ‑
ceeded in attracting private in addi ‑
tion to public funding.
35 
The Court’s analysis showed that only 
one of the six audited ESF financial in ‑
struments attracted additional private 
funding with a leverage ratio of 1.2 for 
a guarantee fund in Italy (Calabria). For 
four of the six instruments, there was 
no leverage at all as the leverage ratio 
was one or less24. For the last one, an ‑
other guarantee fund in Italy (Calabria), 
the managing authority was not able 
to provide information on the leverage 
ratio.
19 Observations
36 
Regarding quantitative objectives, the 
Court observes that setting a target 
leverage ratio was not a regulatory 
requirement during the 2007–13 pro ‑
gramming period. It however notes 
that target leverage ratios above 1.0 
were specified at the set‑up of the 
fund only for the two Italian guarantee 
funds (1.25 to be attained at the clo ‑
sure of the funds in 2015). In all other 
cases, either no information was avail ‑
able or the target leverage ratio did 
not envisage that any private funding 
would be attracted.EPMF financial instruments 
attracted some private 
funding
37 
The Court found that all seven EPMF 
financial instruments implemented at 
the time of the audit had attracted ad ‑
ditional private funding (see Table 3 ). 
With regard to guarantees, the target 
leverage ratios have been exactly 
matched in one out of seven cases and 
have not been reached in two cases. 
For two others, it is unlikely that the 
initial targets will be reached as the 
difference between current and target 
ratio is too significant to be overcome 
by the mid 2015 target date. For the 
two microcredit portfolio cases, there 
were no targets specified. According 
to the Commission, a final assessment 
of the achievement of the targeted lev ‑
erage ratio for the whole EPMF will be 
carried out after its closure, not earlier 
than 2020.Table 3Leverage of EPMF financial instruments examined
Entity (Member State) Project descriptionLeverage ratio
Target datePrivate funding  
(million euro)Target Actual (31.12.2013)
Entity 1 (Greece)Microcredit portfolio 
guarantee7.47 1.33 18.12.2014 0.3
Entity 2 (Romania) Microcredit portfolio Not specified 1.25120.3.2014 2.4
Entity 3 (Romania) Microcredit portfolio Not specified 1.18 16.5.2013 1.7
Entity 4 (Romania)Microcredit portfolio 
guarantee8.33 1.38 29.12.2013 2.4
Entity 5 (Poland)Microcredit portfolio 
guarantee9.13 9.13 30.3.2013 55.2
Entity 6 (Poland)Microcredit portfolio 
guarantee6.67 1.33 27.6. 2015 0.3
Entity 7 (Poland)Microcredit portfolio 
guarantee7. 58 1.33 27.6. 2015 0.1
1 Actual leverage date is 30.9.2013.
Source : ECA analysis based on EIF data (2013).
20 Observations
25 Article 20(2) of Commission 
Regulation (EC) No 1828/2006.
26 European Code of Good 
Conduct for Microcredit 
Provision; CGAP, The Smart 
Campaign (Centre for 
Financial Inclusion), Universal 
Standards for Social 
Performance Management 
(Social Performance Task 
Force).Monitoring and 
performance reporting 
systems
38 
The Court assessed firstly the rel ‑
evance of the performance reporting 
system put in place by the Member 
States and the EPMF and secondly, for 
the projects included in the sample, 
whether they were likely to have 
provided support to the micro‑entre ‑
preneurs, and in particular to those 
previously unemployed. The Court 
notes that the monitoring of ESF was 
done at priority axis level and not at 
project level for the 2007–13 program ‑
ming period25.
39 
The ultimate objective of EU financial 
support to micro‑entrepreneurs is to 
create or further develop sustainable 
businesses and jobs and to prevent or 
overcome unemployment. The Court 
therefore assessed whether the follow ‑
ing information was reported by ESF or 
EPMF, as such performance indicators 
are also recommended in the Com ‑
mission’s Code of Good Conduct and 
by expert organisations in the field of 
micro‑finance26:
— information on the social profile 
(e.g. education, age, location or 
adherence to specifically vulner ‑
able groups such as unemployed, 
disabled, ethnic minorities or 
migrants) of recipients of financial 
support for micro‑entrepreneurs; 
and— information on the survival rate of 
the micro‑enterprises after a cer ‑
tain period beyond the end of the 
support (e.g. 2 years).
40 
This assessment was done on the basis 
of the examination of projects on the 
spot, the responses to the Court’s 
survey, and a review of the annual 
implementation reports submitted by 
managing authorities to the Commis ‑
sion for the 17 ESF OPs covered by the 
audit.
Limited information on out -
reach and survival rates for 
ESF OPs
41 
The Court’s analysis showed that:
— information on whether the 
recipients of financial support for 
micro‑entrepreneurs were part of 
a vulnerable group was not avail ‑
able for 11 out of 17 (65 %) ESF op ‑
erational programmes examined. 
For the other six programmes, 
the information is considered to 
be partly available as it was only 
provided for the projects specifi ‑
cally targeting the unemployed. In 
addition, for the audited ESF OPs, 
when available, the information on 
the profile of recipients was not 
systematically monitored;
— information on survival rates was 
available for three (in Germany, 
Bulgaria and Finland) out of 17 ESF 
OPs (18 %). In the absence of reli ‑
able and robust performance data 
on the survival rate, the sustain ‑
ability of the projects cannot be 
assessed for the remaining 14 OPs.
21 Observations
27 Article 8 of Decision 
No 283/2010/EU.42 
This analysis is corroborated by the 
review of the OP’s annual implementa ‑
tion reports submitted by the man ‑
aging authorities to the Commission 
which also contain very limited or no 
data in relation to the EU support to 
micro‑entrepreneurs.
43 
Due to these limitations on the data 
provided by Member States, it is 
not possible for the Commission to 
aggregate consistent, meaningful 
and reliable information to monitor 
the achievements of ESF support to 
micro‑entrepreneurs, in particular in 
terms of inclusion.
44 
The Court, therefore, considers that 
the lack of sufficient and reliable 
information on performance makes 
it impossible to come to an overall 
conclusion to what extent the ultimate 
objectives of the ESF financial support 
to micro‑entrepreneurs have been 
achieved.More complete information 
on outreach and survival 
rates for EPMF projects
45 
For the seven EPMF projects covered 
by the Court’s audit, information on 
whether micro‑entrepreneurs were 
reached was provided in all cases. In 
most cases, the EPMF reporting also 
provided information concerning the 
profile of recipients of financial sup ‑
port for micro‑entrepreneurs (such as 
gender, education, age and region). 
Data on the previous employment 
status of final recipients was however 
only available in one out of seven 
EPMF financial instruments examined 
(in Greece).
46 
As regards survival rates, three EPMF 
projects reported a 100 % survival rate 
and one project an average survival 
rate of 70 %. As for the other three 
EPMF projects, the implementation 
status does not yet allow such a calcu ‑
lation to be made.
47 
Overall, the Court found that the 
reporting was in line with the require ‑
ments of the EPMF decision for all sev ‑
en projects examined27, and provided 
better information than that available 
for financial instruments under shared 
management.
22 Observations
28 Commission 
Recommendation 
2003/361/EC of 6 May 2003 
concerning the definition 
of micro, small and 
medium‑sized enterprises 
(OJ L 124, 20.5.2003, p. 36).Micro -entrepreneurs were 
reached, around half of 
whom were previously 
unemployed
48 
The Court assessed whether the 
projects included in the sample were 
likely to have supported micro‑en ‑
trepreneurs and in particular the 
unemployed. This assessment was 
carried out firstly by verifying whether 
the average amount of the support 
was commensurate with the needs 
of micro‑entrepreneurs and secondly 
by examining the profiles of grant 
recipients or beneficiaries of financial 
instruments.Average EU financial support 
commensurate with the needs 
of micro -entrepreneurs
49 
The Court found that the average 
amount of support was below or just 
above the EU’s 25 000 euro recom ‑
mended28 ceiling for all but one of 
the 20 ESF projects examined. All 
the seven EPMF projects examined 
respected the mandatory threshold 
of 25 000 euros set by the EPMF legal 
basis (see Figure 2 ). According to the 
Commission, as of 30 September 2014, 
the average size of an EPMF loan 
was 9 825 euros for guarantees and 
6 717 euros for loan instruments.Figure 2Average EU financial support to micro -entrepreneurs per project against selected 
thresholds
Source : ECA analysis (2013), based on data provided by managing authorities (2013) and World Bank (2012).
90
80
70
60
50
40
3020
10
-
Germany Italy Greece Poland RomaniaCGAP ‘Risk of poverty’
EU ‘Microﬁnance’
ESF Projects
EPMF Projectsin thousand euro
23 Observations
29 The CGAP threshold consists 
of the GNI per capita 
expressed in United States 
dollars multiplied by 2.5.50 
The Court observes that the 
25 000 euro ceiling applicable in each 
of the 28 Member States does not take 
into account the considerable income 
and wealth differences between them. 
Therefore the Court verified whether 
the support was below a GNI‑weighted 
threshold which takes account of the 
extent to which the population at risk 
of poverty is reached had been used 
(CGAP ‘Risk of poverty’29). This addi ‑
tional analysis showed that all 27 pro ‑
jects examined were below the CGAP 
ceiling.
51 
This indicates that the individual 
financial support measures were of 
a size which can be considered as be ‑
ing commensurate with the needs of 
a micro‑entrepreneur.
Not all projects in the sample 
targeted the unemployed
52 
The Court also reviewed the profiles 
of grant recipients (at the level of the 
managing authorities) or profiles of 
clients having obtained financial sup ‑
port through ESF and EPMF financial 
instruments (at the level of the fund 
managers) to assess to what extent 
micro‑entrepreneurs who had previ ‑
ously been unemployed had been 
targeted.53 
Micro‑entrepreneurs who had previ ‑
ously been unemployed were targeted 
for 11 out of 20 ESF projects (55 %) 
examined. This includes nine projects 
(45 %) which exclusively targeted the 
unemployed (five in Greece, two in 
Poland, one in Italy (Campania) and 
one in Germany).
54 
Regarding EPMF, the final recipients 
who had been previously unemployed 
were specifically targeted in one of 
the seven projects examined. How ‑
ever, according to the Commission, 
the overall EPMF aggregate data as of 
end‑September 2014 shows that 58 % 
of the self‑employed financed under 
EPMF was previously unemployed 
and more than 60 % of the micro‑en ‑
terprises supported by the EPMF 
were start‑ups, which implies a high 
outreach of previously unemployed 
micro‑entrepreneurs.
24 Observations
30 Belgium, Czech Republic, Italy, 
Malta, Poland, Finland and the 
United Kingdom.
31 DG Employment, Social 
Affairs and Inclusion, Annual 
Activity Report 2013 , p. 61  
(http://ec.europa.eu/atwork/
synthesis/aar/doc/empl_
aar_2013.pdf ).Information on the 
implementation costs of 
EU support to 
micro -entrepreneurs
55 
Regarding the implementation costs 
of the EU support for micro‑entrepre ‑
neurs, there are two elements that 
have to be considered: the public 
administrative cost and costs charged 
for the financial instruments. Hence, 
the Court assessed whether sufficient 
information is available to the Com ‑
mission and to the Member States on 
these costs.
Incomplete information on 
the administrative cost of 
implementing ESF OPs
56 
The Commission estimated in 2011 
that the administrative cost of imple ‑
menting OPs amounts to 3.2 % of the 
total ERDF/CF and ESF funding for the 
2007–13 programming period. This 
includes the cost of control estimated 
at 0.9 %, which relates to the verifica ‑
tion, certification and audit activities 
carried out by national authorities. This 
estimate is based on figures reported 
by some Member States30 for the early 
years of the 2007–13 programming 
period, for both ERDF/CF and ESF OPs.57 
Building on this31, the Directorate ‑ 
General for Employment, Social affairs 
and Inclusion estimated in its 2013 
Annual Activity Report, the costs at 
the level of the Member States to be 
around 4.8 % of the ESF budget for the 
2007–13 programming period (cover ‑
ing managing, certifying and audit 
authorities). This is based on Member 
States average costs which varied 
between 2 and 13 %. In addition, the 
annual overall Commission administra ‑
tive costs incurred amounts to approx ‑
imately 0.2 % of total appropriations. 
The total overall estimated adminis ‑
tration cost for the management and 
control of the ESF is around 5 % of the 
total annual budget. The main com ‑
ponents of administrative costs are 
described in Box 4 .
58 
To conclude, the Court notes that the 
Commission does not have available 
any comparative information on the 
administrative costs for each Member 
State or for each funding mechanism 
(i.e. grants or financial instruments, 
such as loans or guarantees). Moreover 
the figures available have been updat ‑
ed only for the financial instruments. 
For the ESF OPs examined by the Court 
in five Member States, no information 
on the actual cost of administration 
was available at the level of the differ ‑
ent managing authorities.
25 Observations
32 According to Article 43 of 
Commission Regulation (EC) 
No 1828/2006, management 
costs for ESF financial 
instruments are limited to 
a maximum of 4 % of the total 
endowment of the fund on 
yearly average, unless the fund 
manager has been selected on 
the basis of a competitive 
tendering procedure, which 
was the case for one fund in 
Germany.Variations in costs charged 
for ESF financial instruments
59 
High costs lead to less funding being 
eventually available to the micro‑en ‑
trepreneurs and may put at risk the 
sustainability of the fund, especially in 
the case of small microfinance funds. 
The most common costs charged for 
financial instruments are the manage ‑
ment costs which can include different 
sub‑components (e.g. personnel costs, 
advertising and marketing costs, travel 
and consulting costs).60 
The Court’s analysis shows that the 
management costs for five of the six 
ESF financial instruments examined 
varied between 2.3 % and 4.2 %32. 
Finally, one guarantee fund in Italy 
(Calabria) could not provide informa ‑
tion on its management costs when 
requested by the Court.Main components of public administrative costs for ESF OPs
For the Member States, administrative costs include costs related to management, control, monitoring and 
evaluation of the operational programmes by national authorities. Such costs could be staff remuneration, 
operational costs, travel and training costs. To ensure that the country benefits effectively from the provided 
support, the administrative costs may also cover costs related to information and communication activities on 
funding possibilities by ESF OPs or costs to reinforce the administrative capacity of beneficiaries (e.g. through 
training).
In the case of financial instruments, a part of the administrative activity is performed by the fund manager 
(e.g. selection of the final recipients) resulting in lower administrative costs at Member State level. For these 
activities management costs are directly charged by the fund managers to the OPs.
At the level of the Commission, administrative costs are linked to costs for drafting the ESF regulatory frame ‑
work, the financial management, control, audit, the technical coordination with Member States as well as the 
evaluation and information activities.
These administrative costs do not include the costs borne by the recipients of EU financial support.Box 4
26 Observations
61 
The Court notes that, in its sample, 
for two ESF financial instruments in 
Italy (Calabria) an additional cost on 
top of the management cost has been 
charged to the OP , namely the inter ‑
est payment of the guaranteed loans 
(see Box 5 ). As a result, this increases 
the implementation cost for one of 
the two financial instruments to 7.8 %, 
representing approximately 4  mil ‑
lion euros per year.62 
The structure of the costs being 
charged for the ESF financial instru ‑
ments to the EU budget differed based 
on varying sub‑components. While the 
Court acknowledges that there may be 
valid reasons for such differences, the 
Commission does not have a complete 
overview of the basis for the calcula ‑
tion of ESF financial instruments’ man ‑
agement and implementation costs 
and whether they are justified.
63 
On the other hand, for EPMF (loans 
and guarantee instruments combined), 
the Commission estimates that the av ‑
erage annual cost payable from the EU 
budget is a maximum of 0.5 % to 0.7 % 
of the endowment.
High costs charged by a financial instrument in Calabria
In Calabria, the management costs charged by a microcredit guarantee fund were reported to the Commis ‑
sion as 2.23 % of the total endowment meaning that they were formally below the 4 % regulatory ceiling.
However, the managing authorities agreed with the local banks a management cost structure where ESF 
would pay microcredit interest on behalf of the borrowers. When adding interest payments of 5.6 % of the 
guaranteed loans to the management costs, the total costs charged to the OP are over 7.8 %. Moreover, at the 
same time, the same private banks that received the interest payments were also earning interest on the ESF 
deposited funds serving as guarantees.Box 5
27
 Conclusions and 
recommendations
64 
The Court concludes that for ESF finan ‑
cial support to micro‑entrepreneurs 
there are weaknesses in the program ‑
ming and the design of the support 
and a lack of sufficient and reliable 
information on performance. In addi ‑
tion, the Commission and the Member 
States do not have any comparative 
information available on the admin ‑
istrative cost for each Member State 
and for each funding mechanism (i.e. 
grants or financial instruments, such as 
loans or guarantees).
65 
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.
Weaknesses in programming 
and design of ESF financial 
support to micro -entrepreneurs
66 
The Member States have generally 
not adequately assessed the specific 
needs of micro‑entrepreneurs when 
designing the ESF OPs. There was no 
regulatory obligation to address the 
specific needs of micro‑entrepreneurs 
at European level during the 2007–13 
programming period. During the pe ‑
riod covered by the audit, grants were 
by far the main ESF support mecha ‑
nism used for micro‑entrepreneurs.67 
EU financial support to micro‑entre ‑
preneurs from the ESF was generally 
provided without any substantiated 
assessment of needs. For some of the 
ESF financial instruments examined, 
the absence of investment strategies, 
together with inadequate risk manage ‑
ment systems, have led to oversized 
endowments to the funds. The Court 
also found that half of the ESF finan ‑
cial instruments examined lacked exit 
policies and winding up provisions, 
despite this being required by the 
relevant regulations.
68 
The Commission’s financial instrument, 
the EPMF, is considered to have gener ‑
ally satisfactory set‑up arrangements 
regarding risk management systems. 
The EPMF has succeeded in attracting 
some additional private funding which 
was not the case for ESF financial 
instruments. However, the amounts 
allocated from the EU budget to the 
EPMF to date (when compared to 
ESF financial instruments) have been 
limited.
Recommendation 1
For the 2014–20 programming period, 
the Member States should consistently 
perform needs assessments when 
designing funding instruments and 
preparing 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 guarantees). The 
Commission should provide guidance 
in this regard.
28 Conclusions and recommendations
Recommendation 2
The Commission should make the use 
of ESF financial instruments by the 
Member States conditional not only on 
compliance with regulatory require ‑
ments but also on the existence of 
a robust risk management system to 
avoid fund oversizing.
Lack of sufficient and reliable 
monitoring information on 
performance
69 
The EPMF performance reporting 
systems provided more complete in ‑
formation than those of the ESF which 
were considered to be inadequate. 
On the basis of the data provided by 
Member States, it is not possible for 
the Commission to aggregate consist ‑
ent, meaningful and reliable informa ‑
tion (e.g. survival rates of micro‑en ‑
trepreneurs and outreach) to monitor 
the achievements of ESF microfinance 
support to micro‑entrepreneurs. The 
Court considers that this situation 
makes it impossible to come to an 
overall conclusion on the effective ‑
ness of the ESF support provided to 
micro‑entrepreneurs.
70 
Based on the sample examined, ESF 
grants, ESF financial instruments and 
EPMF have provided financial support 
to micro‑entrepreneurs. The outreach 
towards the micro‑entrepreneurs who 
were previously unemployed was 
achieved in around half of the projects.Recommendation 3
In order to improve outreach in the 
future, the Commission together with 
the Member States should design ESF 
financial support measures for mi ‑
cro‑entrepreneurs and define eligibil ‑
ity criteria which aim at reaching the 
unemployed and vulnerable persons 
who are in a disadvantaged position 
with regard to access to the conven ‑
tional credit market.
Insufficient information on 
the implementation costs 
of ESF grants and financial 
instruments
71 
For the ESF OPs examined, the man ‑
aging authorities had no information 
about the actual cost of administra ‑
tion. The Commission and the Mem ‑
ber States do not have available any 
comparative information on the public 
administrative cost per Member State 
or per funding mechanism (i.e. grants 
or financial instruments, such as loans 
or guarantees). This situation does 
not allow them to consider the most 
cost‑efficient way of delivering EU sup ‑
port for micro‑entrepreneurs.
72 
For the financial instruments exam ‑
ined, the Court observed different 
cost structures and variations in the 
percentage rate of management costs 
charged to the EU budget. The Com ‑
mission does not have a comprehen ‑
sive overview of the basis for the calcu ‑
lation of implementation costs of ESF 
financial instruments and therefore is 
not in position to assess whether cost 
differences between instruments are 
justified.
29 Conclusions and recommendations
Recommendation 4
For the 2014–20 programming period, 
the Commission should carry out 
a comparative analysis of the imple ‑
mentation costs of ESF grants, ESF 
financial instruments and EaSI financial 
instruments with a view to establish ‑
ing 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.
This report was adopted by Chamber II, headed by Mr Henri GRETHEN, Member 
of the Court of Auditors, in Luxembourg at its meeting of 10 June 2015.
 For the Court of Auditors
 Vítor Manuel da SILVA CALDEIRA
 President

30
VI(d) 
The Commission does not accept this 
recommendation.
On the one hand, the Commission considers that 
the analysis would require isolating the managing 
costs for a grant or a financial instrument borne by 
the managing authority. Moreover, the comparison 
of costs and fees between ESF grants and financial 
instruments and between ESF and EPMF financial 
instruments would be difficult (e.g. the costs for ESF 
financial instruments include the banks’ fees but 
not the costs for the Managing Authorities and the 
Intermediate Bodies); also the cost structure of the 
EPMF financial instruments is different from the one 
of the ESF since the Managing Authorities do not 
intervene).
On the other hand, the analysis may not achieve the 
purpose of drawing good practices for the new pro ‑
gramming period since the regulatory framework 
provides new rules on management costs and fees 
that are performance‑based and include thresholds 
(see delegated regulation 480/2014).
Introduction
09
During the programming period 2007–13, report ‑
ing by the Managing Authorities to the Commission 
at project level on the micro‑entrepreneurs target 
group was not obligatory.Executive summary
VI(a) 
The Commission accepts the recommendation.
For the 2014–20 programming period, the regu ‑
latory framework will ensure that each financial 
instrument is ‘based on an ex ante assessment’ 
which has identified market failures or suboptimal 
investment situations, and investment needs. The 
ex ante  assessment requirements are also foreseen 
for the continuation of financial instruments set up 
in the previous programming period.
When approving the operational programmes, the 
Commission has ensured alignment with strategic 
priorities, identification/fulfilment of ex ante con ‑
ditionalities and evaluation of the rationale for the 
form of support proposed.
The Commission also commits to give advice on the 
ex ante  assessment and provide guidance on the 
implementation of financial instruments.
It has already provided guidance and practical 
methodology on the preparation of the compul ‑
sory ex ante assessment for the new programming 
period.
VI(b) 
The Commission accepts this recommendation 
which is already addressed in the new ESF regula ‑
tory framework that requires ex ante assessments 
for financial instruments.
VI(c) 
The Commission accepts this recommendation.
The new regulatory framework will allow the 
identification of the most relevant target groups of 
microfinance instrument for each considered mar ‑
ket. This should be achieved through the ex ante 
assessments.Reply of the 
Commission
Reply of the Commission 31
27
See common reply to paragraphs 21 and 22 .
Under the 2014–20 programming period, conduct ‑
ing an ex ante  assessment is a pre‑requirement and 
the payment rules foresee phased certification of 
payment. This will contribute to optimising the size 
of financial instruments.
Box 3 
Concerning Campania, as identified by the Court, 
the oversizing was due to the oversubscription of 
one axis objective to the detriment of the others 
that remained unsubscribed. The subsequent call 
for proposal was modified in order to address this 
issue. At the end of May 2015, the disbursement 
to micro‑entrepreneurs had reached 37.4 % of the 
total endowment of the fund.
33
The Commission considers that it is still too early to 
assess the portfolio‑at‑risk since the EPMF portfolio 
is recent and the first cycle of reimbursements has 
not been achieved yet.
Common reply to paragraphs 35 and 36
Leverage was not a legal requirement for the 
2007–13 programming period. However it has been 
included in the legal framework of the 2014–20 
period1.
However, even without leveraging additional pri ‑
vate funds, ESF ‑funded financial instruments may 
carry a multiplicative effect thanks to their revolv ‑
ing nature.
1 Recital 34 and Article 37(2)(c) and Article 46(2)(h) of Regulation 
(EU) No 1303/2013.Observations
Common reply to paragraphs 21 and 22
For financial instruments in shared management, 
the Common Provision Regulation 1303/2013 (CPR) 
in the 2014–20 programming period introduces 
a compulsory ex ante  assessment that should cover 
inter alia the rationale for the form of support 
proposed.
Common reply to paragraphs 24 and 25
Under shared management and in line with the sub ‑
sidiarity principle, it is the responsibility of national 
authorities to ensure that individual operations are 
implemented in accordance with the applicable 
legal provisions.
The Commission acknowledges the fact that the 
investment strategy was not developed for the set ‑
up of three out of six financial instruments.
This issue arising from the 2007–13 programming 
period was probably due to the lack of certainty 
of the General Regulation 1828/2006 which was 
modified several times in 2010 and 2011 for what 
concerns financial instruments.
26
During the 2007–13 programming period this 
requirement derived from the mentioned COCOF 
note. It goes beyond the competence of the Man ‑
aging Authorities and lies with the fund manager 
in line with the sound financial management 
principles.
For the 2014–20 programming period these require ‑
ments are clearly provided for in Article 37(2) of the 
CPR prescribing the obligation of performing the ex 
ante  assessment.
Reply of the Commission 32
45
Under the EPMF rules, the data on previous employ ‑
ment status was collected for natural persons but 
not for microenterprises. This issue has been taken 
into account in the design of the EaSI financial 
instruments.
Common reply to paragraphs 52 to 54
The Commission notes that the audited microfi ‑
nance instruments are tools to reach the respec ‑
tive objectives of the parts of the ESF Operational 
Programmes and of the EPMF, under which they are 
implemented, which may go beyond the integra ‑
tion of unemployed people.
Under the EPMF decision the target groups are 
defined as both individuals, in particular from vul ‑
nerable groups, and micro‑enterprises.
By working with non‑bank microfinance institu ‑
tions whenever existing in the respective market, 
one ensures a good outreach to micro‑borrowers 
which are in a disadvantaged position vis‑à‑vis the 
conventional credit market. The business model of 
non‑bank MFIs is based upon the existing situation 
where vulnerable persons are in a disadvantaged 
position with regard to access to the conventional 
credit market because they are perceived by the 
mainstream banks as more costly and/or riskier.
58
The Commission considers that it would be dispro ‑
portionately burdensome to provide this informa ‑
tion compared to the expected results. In particu ‑
lar, it would require isolating the managing costs 
for a grant or a financial instrument borne by the 
managing authority. Moreover, the comparison of 
costs and fees between ESF grants and financial 
instruments would be difficult (e.g. the costs for ESF 
financial instruments include the banks’ fees but 
not the costs for the Managing Authorities and the 
Intermediate Bodies).37
Regarding the target leverage, the Commission 
wishes to emphasise that the fact that some of the 
transactions do not reach the expected leverage is 
not an issue of performance but an acceptable busi ‑
ness reality for the immature microfinance market 
and for the facility which tries to reach not only the 
best performing intermediaries but also those that 
are newly established as well as those targeting 
vulnerable groups. In order to maximise the use of 
the available EU budget, in the guarantee agree ‑
ments that do not reach the target leverage the EIF 
adjusts accordingly the respective cap amounts and 
reuses the released cap amounts for new transac ‑
tions. In addition, the intermediaries are obliged to 
pay commitment fees for failing to meet the agreed 
portfolio volumes.
Common reply to paragraphs 41 to 44
The monitoring of ESF is as such done at prior ‑
ity axis level and not at project level. Output and 
result indicators were formulated at the level of 
the priority axis in line with its objectives. Improve ‑
ment will be brought by the 2014–20 programming 
period since output and result indicators are set at 
the level of the investment priority, reflecting the 
specific objectives of that investment priority.
As regards the reporting on survival rate, since it is 
not a requirement of the regulation, it cannot be 
expected.
Furthermore, the Commission does not consider 
the survival rate in itself to be a relevant criterion to 
assess the success of a microfinance instrument. For 
example, if an unemployed person tried to set up 
his or her own business and subsequently failed, he/
she would have still acquired a professional experi ‑
ence and management skills, thanks to which the 
person could find a job at a later stage. The result of 
the intervention should therefore be considered as 
positive.
The survival rate of supported micro‑entrepreneurs 
could for example be completed by measurement 
of the labour market situation of the end recipient 
sometime after the completion of the action.
Reply of the Commission 33
Conclusions and recommendations
Common reply to paragraphs 64 and 65
The Commission considers that it would be dispro ‑
portionately burdensome to collect this informa ‑
tion. Moreover, the comparison of costs and fees 
between ESF grants and financial instruments and 
between Member States would be difficult.
Moreover, the administrative cost as such should 
not be the main driver to choose the most suitable 
funding mechanism.
67
See Commission replies to paragraphs 21, 22 and 27.
68
EPMF runs as a pilot initiative since 2010. Further 
budgetary resources have been allocated to its suc ‑
cessor programme under EaSI.
Recommendation 1
The Commission accepts the recommendation.
For the 2014–20 programming period the regula ‑
tory framework will ensure that each financial 
instrument is ‘based on an ex ante  assessment’ 
which has identified market failures or suboptimal 
investment situations, and investment needs. The 
ex ante assessment requirements are also foreseen 
for the continuation of financial instruments set up 
in the previous programming period.
When approving the operational programmes, the 
Commission has ensured alignment with strategic 
priorities, identification/fulfilment of ex ante  con ‑
ditionalities and evaluation of the rationale for the 
form of support proposed.59
The costs for managing microcredit actions are by 
definition higher than normal lending due to the 
specific target population, the small amount and 
high number of loans granted by the microfinance 
institutions.
62
Under shared management and in line with the sub ‑
sidiarity principle, it is the responsibility of national 
authorities to ensure that individual operations are 
implemented in accordance with the applicable 
legal provisions.
Since 2011, there is an obligation for the Member 
States to provide data in the annual implemen ‑
tation report about the management costs and 
fees related to the implementation of financial 
instruments.
These data are available for the institutions and the 
public on the ‘Summary of data on the progress 
made in financing and implementing financial 
engineering instruments reported by the manag ‑
ing authorities’ which is published every year in 
December.
It should also be stressed that the fund manager is 
identified through a public procurement procedure 
while the level of management costs and fees are 
set by the market.
Regarding the calculation of costs, as was the case 
for the 2007–13 programming period, the 2014–20 
legal framework includes a capping of management 
costs and fees. In addition, a performance compo ‑
nent is now a compulsory element of those fees2.
The Commission laid down in the Delegated 
Regulation No 480/2014 the criteria for determin ‑
ing financial instruments’ costs and fees on the 
basis of performance and set the thresholds for 
management costs and fees based on good market 
practices.
2 See Article 42(5) of Regulation (EU) 1303/2013.
Reply of the Commission 34
Common reply to paragraphs 71 and 72
Concerning ESF financial instruments, since 2011 
there is an obligation for the Member States to 
provide data in the annual implementation report 
about the management costs and fees related to 
the implementation of financial instruments.
For the programming period 2014–20, the Com ‑
mission laid down in the Delegated Regulation 
No 480/2014 the criteria for determining financial 
instruments costs and fees on the basis of the per ‑
formance and set the thresholds for management 
costs and fees based on the market good practices.
Recommendation 4
The Commission does not accept this 
recommendation.
On the one hand, the Commission considers that 
the analysis would require isolating the managing 
costs for a grant or a financial instrument borne by 
the managing authority. Moreover, the comparison 
of costs and fees between ESF grants and financial 
instruments and between ESF and EPMF financial 
instruments would be difficult (e.g. the costs for ESF 
financial instruments include the banks’ fees but 
not the costs for the Managing Authorities and the 
Intermediate Bodies); also the cost structure of the 
EPMF financial instruments is different from the one 
of the ESF since the Managing Authorities do not 
intervene).
On the other hand, the analysis may not achieve the 
purpose of drawing good practices for the new pro ‑
gramming period since the regulatory framework 
provides new rules on management costs and fees 
that are performance‑based and include thresholds 
(see Delegated Regulation 480/2014).The Commission also commits to give advice on the 
ex ante  assessment and provide guidance on the 
implementation of financial instruments.
It has already provided guidance and practical 
methodology on the preparation of the compul ‑
sory ex ante assessment for the new programming 
period.
Recommendation 2
The Commission accepts this recommendation 
which is already addressed in the new ESF regula ‑
tory framework that requires ex ante assessments 
for financial instruments.
69
The EPMF does not appear to suffer from insuf ‑
ficient and unreliable monitoring information on 
performance.
For the 2014–20 programming period, the Com ‑
mission notes that apart from the survival rate 
ESF specific indicators such as the number of 
micro‑enterprises supported and the employment 
status of participants upon entry and leaving also 
help to measure the effectiveness of ESF support to 
micro‑entrepreneurs.
Recommendation 3
The Commission accepts this recommendation.
The new regulatory framework will allow the 
identification of the most relevant target groups of 
microfinance instrument for each considered mar ‑
ket. This should be achieved through the ex ante 
assessments.
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Micro -entrepreneurs across the EU are experiencing 
difficulties in accessing the conventional credit market. 
With a view to improving this situation the EU provides 
financial support through grants and financial instruments.
With this report, the Court assessed whether the 
programming and design of the EU financial 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 the implementation costs of the 
different EU funding mechanisms supporting 
micro -entrepreneurs.
EUROPEAN
COURT
OF AUDITORS