“Invest-NL”: A New Promotional Bank

“Invest-NL”: A New Promotional Bank - StateAidHub blogpost39 promotionalbank

A state-owned promotional or development bank can pursue public policy objectives and also invest on terms which are acceptable to private investors.


During the past decade or so several Member States have established “promotional” or “development” banks for the purpose of investing where the market does not. Private investors may be reluctant to commit their money for a variety of reasons: the return may be too low, the risk too high or the recoupment period is too long. Some of the European promotional banks are big. Consider, for example Kreditanstalt für Wiederaufbau [KfW, Germany] or Caisse des Dépôts et Consignations [CDC, France]. They are not just supposed to supplement the market with extra money. Their mission is to finance investment which is good for society by stimulating long-term and sustainable growth.

After the UK [2012 & 2014], Portugal [2014], Latvia [2015], and Malta [2016], the Netherlands is the latest Member State to set up such a bank, called Invest-NL. The European Commission approved its capitalisation by the Dutch government in decision SA.47821.[1] From a State aid perspective, this kind of capital injection creates a problem. Although some of their transactions may conform with the market economy investor principle [MEIP], the goal of promotional banks is not to generate revenue for the state. They do intend to confer advantage to certain undertakings. But they do not fit into Article 21 of the GBER, nor do the Risk Finance Guidelines have any explicit provisions on promotional banks. Inevitably, this capitalisation has to be notified to the Commission which assesses it directly on the basis of the Treaty [Article 107(3)(c)].

The objectives and structure of Invest-NL

Invest-NL is 100% state owned with initial capital of EUR 2.5 billion that will be provided in five annual tranches of EUR 500 million each over the period 2019-2024. Invest-NL has three main objectives:

  • To remedy market failure which discourages investments, mostly in the fields of energy, sustainability, mobility, food and digitalisation of the industry, health care, security and education.
  • To facilitate Dutch participation in European investments such as those under the European Fund for Strategic Investments [EFSI].
  • To provide venture capital to bridge the financing gap for innovative start-ups and scale-ups and for long-term capital-intensive projects.

In terms of structure, Invest-NL has a holding company and three subsidiaries as follows:

  • The parent company – Invest-NL Holding – owns 100% of its subsidiaries, each performing a specific function. Invest-NL Holding does not have a banking licence and will not engage in financial transactions directly. It manages several strategic shareholdings of the Dutch state and liaises with the EIB and EIF.
  • A subsidiary responsible for “impact investing”. The capital injection of EUR 2.5 billion is expected to make it financially self-sustainable without any need for further government funding. At the same time it is not required to generate a commercial return.
  • A subsidiary responsible for providing development and advisory services. It will receive a subsidy of EUR 10 million per annum to pre-finance the development services it provides.
  • A subsidiary for executing financial schemes on behalf of the Dutch government.

The investment subsidiary will make investments by taking into account broader social concerns. Its investments, through loans, guarantees and equity, may contain State aid, they may be limited to de minimis measures or they may conform with the MEIP.

For investments involving State aid, the impact investment subsidiary will use block exemption regulations or will notify measures to the Commission in compliance with the Risk Finance Guidelines [RFG] and the Environmental and Energy Aid Guidelines [EEAG].

In order for transactions to be MEIP-conform [or compliant with the market economy operator (MEO) test], the Commission decision explains the following:

“(20) When Invest-NL invests on MEO terms:

(a) It will either explicitly invite investees to obtain private sector finance and then invest on pari passu terms; or

(b) If pari passu investments are not possible, Invest-NL will use one of the alternative methodologies of the Commission Notice on the Notion of State aid, such as benchmarking with private investments in a comparable situation. For loans for which there is not sufficient evidence to establish the precise level of their market-conform interest rate, Invest-NL will also use as market proxy the table with interest rates in the Commission Communication on the revision of the method for setting the reference and discount rates. For guarantees, Invest-NL would use the Notice on Guarantees and the safe harbour premiums included therein.”

This is interesting. It shows that pari passu investment together with private investors is a sufficient but not necessary condition for an investment to be free of State aid. If the investing state chooses a different approach it then has to prove that the investment is expected ex ante to produce enough return to compensate it for the risk it assumes.

“(21) Invest-NL’s MEO activities will only take place in areas where market failures have been established ex ante. The Dutch authorities did not submit new market failure studies but relied exclusively on market failures already identified in the Commission’s State aid Guidelines, Communications and Frameworks. Those MEO measures and the associated market failures will often be linked to the GBER, ABER and FIBER or the Commission Guidelines on State aid for environmental protection and energy and the eligibility conditions therein (except for cumulation rules, maximum aid amounts (both in absolute terms as in percentages), aid intensities and aid amounts and publication and reporting requirements).”

This is also interesting because it shows that the state can invest as a private investor even where the market is reluctant to tread. It is just that the expected return has to be high enough. But then the next couple of paragraphs muddy the waters because they suggest that MEO funding will conform with the provisions of block exemption regulations. This of course is impossible. A measure that falls within a block exemption regulation by definition constitutes State aid. Perhaps what is meant is that the investments will comply with most of the provisions in the block exemption regulations except that the expected return will have to be at market level.

Before continuing a parenthesis is in order. Later on the decision clarifies that “(82) Invest-NL may provide financing on MEO terms but only to address the market failures identified by the GBER, ABER, FIBER and the Commission Guidelines. Consequently, these MEO schemes will target exclusively undertakings which are eligible under the respective articles in the block exemption regulations or Commission Guidelines to receive aid instruments specific therein.” State aid rules allow State aid in these situations because private investors need to be incentivised with State aid to assume more risk or to offload some of the risk on to the state. It is not clear how Invest-NL will manage to earn a sufficiently high return without being partly compensated for the extra risk it will have to bear. If Invest-NL can achieve that, why can’t private investors?

At any rate, the Commission decision goes on to describe Invest-NL’s functions in more detail. “(22) Concretely, Invest-NL’s MEO remit will include the following:

(a) Loans to Small and Medium-sized Enterprises (“SMEs”), small mid-caps, mid-caps or larger companies under the different articles in the GBER, ABER, FIBER and/or relevant State aid guidelines;

(b) Equity investments: complying with all the conditions of Article 22 of the GBER […] Article 21 of the GBER […]”

“(23) Invest-NL’s remit for investments on MEO terms would include undertakings in difficulty. For reasons of guidance or legal security, Invest-NL could choose to notify such investments to the Commission for a ‘no-aid’ decision. Also it is not excluded that compatible aid (for example under the SDE+ scheme supporting investment in renewable energy30) has been or will be granted to the companies or projects where Invest-NL aims to provide financing under MEO terms.”

Indeed a private investor can invest in a company which is in financial trouble, turn it around and make it viable again. In addition, according to the Commission decision, Invest-NL intends to make its own investments conditional on lack of market financing.

“(25) To avoid undue distortions of competition, Invest-NL – when performing MEO activities – will apply the following “no crowding-out” measures:

(a) Invest-NL will explicitly invite investees to obtain private sector financing. The investee will have to demonstrate that it tried to obtain the financing needed. Either the investee has to confirm that it had issued an open call for investment (which did not provide the funding needed), or the investee has to disclose which financiers (at least two) have been approached, but did not want to provide sufficient financing;

(b) Invest-NL will not take majority stakes (in terms of voting shares) in undertakings;

(c) Invest-NL will invest in business cases which can be assumed ex-ante to offer a sufficient return;

(d) Invest-NL will establish an internal complaint mechanism under which any third party, be it companies or self-employed persons, can file complaints against the activities of Invest-NL33. Within two weeks after Invest-NL has received such a complaint, Invest-NL will notify the Minister of Economic Affairs and Climate Policy. Invest-NL will provide quarterly updates on whether complaints have been settled/dealt with;

(e) With or without a complaint, Invest-NL will cease activities which have been found to have an undesirable effect on competition on the market as soon as possible but no later than within a year.”

In theory there is nothing wrong with seeking to invest in companies rejected by other investors. But in practice this will create two problems, one for Invest-NL and another for the companies invested in. Normally, a rejection letter from a bank is an indication that any funding providing by the state is necessary but also that it contains State aid. How will Invest-NL prove that the return is “sufficient” when the market explicitly refuses to make that investment? What is the market benchmark in this situation?

The second problem is that the companies that receive the funding will have to provide a return that is higher than what is demanded by the market. Will those companies afford to pay it or will the increase in their costs tip them into insolvency? And if they can afford to pay a higher return why do they not do so before receiving public money?

The development subsidiary provides advice to the Dutch authorities on the development or improvement of financing schemes. It carries out and publishes research to identify market failures, it advises Dutch authorities on the functioning of existing schemes and possible new schemes and it designs new financial concepts and business models.

Most of those services are made freely available to all interested parties. In case these services confer a selective advantage to certain undertakings, the Dutch authorities are committed to comply with either the de minimis Regulation or the GBER.

The subsidiary for the execution of schemes on behalf of the Dutch state only provides administrative assistance, with the ultimate decision-making and financial and legal responsibility for the schemes remaining with the Dutch state.

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Existence of State aid

The Commission assessed only the capital injection of EUR 2.5 billion in the impact investment subsidiary and the annual development service subsidy of EUR 10 million to the development services subsidiary. It did not assess whether Invest-NL’s transactions with third parties would involve State aid or would be MEIP-conform.

There was little doubt that the main activities of Invest-NL are economic in nature. But there are two components of this case that can fall outside the scope of economic activities.

First, with respect to the development services of Invest-NL, the Commission thought that they could “(46) be non-economic in nature (e.g. when Invest-NL provides administrative functions to the Dutch State). However, the Dutch authorities also indicate that it cannot be precluded that some services would be economic in nature and can be deemed State aid (e.g. when it concerns operational and advisory services to projects and businesses).” [A footnote explains that “while an entity that carries out both economic and non-economic activities is to be regarded as an undertaking only with regard to the former, it cannot be defined ex-ante how much of the yearly subsidy will be used for non-economic activities. Therefore, the Commission in this case (where it only assesses the existence of aid at the level of Invest-NL) will rather base its assessment for the yearly subsidies (possibly or partly) supporting economic activities.”]

Second, in relation to the holding company the Commission considered that “(47) Invest-NL Holding NV only holds shares and is therefore not economically active. Moreover, if a new subsidiary would merely administer schemes on behalf of the Dutch State, this would not qualify as an economic activity.”

“(48) On that basis, the Commission considers that Invest-NL, specifically its impact investment subsidiary and its development service subsidiary, performs economic activities falling under the scope of Article 107(1) TFEU.”

In relation to transfer of state resources and their imputability to the state, certainly the capital injection and the development subsidy do come from the state.

There is also little doubt that Invest-NL obtains a selective advantage that can affect trade and distort competition. Even though Invest-NL will provide finance where market funding is insufficient, the aid still strengthens its competitive position in comparison to other undertakings on the market.

Compatibility of the aid

Because the measure does not fall within any existing Commission Communications, Guidelines or Frameworks, the Commission assessed it directly on the basis of Article 107(3)(c) TFEU, following the common assessment principles.

It found, first, that the measure contributed to a well-defined objective of common interest. With respect to “(70) the MEO interventions of the impact investing subsidiary – described in recital (22) – will help to address the market failures identified in the GBER or other exemption regulations. The fact that those interventions comply with the eligibility criteria of the GBER or the other exemption regulations (except for certain conditions such as cumulation and transparency) helps to target those measures towards the well-defined common interest objectives, also because the MEO interventions always take place on the basis of the parameters defined in recital (22).” “(71) In addition, with regard to MEO interventions, the Commission notes that equity interventions in the field of SMEs, small mid-caps and innovative mid-caps are in line with the definitions of the Risk Finance Guidelines.”

These statements are very interesting and useful. They indicate that in theory a Member State can pursue both profit and to a large extent also achieve wider public policy objectives. But as already observed earlier, the Commission decision is silent on how the state can make profit where the market is reluctant to invest and at the same time address the financing needs of SMEs.

As far as the necessity of state intervention is concerned, the Commission stressed that “(76) State aid must be needed to remedy a market failure. If the market already delivers an optimal equilibrium, State aid is not needed. However, if market failures – such as for instance information asymmetries or externalities – lead to a suboptimal equilibrium, State aid can help to maximise welfare.”

The Commission here is in principle right. State intervention can be justified only when the market fails. However, in a number of recent cases, EU courts have stressed that market failure, as defined by economics, is a sufficient but not necessary condition. The state may intervene whenever the market does not deliver what the state considers that its citizens and economy need. Legally, paragraph 76 is correct only if the first sentence is deleted.

At any rate, the Commission found that the intervention was necessary and also that the aid was an appropriate instrument to address the identified market failures.

In relation to the incentive effect and the proportionality of the aid, the Commission noted that “(91) no commercial return is expected on the EUR 2.5 billion capital injection in Invest-NL. This means that in the absence of the capital injection of the Dutch State, Invest-NL’s impact investing subsidiary would not be able to attract financing externally and engage in the same financing activities in absence of the aid. Moreover, without the annual subsidy for the development services, Invest-NL would not be able to fund the costs related to offering these services.”

“(94) With respect to Invest-NL’s financing activities on MEO terms, firstly, Invest-NL will provide funding only in areas where a market failure is presumed to exist, since they will comply with the relevant eligibility conditions as included in existing general exemption regulations or Commission Guidelines. Therefore, Invest-NL will contribute to close the funding gap that exists in the markets where it will be active. It will make loan or investment volumes available, which the final beneficiary – without Invest-NL – would only have available in lower volumes and/or at a higher price. Secondly, Invest-NL will apply no-crowding-out measures as described in recital (25), thereby ensuring that only those entities and projects with insufficient market access can receive funding from Invest-NL. Therefore, the Commission can conclude that the funding provided by Invest-NL will be additional to market finance and that Invest-NL’s interventions on MEO terms will increase the funding available to projects in areas where a market failure exists and where insufficient market funds are available.”

“(95) With respect to Invest-NL’s financing activities funded from the EU Financial Instruments (such as COSME and Horizon 2020), the Commission finds that there is an incentive effect for the following reasons. First, such instruments also aim to address market failures or suboptimal investment situations. Second, according to Article 209 of the Financial Regulation, the principle of additionality, non-distortion of competition in the internal market and consistency with the State aid principles apply to them. Therefore, the Commission concludes that Invest-NL’s interventions funded from the EU Financial Instruments ensure the incentive effect of the measure.”

“(97) The State aid measure must be limited to the minimum necessary to induce the additional investments or activity by the undertakings concerned, i.e. whether it would not be possible to reach the same outcome with a lesser amount of aid.”

“(98) The Commission notes that the EUR 2.5 billion capital injection aims to provide a sufficient (but non-commercial) return to Invest-NL which will be used to benefit SMEs (and larger companies) that are affected by market failures in accessing the necessary finance. … Also, the Commission considers the annual subsidies provided to Invest-NL development services to be proportionate, as they are set to cover the operating costs of this subsidiary (which does not receive any additional remuneration).”

“(100) With regard to the MEO measures, since those interventions are market-conform and do not provide a selective advantage, the aid amount (actually no aid) is also limited to the minimum necessary.”

Finally, the Commission found that the aid would have no undue negative effects because “(104) Invest-NL will conduct its activities in line with State aid rules, which by itself ensures that potential negative effects are limited to the minimum.” “(105) With regard to Invest-NL’s future financing activities on MEO terms, they will be subject to no-crowding-out measures, whereby Invest-NL intervenes only when market funding is not sufficient or not available. This will be ensured by a set of mandatory steps that Invest-NL will follow before investing in an entity. The investee will have to demonstrate that it tried to obtain the required financing from the market, but was unable to secure part or whole of the required financing.”

The overall assessment of the Commission was that the aid was compatible with Article 107(3)(c).

A few concluding thoughts

This is an interesting case because it shows that funding that conforms with the MEIP can be granted by the same institution that provides State aid. Perhaps in a counter-intuitive way, by incorporating as many of the GBER provisions into investments that seek to be MEIP-conform, it can be ensured that when it is not possible to obtain the return required by the market, any aid they may contain will be more likely to be compatible with the internal market.

But, once more, it would have been very useful if the decision contained an example of how the MEIP-conform return can be achieved where the market is unwilling to invest.


[1] The full text of the Commission decision can be accessed at:




Phedon Nicolaides

Dr. Nicolaides was educated in the United States, the Netherlands and the United Kingdom. He has a PhD in Economics and a PhD in Law. He is professor at the University of Maastricht and the University of Nicosia. He has published extensively on European integration, competition policy and State aid. He is also on the editorial boards of several journals. Dr. Nicolaides has organised seminars and workshops in many different Member States, and has acted as consultant to several public authorities.

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