ESTONIA
Market failures can reveal the limits of non-repayable grant aid
Financial instruments are a tool, not the purpose of entrepreneurship
E
U Member States have been able to use the resources from the European Fisheries Fund (EFF) 2007–2013 as well as the European Maritime and Fisheries Fund (EMFF) 2014–2020 to achieve the goals of the European Common Fisheries Policy. This has mainly been done by using the non-repayable grant aid scheme, which is probably very well known in the European Union. However, alternatives to this scheme are available to promote the fisheries sector. Financial instruments are designed to support investments which are deemed financially viable but cannot find sufficient sources for funding in the market. The need for financial instruments is determined in the course of a preliminary assessment, which identifies the market failures that could be alleviated with the help of these instruments. Financial instruments include, for example, surety, guarantee, equity investments, and loans which may be combined with non-returnable grant aid, if necessary.
avoid the long application-processing procedure which is quite common in the case of non-returnable grant aid schemes. Entrepreneurs who wish to use a financial instrument must first fill in a proper application, which will be followed by a relatively quick processing procedure. If the loan application and the applicant meet the requirements, the loan application will be approved, and the entrepreneur can use the funds freely for investments in the fishery sector. For example, in the period of the EFF 2007–2013, the promotion of entrepreneurs and production organisations involved with or starting in the field of aquaculture
was supported to the extent of more than 5 million euros with the help of financial instruments. Within the framework of the EMFF 2014–2020, three financing tools with a total volume of 11.2 million euros have been developed for the alleviation of market failures. First, investment loans for the aquaculture sector, which will improve current operations or provide an opportunity for completely new initiatives in the aquaculture sector.
Micro and small companies can also benefit Secondly, growth loans for micro and small companies starting or
operating in the field of fish processing. As is apparent from the name, the loan is designed for micro and small companies in the fisheries sector that need a small amount of additional capital but face challenges in getting loans from banks. This may be because they are starting companies whose sales revenue and cash flows are not sufficiently large and reliable for banks. Some companies may also wish to enter the fisheries sector from another sector, which basically also means starting from scratch. Often, entrepreneurs do not have enough collateral, which usually has to exceed 100 to meet the requirements set by credit or financing institutions.
Financial instruments also have advantages Estonia has prior experience with financial instruments both from the EFF as well as the EMFF. The purpose of using financial instruments is to ensure quick and constant access to loans for the Estonian fishery sector, while giving entrepreneurs as much freedom of choice as possible. This will help to
Micro and small fish processing companies may be eligible for funding through financial instruments. Pictured, a processing facility owned by fishermen in Dirhami, Läänemaa country.
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