What exactly are revolving funds?

‘Revolving funds are funds set up by the government using public money to finance companies that can contribute to social objectives. These companies have potential, but banks often consider them too risky to support. The government fills that gap with revolving funds. The largest fund is Invest-NL, which has at least 1.9 billion euros at its disposal. This money is invested, for example, in affordable owner-occupied homes for first-time buyers or in a new nasal spray against the flu. The idea is that the company will be successful, and the money will return to the fund. This enables the fund to support other projects, and allows public money to be used multiple times. As a result, it’s an attractive alternative to traditional subsidies.’

Do these investments always have to generate a profit?

‘The projects are often risky, so it’s not certain that the government will get its money back, let alone make a profit. There are cultural projects where people are satisfied if they recover part of the investment. That doesn't have to be a bad thing. After all, financial return is not the main reason for making these investments. The government mainly seeks to contribute to society. Investing creates jobs, for example, or achieving a certain reduction in CO2 emissions in a region.’

What exactly did you research?

‘I looked at how revolving funds in the Netherlands are structured from a legal perspective, to what extent they meet democratic and constitutional requirements, and how this could be improved in the future. I investigated 72 funds and concluded that they are all structured in very different ways. Sometimes a fund is very close to the government. In that case, all kinds of rules automatically apply. Think, for example, of the principle of legal equality: it must be clear under what conditions financing will or will not be provided. The application period must be clear, as well as the complaints procedure. Other funds are much further removed from the government and can more easily circumvent such safeguards. Yet both types of funds manage the same public money. That's why I found it interesting to research this.’

How is it possible that some funds are less transparent?

‘When an entrepreneur borrows money from a bank, intuition often plays a role: I trust this entrepreneur. You see the same thing with revolving funds that are further removed from the government. These funds employ individuals with market knowledge and business expertise. They do not want to lay out all the procedures and conditions in detail because they aim to offer tailor-made solutions. That is why some funds' websites contain very little information and emphasise personal contact with the fund manager. However, we are talking about large amounts of public money, which requires clear rules. It is also difficult to object to a decision if the conditions are not transparent or the complaints procedure is not clearly defined. This affects the legal protection of entrepreneurs—their access to justice. If the government operates in this way, transparency and the general principles of good governance are also at risk. I am not opposed to revolving funds, but there is work to be done.’

What changes do you recommend?

‘At EU level, the framework is relatively robust. There is a clear legal framework that states: regardless of how you structure the fund, these are the basic rules you must follow. We need to move in the same direction in the Netherlands. There needs to be a separate law governing the expenditure of public funds, including a chapter on revolving funds. You want it to be clear to everyone what rules apply, that decisions are well-reasoned and that the complaints procedure is straightforward if things go wrong. Since drafting legislation is a complex process, I also propose that revolving funds jointly develop a sector-wide code of conduct. This would help bridge the differences between the funds and prevent entrepreneurs from having a significantly different experience with Fund X than with Fund Y. It is now up to politicians in The Hague to take this forward. I hope my research underlines the urgency of the issue.’