Roma entrepreneurship in Romania. Research and advocacy for setting up a financial instrument facilitating

access of small Roma entrepreneurs and social businesses in Romania to micro-credits

December, 5th, 2014

About the project

Main research tool:

-Field research– depth interviews with 100 small Roma entrepreneurs who perform economic activities, both individually and within social economy enterprises

Objectives:

• Cross section of Roma entrepreneurs from various fields (from scrap metal collectors to touristic activities and traditional Roma crafts)

• Assesing the situation of small Roma entrepreneurs in terms of financial literacy, access to capital and future financing necessities forecast

• Drafting public policies proposals that aim to improve access to (micro) loans for entrepreneurs belonging to these vulnerable groups and economic inclusion

How we started. Preliminary findings

• 70% of the Roma population living in Romania are facing economic vulnerability, according to World Bank. Economic inclusion goes hand in hand with the financial one.

• Very few Roma are using general financial services such as Banks (they are “non-bankable”)

-are not legally registered, are not keeping formal records and can not provide guarantees;

-low market competitiveness; Roma traditional craft require requires specialized marketing and they need to be adapted to customer needs;

• Majority of Roma entrepreneurs use as means of financing informal sources (family,

friends, individuals who offer loans at a very high interest rate)

• Although in general data reports show that Roma are not making loans for business purposes, but for personal reasons(unforeseen expenses, medical expenses, family events, etc), the small entrepreneurs that we have interviewed so far are saying that they would loan money to purchase durable goods that could help them expand their activities (e.g solariums, greenhouses, machine tools, market stalls) and the amounts would they borrow will be around 10.000-20.000 Euros.

European framework for SME financing– vulnerable groups, social enterprises within the 2014-2020

framework (I)

I. Juncker’s investment plan (EU’s new deal) The creation of a new European Fund for Strategic Investments (EFSI), guaranteed

by public money (315 billion EUR) for additional investments in the next 3 years (2015-2017)The fund will also provide access to risk financing for SMEs and mid-cap businesses across the EU.

European framework for SME financing– vulnerable groups, social enterprises within the 2014-2020

framework(II) Member states are already notifying EFSI’s joint working group the list of projects selected based

on three criteria:

• Projects that reveal an EU added value and support EU objectives• Sustainability and economic value – it will be given priority to the projects with a high social

and economic return• Projects that can be launched at the latest in three years, meaning capital expenditures can be

expected in the framework of 2015-2017 period

II. The Employment and Social Innovation (EaSI) programme (EaSI) – 919 mil Euro

-Progress Axis(61% of the total EaSI budget) - grants and programs dedicated to innovative social policy experiments aiming, inter alia, to

create jobs and social innovation, in line with Europe 2020 Agenda and the country specific recommendations for poverty reduction

- Microfinance and Social entrepreneurship Axis (21% of the total EaSI budget) - Increase access to, and the availability of, microfinance for vulnerable groups who want to

set up or develop their business and micro-enterprises, build up the institutional capacity of microcredit providers, Support the development of social enterprises, in particular by facilitating access to finance.

European framework for SME financing– vulnerable groups, social enterprises within the 2014-2020 framework (III)

Progress Microfinance Facility – issues guarantees and provides funding to increase microcredit lending in order to support groups with limited access to the conventional credit market (e.g women entrepreneurs, young entrepreneurs, minority groups, people with disabilities, etc.)

So far, 3 non financial institutions and Banca Transilvania managed to access Progress financing: FAER, Patria Credit, Vitas Romania (Romania almost reached its maximum allocation of 20 millions EUR on this program)

Percentage of Roma beneficiaries? Jasmine Fund (technical assistance for microfinance institutions)

Jeremie Fund ( assists medium enterprises in using structural funds – SOP-IEC in Romania within the 2007-2013 framework, creating revolving financial instruments – credit funds, guarantee funds, risk capital funds to support SMEs. In Romania, Jeremie Fund was accessed by the banking system in order to guarantee and configure a capital risk fund.

Financial Instruments deriving from structural and national funds

Within the 2014-2020 framework, all the Management Authorities can configure their financial instruments:

• Romania has a total budget allocation of 420 million EUR• Operational Programme Human Capital– 120 million EUR credit fund available with improved interest• EAFDR – 90 million EUR guarantee and credit fund with shared risk

The Department for SMEs prepares for 2015 a programme aiming to stimulate the establishment and development of social micro enterprises.-minimum PFA(Authorized Physical Person), II *amendments proposed by ES– defining vulnerable persons?

A maximum period of two years since their registration in the Commercial Register??

Microfinance for Roma entrepreneurs- good practice models in Europe(I)

Kiutprogram, Polgar Foundation (Hungary(-based on the model of Muhammad Yunus, Grameen Bank: group loans (5 members), one

year long, weekly reimbursements; -the loans have officially granted by Raiffeisen Bank and the foundation (through a specially

created NGO) administered the loans; trained field agents, trained the clients, prepared the documentation and submitted it to the financial institution, was responsible for monitoring and evaluating the program

- The average micro credit was around 1800 EUR, a total of 138 loans being granted.-success rate 75%

Partneri Shqiptar në Mikrokredi (PSHM) (Albania) - Granted to the Roma entrepreneurs loans worth between 100$ and 50.000$ for their

businesses. PSHM grants loans based on the Identification Documents. In order to be eligible, the business does not require formal registration, but to prove a source of income.

-11% of the loans granted by PSHM (870 loans) were granted to Roma entrepreneurs with a total value of 400.000$.

-PSHM offered bonuses to their employees willing to work with Roma entrepreneurs.

Microfinance for Roma entrepreneurs- good practice models in Europe(II)

Integro (Bulgaria) - Works in 5 Roma communities from the rural areas and grants loans for families with

small sheep or horse farms;

Creating Effective Grassroots Allternatives Foundation – CEGA (Bulgaria) - Over a period of two years, 21 families purchased 14.5 ha of land. The loan amount

varied between $500 and $2500 , all the families reimbursed their loans

IFN Horizonti (Macedonia) g- grants loans to the women working in commerce, small scale production, services

and family businesses. Horizonti granted 9,703 loans, from which 5000 were directed towards Roma women.

Microfinance vehicles in Romania

Potential sources of micro finance in Romania:

• Non Bank Financial Institutions(NBFI)– combines in various proportions commercial and social purposes(e.g Patria Credit, Opportunity Microfinance Romania (OMRO), ROMCOM, LAM, FAER , Good Bee, Agricover IFN)

• Credit Unions. Credit Unions are an important alternative to formal financial institutions

in many developed countries. Nevertheless, in Romania, they do no represent a credit source for Roma entrepreneurs.

Why?

• NGOs – associations and foundations – can provide only grants What is the optimal proportion between grants and loans offered to small businesses

in Romania run by Roma entrepreneurs?

• ”The gradual maturation from grants to loans is a common element of all successful projects targeting Roma communities.” (Andrey Ivanov and Sanjar Tursaliev Microlending to the Roma in Central and Southeastern Europe: Mixed Results, New Approaches)

Public policies and financial instruments in Romania. Possible solutions

• Mixed grant + loan scheme, financial instruments to finance NGOs who are willing to provide seed funding for Roma start ups, trainings for business development and business plans, “financial literacy” etc, and linked with credit funds for non bank financial institutions (from OP-HU, SOP-HRD)

Topics to be discussed• The development of Roma social enterprises – Enough to discuss the

issues of investments/the need for capital?

• Ex ante analysis on the financial instrument provided by OP-HC?

• To what extent do the non bank financial institutions have Roma clients?

• Piloting the Kiut Model in Romania- financed trough Progress Axis for social experiments?

• Risk capital fund for the projects dedicated to Roma entrepreneurs?

• Synergies with the law of social economy?

• Correlation with the legislation concerning crafts?

• The opportunity to create a public-private work platform- NGOs, non bank financial institutions, Management Authorities, etc.

Thank you!