What are financial instruments?
Financial instruments offer sustainable and flexible financing options for social initiatives across the EU. Unlike traditional grants, these instruments – including loans, guarantees, and equity investments – are designed to be repaid, creating a revolving pool of funds that can support new projects over time. This approach extends the reach and impact of ESF+ funding, particularly in promoting employment, skills development, and social inclusion.
The 2021-2027 regulations enhance the use of financial instruments within ESF+, enabling a broader range of support options tailored to project needs, target groups, and long-term development goals.
How can financial instruments be used?
Financial instruments provide a sustainable alternative to traditional grant-based financing, offering several advantages:
- Sustainable funding through reinvestment: As these instruments are repaid, they create a revolving fund that can support additional projects, ensuring ongoing access to resources for new recipients.
- Attracting co-investment: They can attract funding from other sources, including private investors, broadening financial support options and easing pressure on public budgets.
- Encouraging responsible investment: Recipients are accountable for the effective use and repayment of funds, fostering responsible management and long-term project sustainability.
- Supporting social economy development: By engaging stakeholders, including financial intermediaries, financial instruments strengthen the social economy through the selection of viable projects with high social impact.
For practical guidance on designing and implementing these instruments, refer to the ESF+ financial instruments handbook.
Combining financial instruments with grants
Combining financial instruments with grants can enhance the effectiveness of ESF+ funding, especially for projects with higher risk or uncertain financial returns. Grants can support specific components of a project – such as training or setup costs – reducing financial barriers for recipients and making projects more attractive to investors. This combination offers flexible financial solutions tailored to the unique needs of ESF+ target groups.
Examples include:
- Self-employment initiatives: For disadvantaged individuals, such as young people not in education or employment, grants can fund training and advisory services, while loans or equity support the business itself. This ensures projects have the necessary skills base and financial backing for long-term success.
- Social enterprises: Social enterprises may lack access to traditional financing due to lower profit margins. Grants can reduce borrowing costs or offer incentives, such as capital rebates, based on social impact targets, supporting social goals while improving financial stability.
- Education and skills development: Grants can cover educational expenses or reduce loan interest rates, making education more accessible to those with limited means. The combination of financial instruments and grants encourages investments in education that might otherwise be deemed too risky.
The 2021-2027 Common Provisions Regulation (CPR) provides greater flexibility in combining grants and financial instruments. For instance, combined support can be delivered directly to recipients, and audits focus on the managing body rather than each recipient, reducing administrative requirements.
For detailed guidance on combining financial instruments with grants, consult the Combining ESF+ financial instruments with grants factsheet.
Learn more
To explore these tools and learn how to implement them in ESF+ projects, visit the fi-compass web portal.
