Gesellschaft für wissenschaftliche Beratung und Dienstleistung mbH
Ex-ante assessment of a mircocredit fund
envisaged in the operational programme
of the Free State of Saxony
for the European Social Fund (ESF)
in the 2014-2020 programming period
– Management summary –
Gerald Wagner
Head of Department Evaluation and Labour Market Research
Seebener Straße 22
06114 Halle
82 837
0345-299 82 888
Halle (Saale), 12.10.2015

Ex-ante assessment of a mircocredit fund envisaged in the operational programme of the
Free State of Saxony for the European Social Fund (ESF) in the 2014-2020 programming period
Background and research methodology
The Operational Programme of the Free State of Saxony for the European Social Fund in the
funding period 2014-2020 (ESF OP) envisages to allocate funds for a micro-loan fund. This
funding opportunity is intended to help to meet the capital requirements for start-ups or for
the development of young micro-enterprises.
According to Article 37(2) of VO (EU) 1303/2013 (ESIF-VO), it is necessary to conduct an ex-
ante assessment for the support of such financial instruments. To clarify the requirements for
the ex-ante assessment of financial instruments, the European Commission and European
Investment Bank have published a comprehensive methodological guideline in April 2014.
The ex-ante assessment follows this guideline. In addition to the analysis of relevant data it is
based on document analysis and expert assessments of the supply and demand aspect of
the market segment as well as other relevant issues.
Assessment of consistency
An examination of the relevant documents has shown that the planned support for the Micro
Loan Fund of the Free State of Saxony from the OP ESF is consistent with the definitions
and ratings of the partnership agreement, the OP ESF and the ex-ante assessment of the
Operational Programme.
Analysis of market failures and investment needs
The number of enterprises has grown in Saxony during recent years. Nevertheless, this
number is still below the national average. The number of business start-ups has been un-
dergoing a downwards trend and the number of start-ups per capita is also significantly be-
low the national average. With the goal of building stable, competitive companies, a higher
number of start-ups appears economically desirable. Analyses have shown that market fail-
ures exist with regard to entrepreneurs' and young micro-enterprises' access to start-up fi-
Under the current conditions (corporate holdings, start-up dynamics, financing conditions),
the deficit of external financing options for start-ups and young companies generally recog-
nised as promising is estimated to be about 20 to 30 million € p.a. This deficit consists of
market failures and less than optimal conditions for investment. Of this amount, about 4 to 6
million € is related to start-ups and approximately 16 to 24 million € to young micro-
The main causes for the funding gap thus identified within the private banking and savings
bank sector are information issues pertaining to risk assessment of start-up projects, the
competence assessment of founders and the lack of profitability of lending for projects with
low credit demands.
In addition, aspects such as founders' lack of a 'credit history' with relevant credit institutions
and loan applicants' insufficient collateral play a role.

Ex-ante assessment of a mircocredit fund envisaged in the operational programme of the
Free State of Saxony for the European Social Fund (ESF) in the 2014-2020 programming period
Assessment of the value added of financial instruments and consistency with other
public interventions as well as the proportionality of the intervention
At the level of the individual borrower, the value added consists of the fact that the fund pro-
vides an additional opportunity of finance, which is difficult to attain on the capital market.
Besides, the founders establish a credit history through their funding loan repayments, which
can facilitate future access to regular banking financing.
Another important aspect is the fact that loans can reduce the risks of market distortions, as
they require fewer subsidies than grant supports. Existing portfolio companies find this a par-
ticularly important aspect with regard to business activities which are largely focussed on
local markets subject to high competition, such as the ESF microloan borrowers do.
Compared to promoting business start-ups through grants, the proposed use of loan instru-
ments can therefore be regarded as proportionate.
In contrast to lost subsidies, the fund's activities generate re-investment capital. In accord-
ance with the rules for the EU Structural Funds, these returns are to be used for similar pur-
poses, thus multiplying the effects of funding. At the same time, the Free State of Saxony
retains its ability to substantially support further measure of economic funding despite declin-
ing/ reduced budget transfers.
At a regional level, the value added of the fund can also be seen in the fact that the Free
State's existing instruments for promoting competitiveness in the business sector are being
usefully supplemented. An examination of existing funding initiatives with similar purposes
has shown that the proposed microloan has no significant overlaps.
Finally, it is important to emphasise the job creation effect of the proposed loan fund with a
view to the objectives of the strategy Europe 2020. According to the experiences of the 2007-
2013 programme period, an average of approx. 0.7 - 0.8 new jobs are created per start-up.
This is in addition to the employment opportunities of the founders themselves.
Estimate of the additional public and private resources required of the financial
instrument (leverage effect)
After taking into account the national public co-financing of the proposed fund as well as mo-
bilising additional external resources at the borrowers' level, the fund's leverage effect can be
estimated as approx. 1.3.
Review of experiences with similar instruments
Extensive data is available from the Free State Saxony's promotion of microloans from the
ESF, which started in 2006. These can be referred to for the design of the proposed fund.
The results and experiences with regard to the accuracy and effectiveness of the subsidies
reflect favourably on a continuation of Saxony's microloan fund.
However, initiatives requiring less administrative effort should be examined as a possible
alternative. This is particularly relevant to the question of whether ESF funds should also be

Ex-ante assessment of a mircocredit fund envisaged in the operational programme of the
Free State of Saxony for the European Social Fund (ESF) in the 2014-2020 programming period
used to further develop the micro finance infrastructure to promote business start-ups in
Saxony with lower financial needs.
Assessment of the investment strategy
Analysis of previous experience has shown that providing micro loans for business start-ups
und young micro-enterprises carries specific risks and does not constitute a profitable busi-
ness model which would be able to sustain itself in the long term. In this respect, there is no
incentive for private investors to participate in the proposed micro-loan funds.
With a view to the objective of the financial instrument, the proposed funding conditions as a
whole are attractive and well suited to the needs of the target group. Reducing the equity
share to 20% in general could serve to further increase the appeal/ attractiveness of the
funding opportunity/initiative. No significant negative effects are to be expected from this
course of action.
With regard to the funding process, a continuous, ongoing implementation of the funding
initiative is recommended rather than a competitive process with key dates. The projects
should be selected on the basis of mandatory minimum requirements.
The proposed financial allocation of the fund is significantly larger than the average need that
would be established as a result of a stabilization of the funding results from 2014 for the
entire duration of the programming period. From today's perspective, the financial allocation
for the planned financial instrument thus contains a buffer that ensures sufficient availability
of funds even in the prospect of unfavourable conditions on the employment market and fis-
cal policies.
Retaining such a stabilisation reserve appears entirely justified. However, plans should be
synchronised regularly with the actual state of implementation in order to allow timely ad-
justments to the budget if required.
Specification of expected results
The fund's plans provide support for 1.800 start-ups or enterprises during the duration of the
programme. At least 80% of the beneficiaries are expected to remain self-employed one year
after the funding initiative’s beginning.
According to the available data on start-ups' average survival rates and failure probabilities in
Saxony's ESF Microloans Fund it is expected that the intended level of subsidised enterpris-
es' and start ups' persistence is indeed achievable.
Regarding the target of 1.800 business start-ups, the target presupposes a significant in-
crease in the scope of the support by about a third as compared to the level of 2014. This
seems generally possible.

Ex-ante assessment of a mircocredit fund envisaged in the operational programme of the
Free State of Saxony for the European Social Fund (ESF) in the 2014-2020 programming period
Provisions for the review and possible updating of the ex-ante assessment
Significant changes in the market situation for start-ups or micro-credit financing in Saxony
as well as to funding programmes with a similar objectives could give rise to a change in ori-
entation of the proposed financial instrument.
The same applies to potential difficulties in the implementation of the proposed funds.
As to whether a substantial re-orientation of the fund is indicated:
should be assessed in the event of considerable changes to the conditions or
significant difficulties to the implementation of the fund. If these do not arise:
be assessed referring to the implementation reports in accordance with Article 50(4)
and (5) ESIF-VO
If the assessment indicates a substantial need for re-orientation of the fund, a review and
possible update of the ex-ante assessment should be undertaken.