Revolving funds – a good idea for the Rural Development Programme?

Authors: Sören Höjgård 

The present PM discusses if so called ”revolving funds” could improve the efficiency of the Swedish rural development programme by increasing the supply of risk capital to rural enterprise. Revolving funds are funds that are required to preserve, rather than increase, their capital through returns on investments undertaken. The conclusions are:

  • Revolving funds are only suitable for financing investments that generate market incomes which excludes the major part of the measures in the rural development programme as their target is to improve the environment.
  • Investments must provide returns that are sufficiently large to assure that the capital of the fund is not depleted. On the other hand, in order to avoid crowding out of private investments, returns must not be as large as those demanded by private investors.
  • This requires that those responsible for the funds’ investments have better information and knowledge regarding local business conditions than private investors.
  • As financial expertise is tied up in the private sector, and since expertise in local conditions takes time to build, it is unlikely that revolving funds could be an immediate solution to the problems of rural firms’ attracting risk capital.

The publication is in Swedish.


Sören Höjgård