1 micro-credit as a tool for entrepreneurship in europe philippe delvaux european commission...

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Micro-Credit as a tool for Micro-Credit as a tool for Entrepreneurship in EuropeEntrepreneurship in Europe

Micro-Credit as a tool for Micro-Credit as a tool for Entrepreneurship in EuropeEntrepreneurship in Europe

Philippe Delvaux

European Commission Directorate General for Regional Policy

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Technology & innovation

Eco friendly SMEs

ICT in SMEs

Start-ups

12% / €3.2bn

65% / €17.7bn

9% / €2.5bn

14% / €3.7bn

ERDF supportERDF support t to Small Businesseso Small Businesses

€ € 27 billion27 billion

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9

255

1 693

21 228

Informal sector(Income-generating

activities)

> 250 employees

50 - 250 employees

10 - 49 employees

0 - 9 employees

23,2 million enterprises in EU

92% of enterprises inEurope are micro-enterprises

(up to 9 employees)

Informal sector represents10 to 15% of GDP

Active population below the poverty line : 28 million

Micro-credit :

Max. Amount: €25,0000 - 9 employees

Turnover: max 2 Mio Euros

µC

Number of enterprises in the EU (x 1000)

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Particularity of micro-creditParticularity of micro-credit

• Many issues at the same timeMany issues at the same time• Many parties involvedMany parties involved• Several approaches over the worldSeveral approaches over the world• A mix of funding and technical assistanceA mix of funding and technical assistance• Matches real needsMatches real needs• Existing instrumentsExisting instruments

However, an important gap in the market.However, an important gap in the market.

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A few reasonsA few reasons

• Different types and understanding of what is Different types and understanding of what is micro-credit, what it should be.micro-credit, what it should be.

• Various approaches. No one-size-fits-all model.Various approaches. No one-size-fits-all model.

• Lack of standards.Lack of standards.

• Absence of collateral from part of the borrower.Absence of collateral from part of the borrower.

• Administrative cost of small loan not Administrative cost of small loan not proportionate to its amount.proportionate to its amount.

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Challenging Micro-creditChallenging Micro-credit

µ-credit

Social Inclusion

Banks

µ-enterprise

µ-finance

EIBBasel II

Legislation

Charities

CreditUnions

Employment

LisbonStrategy

Self-employment

EuropeanCommission

2020Strategy Trust

EuropeanSocial Fund

EuropeanCouncil

European Parliament

FinancialEngineering

Seed capital

Growth and jobs

JEREMIE

RevolvingFunds

Grants

ESBG

PROGRESS

Capacitybuilding

Mentoring

Sustainability

Member States Regions Guarantees

LoansQuality label

Trainingµ-Financenetworks

Ratingagencies

Coaching

Codesof

ConductSocial

Responsibility

Funds

RegionalPolicy

Equity

Interestrate

subsidy

EIF

µ-creditproviders

MFI €SavingsBanks

Bankability

StructuralFunds

Consumerprotection

StatisticsInterest

rates

Character based

lending

Mezzaninefinance Non-bank

Win-win

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Poverty

Social benefits

LuxFlag

Public Banks

Services

EESCEQUAL

MFC

Change

CIPEU Budget

Additionality

Unemployment

ProceduresDefinitions

RiskManagement

IFRS

Public Banks

Governance

Communicationon µC

Collateral

SubsidiarityOver

indebtedness

CGAP

Basel III

Yunus

EAFRD

Women

µ-financefunds

Communication

FinancialInclusion

Financial Regulation PHARE

LeverageDevelopment

countriesDeprivedpopulations

EPMF

MixMarket

EGAF

UniversityAwarenessraising

WorldBank

Supervision

StrategicPlanning

Information systems

Mindsets

Overindebtedness

MFI $GrameenBankFinancial

Crisis

Lobbies

CooperativeBanks

YunusUsurary

rates

EntrepreneurshipGlobalization Client

Relations

Challenge

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To take what exists into account and look at ways To take what exists into account and look at ways to increase the provision of micro-credit in the EUto increase the provision of micro-credit in the EU

• Build confidence in micro-creditBuild confidence in micro-credit• Contribute to develop the microfinance sectorContribute to develop the microfinance sector• Promote entrepreneurship through micro-creditPromote entrepreneurship through micro-credit• Encourage networking of stakeholdersEncourage networking of stakeholders

ChallengeChallenge

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• A gap in the policyA gap in the policy• Timely proposalsTimely proposals• High EU acceptance High EU acceptance • Motivation of stakeholdersMotivation of stakeholders• Lessons learnt from the financial crisisLessons learnt from the financial crisis• Big Brother ‘JEREMIE’ in the backgroundBig Brother ‘JEREMIE’ in the background• ‘‘JASMINE’ designed as a quality systemJASMINE’ designed as a quality system• Provision of large funding thanks to EPMFProvision of large funding thanks to EPMF

Success factorsSuccess factors

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• Existing policy tailored initiativesExisting policy tailored initiatives• No usable sector specific statisticsNo usable sector specific statistics• Many stakeholders involvedMany stakeholders involved• Opposed views of interest groupsOpposed views of interest groups• Subsidiarity Subsidiarity

DifficultiesDifficulties

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11/2007: Micro-credit initiative 11/2007: Micro-credit initiative (COM 2007/708)(COM 2007/708)

1. Improve the legal & institutional environmentImprove the legal & institutional environment

2. Further develop entrepreneurshipFurther develop entrepreneurship

A Communication on micro-credit

3. Develop Capacity Building for MFIsDevelop Capacity Building for MFIs4. Provide Funding for MFIs with financial standingProvide Funding for MFIs with financial standing

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Examples of changes to the legal Examples of changes to the legal and institutional environmentand institutional environment

• Development of micro-credit providers/MFIsDevelopment of micro-credit providers/MFIs

• Relaxing interest caps for micro-credit operationsRelaxing interest caps for micro-credit operations

• Allowing MFIs access to borrower databases and Allowing MFIs access to borrower databases and facilitating their evaluation of the risksfacilitating their evaluation of the risks

• Reducing operating costs applying favourable tax Reducing operating costs applying favourable tax schemesschemes

• Adapting national regulationAdapting national regulation

• Ensuring single market rules are applied to micro-credit Ensuring single market rules are applied to micro-credit

• Incorporating micro-credit into regulation and accounting Incorporating micro-credit into regulation and accounting standardsstandards

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JASMINE




4. Provide Funding for MFIs4. Provide Funding for MFIs

3. Develop Capacity Building for MFIs


3.3. Develop Capacity Building for MFIsDevelop Capacity Building for MFIs

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• Institutional assessment and/or rating Institutional assessment and/or rating for selected MFIs for selected MFIs

• SubsequentSubsequent training training to selected MFIs. to selected MFIs.

• A range of A range of business support servicesbusiness support services available for all MFIs. available for all MFIs.

• AA code of good conductcode of good conduct for MFIs to provide guidelines and advice for MFIs to provide guidelines and advice to MFIs on raising the standard of their services and operations to MFIs on raising the standard of their services and operations ((Vademecum on micro-creditVademecum on micro-credit).).

• JASMINE on lineJASMINE on line

• AA quality labelquality label to be awarded to “good” MFIs.to be awarded to “good” MFIs.

JASMINE toolkitJASMINE toolkit

R

T

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EPMF




3. Develop Capacity building for MFIs3. Develop Capacity building for MFIs

4. Provide funding for MFIs


4. Provide funding for MFIs4. Provide funding for MFIs

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• Part of the response to rising unemployment and social Part of the response to rising unemployment and social exclusion resulting from the financial crisis.exclusion resulting from the financial crisis.

• To To ‘offer a new chance to the unemployed and open the road to entrepreneurship for some of Europe’s most disadvantaged groups’

(Commission communication June 2009: ‘A shared (Commission communication June 2009: ‘A shared commitment for employment’)commitment for employment’)

European Progress European Progress Microfinance FacilityMicrofinance Facility

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EPMF – Key featuresEPMF – Key features

Micro-credit to Final Beneficiaries troughMicro-credit to Final Beneficiaries trough

• 1. 1. GuaranteesGuarantees (implemented through EIF)(implemented through EIF) on microcredit portfolios on microcredit portfolios ((€ 25 million € 25 million from EU resources)from EU resources)

• 2. 2. Debt and equity instrumentsDebt and equity instruments

by means of a Fonds Commun de Placement – Fonds by means of a Fonds Commun de Placement – Fonds d’Investissement d’Investissement Spécialisé Spécialisé (FCP-FIS)(FCP-FIS)(up to (up to ++ € 225 million € 225 million = € 75m from EU + up to € 100m = € 75m from EU + up to € 100m from the EIB + up to € 50m from other investors)from the EIB + up to € 50m from other investors)

• 3. 3. Expected total leverageExpected total leverage: : € 500 million € 500 million ((+ 46 000 loans) 46 000 loans)

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Improving the provision of micro-credit has Improving the provision of micro-credit has the potential to develop entrepreneurshipthe potential to develop entrepreneurship

• It is a complex issue involving many actors, It is a complex issue involving many actors, but can be a win-win undertaking for all. but can be a win-win undertaking for all.

• Quality makes the differenceQuality makes the difference

• Both the banking and non-banking sector Both the banking and non-banking sector

have a part to playhave a part to play

ConclusionsConclusions

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Announcement on JASMINE Announcement on JASMINE Two messages:Two messages:

Continuation of JASMINE after 2011 • Unanimous positive feedback received from actual JASMINE stakeholders• Adaptation of the scheme from 2012 on to include greenfield MFIs• Increased provision of business support services for MFIs (JASMINE online)

Availability of a Code of Good Conduct for MFIs

• Help MFIs raising standards in micro-credit lending & operating practice• Micro-credit stakeholders actively involved in the draft of the content• Document under final revision: Final version available by end of June 2011

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Thank you

Your suggestionsYour suggestions

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Thank you for your attention

DG REGIO – Unit D3 ‘Financial Engineering – Major Projects‘

[email protected]

1 micro-credit as a tool for entrepreneurship in europe philippe delvaux european commission...

Documents

particularity of microcredit

regional policy slide

employees turnover

employees informal sector

various approaches

mix of funding

absence of collateral

finance eib basel