Ease of administration: how do different forms of support compare?

An important issue that emerges from the discussion on the relative merits of different forms on intervention is how easy or otherwise they are to administer. Figure 4.2 summarises the perceptions of Managing Authorities by Fund and by form of support.

Figure 4.2: ‘Ease of administration’ (all respondents, by Fund)

Source: EPRC online survey of Managing Authorities.

Lack of familiarity with some instruments is reflected in the high proportion of ‘don’t knows’, except in the case of grants. However, a clearer picture emerges when those without an opinion are excluded.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% E R D F C F E S F E M FF E R D F C F E S F E M FF E R D F C F E S F E M FF E R D F C F E S F E M FF

Grants Prizes Repayable

assisance

Financial instruments

What is your view of the ease of administration of different forms of support?

Sum of Very good Sum of Good Sum of Poor Sum of Very poor Sum of Don't know

Figure 4.3: ‘Ease of administration’ (all Funds, excluding ‘D/Ks’)

Source: EPRC online survey of Managing Authorities.

On this basis, Figure 4.3 shows that over 80 percent of Managing Authorities considered ‘ease of administration’ of grants to be good or very good; by contrast, over 60 percent of Managing Authorities thought ‘ease of administration’ of financial instruments to be poor or very poor. Experience with a given form of support is an important dimension to perceptions of ease of administration. As Figure 4.4 shows, FI users are markedly more positive about ease of administration of financial instruments than are non-users of FI: over 80 percent of non-users perceived FI ease of administration to be poor or very poor152 _{compared with fewer than 50 percent among FI users.}

Figure 4.4: ‘Ease of administration’ (ERDF MAs, excluding ‘D/Ks’)

Source: EPRC online survey of Managing Authorities.

152 _{Around two-thirds of non-users of financial instruments answered ‘don’t know’ to perceptions of}

the ‘ease of administration’ of FIs. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Grants Prizes Repayable

grants instrumentsFinancial

What is your view of the ease of administration of different forms of support?

Sum of Very good Sum of Good Sum of Poor Sum of Very poor

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

All Non users Users

What is your view of the ease of administration of ERDF FIs?

Very good Good Poor Very poor

Also interesting, is how Managing Authorities which use financial instruments consider them in comparison with grants. Figure 4.5 shows that MAs with experience of both

types of support consider FIs to be significantly harder to administer than grants.

Figure 4.5: ‘Ease of administration’ (ERDF MAs using FIs, excluding ‘D/Ks’)

Source: EPRC online survey of Managing Authorities.

While the online survey results provide some quantification of perceptions of ease of administration, interviews with Managing Authorities and financial intermediaries provide some more qualitative insights. In general, as reflected in the survey, financial instruments are considered to be harder to administer than grants; this is consistent with findings in other studies.153 _{However, a key issue concerns the lack of experience}

among Managing Authorities in dealing with support other than grants.

“a combination of Cohesion Policy related capabilities must be coupled with financing- banking knowledge and skills. Such a skills mixture can only be built up through implementation experience.” (Managing Authority interview)

“Capacity at all levels, including the EC, is inadequate as the combination of Cohesion Policy implementation and banking experience is rather rare.” (Financial intermediary interview)

“Ensuring the skills mix of Cohesion Policy implementation and banking is a continued challenge.” (Financial intermediary interview)

“Increased requirements on administrative capacity (not only internal, necessity to engage also external actors)” (Managing Authority interview)

“The main disadvantage is the lack of experience in using FIs and the procedures that have to be followed.” (Managing Authority interview)

“Cons – they are complex, requires highly specialist staff.” (Financial intermediary interview).

153 _{Wishlade, Michie R, Familiari G, Schneidewind P and A Resch (2016) Op cit.}

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Grants Financial Instruments

What is your view of the ease of administration of ERDF grants and financial instruments?

Very good Good Poor Very poor

“Delivering JEREMIE helped to create a pool of experts; however the overall capacity is not very robust yet.” (Managing Authority interview)

Among financial instruments, there was generally more confidence about the capacity to deliver loan and guarantee schemes than equity products.

“Regarding capacity, equity finance is a relatively new phenomenon” (Financial intermediary interview)

“Guarantee institutions are highly specialised. They have to better understand EU regulations; this challenge is not substantial though.” (Financial intermediary interview)

“We have used FI beforehand as well and that is why we have already enough experience in this field. That is why we were able to open loans and guarantees so quickly.” (Financial intermediary interview)

“Administrative capacity for loan and guarantee finance is adequate generally.” (Financial intermediary interview)

Another issue that emerges from the interviews concerns the quality of the regulatory framework and how that affects the ease of administration of financial instruments as opposed to grants. The regulatory framework is discussed in more detail in 4.10 below where the issue is addressed explicitly. The following remarks were unprompted:

“Cons of FIs are that the regulatory framework is not yet fully developed. In many cases this results in legal uncertainty.” (Intermediate body interview)

“…the regulatory framework is still better suited to non-repayable grants. This is an obstacle to the successful management of FIs.” (Managing Authority interview)

“lack of adequate regulations (2017-13) has now been replaced by overregulation and the logic of grants management has prevailed in many areas of FI rules (e.g. transaction based audit, monitoring and reporting system) (Financial intermediary interview)

“the private sector is very sensitive to setting up of clear conditions; however the EU regulatory framework still has not been completely clarified.” (Managing Authority interview)

The administrative burden was generally thought to be higher for financial instruments as opposed to grants. The most frequently mentioned issue relates to the burden on financial intermediaries and final recipients – perhaps comparing the administrative burden related to monitoring and reporting obligations attached to the use of publically- funded FIs, as compared to private sources of finance.

“A drawback of FIs is that the process required is time-consuming and that it is intensive in coordination tasks.” (Managing Authority interview)

“The main drawback is the administrative burden attached to FIs. For instance, eligibility requirements and audit procedures are problematic.” (Managing Authority interview)

“Grants: easier to implement... once agreed not much work left for MA. FIs: creates more work, e.g. making sure money is paid back, reusing recycled funds etc.” (Financial intermediary interview)

“Sometimes it is difficult for the financial intermediary to identify the applicable regulations. This results in the circumstance that financial intermediaries often draft very heavy legal documents in order to be on the safe side. Audit visits are also cumbersome and time consuming.”(Financial intermediary interview)

[FIs carry a] “high administrative burden for the intermediary and the final recipients.” (Financial intermediary interview)

“It is much cheaper and easier to deliver grant programmes than FIs especially equity funds” (Financial intermediary interview)

However, this view was not universally held and some considered that (certain) financial instruments had advantages over grants in terms of administration, or that the difficulties were overstated.

“Administrative burden is biggest in the case of grants and least in the case of guarantees.” (Financial intermediary interview)

“Some experience is required when it comes to implementing instruments but FIs are not as complex as is sometimes suggested.” (Managing Authority interview)

Some Managing Authorities also noted that the involvement of financial intermediaries lessened their administrative burden:

“An additional pro is that financial intermediaries helped the marketing of the product through their branch offices.” (Managing Authority interview)

In addition, some respondents distinguished different aspects of the administration process, noting that, for final recipients, the process of applying for a financial instrument may be quicker and simpler than applying for a grant, notably where an experienced financial intermediary was involved in administering the FI.

“Speed of administration… …guarantees are administered in one or two weeks” (Managing Authority interview)

“Grants have a higher administrative burden for applicants than FIs” (Managing Authority interview)

Other administrative aspects of FIs were sometimes considered more straightforward than grants:

“Quick certification of resources, which is important for achievement of milestones in 2018” (Managing Authority interview)

Last, in spite of the new provisions on phasing of payments to FIs, financial instruments were still felt to be helpful in smoothing financial flows and avoiding decommitments.