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JURISDICTION SUMMARY: AUSTRIA

Source: EMN (+AWS and ÖSB Consulting)

Types of vehicles available for microenterprises and self-employment

- One-person-companies with a trading licence: individual enterprises without employees. The trading licence is connected with an obligatory membership of the Austrian Chamber of Commerce.

- New self-employment: The Austrian law defines the legal form of new self-employment in the contract of manufacture only.

- A dependent form of self-employment is given when a contractor is dependent from only one contract awarder and has little autonomy concerning his work, contract, working place and time or payment. Franchising is seen on the border of this type of dependent self-employment.

- Limited liability company (GMbH)

Costs and Procedures

All self-employed persons need a trading license (some professions such as lawyers and doctors are exempt).

The Austrian law for supporting the foundation of new businesses (Neugründungs-Förderungsgesetz, NEUFÖG) is part of the taxation reforms of 2000 and can free from diverse costs connected to starting and taking over a company as well as supplements to wages and salaries in the first year, independent from a foundation as trade company, freelancer or farmer

Financial support programs during the transition period

- Self-employed persons are in most cases not entitled to receive unemployment benefits

- Exception: Periods of unemployment insurance, which can be achieved by extending the framework period before the claimant became self-employed

- This insurance usually contains health-, accident- and pension insurance. Contributions to unemployment insurance are not considered.

Business Development Services

A variety of support mechanisms to promote self-employment and the viability and growth of business start ups exist. Support programmes are initiated by the Federal government and its institutions and by the Chamber of Commerce, but not specific for microenterprises

Entrepreneurship is especially enhanced through training and coaching programs and public loans. Basically those instruments are open for potential entrepreneurs no matter if they are employed or unemployed

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ÖSB Consulting has a specific business support programme for microentrepreneurs carried out in the frame of the public business start-up programme of the Austrian public employment service (AMS). It provides advice, coaching and networking possibilities

Specific laws & regulations applicable to microenterprises, self-employment and microcredit

General corporate rules apply for microenterprises

Banking monopoly

There is no special legislation concerning microcredit.

Sources of funding for microcredit institutions

Commercial loans: banks

Public sources:

- Government (Ministry of Economics and Labour, Ministry of Finance) with EIF counter-guarantee

- Local government

- European funds through ESF

Operational / financial autonomy

So far microcredit projects in Austria have not achieved sustainability and depend on public subsidies.

Usury rule (interest caps)

No interest caps

Tax incentives N.A.

Access to guarantee schemes for banks and non bank institutions providing microcredit

AWS provides a guarantee scheme

Database recording borrowers’ history

N.A.

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Ability of non bank microcredit institutions to access such databases

N.A.

Obligation for non bank microcredit institutions to provide their borrowers' credit history to such databases

No obligation

Significant initiatives taken to develop microcredit

- In 2005 three EQUAL-Projects were started in Austria – one in Tirol, one in the eastern part of Austria and one in Styria. Each was focussing on different microcredit models. The pilot project in Styria ESCAPE was based on the existing national framework concerning the legal system and banking, and concentrated on women and migrants. microcredits are granted by an official bank (Raiffeisen Landesbanken). Liability / Security was taken over by the AWS (public security bank). The project reached around 450 people interested in the project. The microcredit-concept in ESCAPE was developed and realised by the ÖSB Consulting GmbH, one of the leading consulting firms in Austria and ended in 2007.

- The project “Alternative Selbstständigkeit” (carried out by “ibw”) in Vienna and the project “Initiative Frauen gründen” in Innsbruck” have a similar procedure and similar conditions but focus especially on women who want to start a business.

- The Austrian government has adopted in April 2006 a promotion package for micro and small enterprises. It is being implemented since July 2006 through austria wirtschaftsservice (aws).

- Since 2007 the Austrian public employment service (AMS) provides microcredit in 5 provinces in the frame of the public business start up programme (Unternehmensgründungsprogramm UGP) with support from ÖSB Consulting.

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Suggested measures to improve existing / create a new framework for microenterprises and microcredit

For microenterprises/self-employment:

- Include businesses without employees into statistics

- Improve legislation on self-employment, i.e. include definition of self-employment in the Austrian law

- Simplify administrative procedures (tax declaration etc.)

- Improve technical and business development services

For microcredit:

- Promote partnerships between MFIs and banks

- Authorise non bank institutions to borrow for on-lending

- Build on the lessons of the EQUAL projects carried out in the field of microfinance

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JURISDICTION SUMMARY: BELGIUM

Source: Latham & Watkins Brussels & EMN with Fonds de Participation

Types of vehicles available for microcredit and self-employment

Any natural person may start a business in Belgium either as a self-employed person or through a business.

Main types of corporate vehicles which can be used by microenterprises and self-employment: Société Anonyme (SA), Société Privée à Responsabilité Limitée (SPRL) and Société coopérative à responsabilité limitée (SCRL).

Costs and procedures

Cost of incorporation of a company includes registration duties, publication in the Official Gazette of company’s articles of incorporation and fixed notary fees. In total, cost amounts to €1,000 for "SPRL" and €1,500 for "SA".

Incorporation of a company in Belgium requires formalities such as enactment of articles of incorporation before a Belgian notary, registration with the National Office for Social Security in case staff is employed in Belgium and, if needed, administrative authorization to access a regulated profession and registration with VAT. Initial capital is required to set up a company. For SA, minimum capital required is €61,500 to be fully subscribed. For SPRL and SCRL, law requires a minimum capital of €18,550 of which at least €6,200 must be paid upon constitution (€12,400 in case of incorporation of a SPRL by one shareholder only).

Self-employed persons and companies are required to register with a central corporate database: "Crossroads Bank for Enterprises".

Created in 2003, there are ten registered business one-stop-shops in Belgium.

Financial support programs during transition period

As a general rule, an unemployed person ceases to benefit from allowances as soon as he/she starts running a business either as self-employed or through a company. However, prior to the incorporation, potential financial advantages received during training are not considered as wages and may be as such cumulated with unemployment benefits.


- Business development training for unemployed people (beneficiaries can continue to receive unemployment allowances during some trainings)

- Business employment cooperative (e.g. Azimut and Debu(u)t)

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- Various programmes offered by MFIs: “Fonds de Participation” has developed a "Plan for young self-employed" which provides accompanying measures for persons under 30 and “Crédal” has a programme focused on women entrepreneurship

- Credal and Hefboom offer a 2 year business support for the entrepreneurs who are granted with microcredit

Specific laws & regulations applicable to microcredit, self-employment and microfinance

No specific rules

Types of institutions providing microcredit

MFIs:

- Fonds de participation (Federal public company under supervision of Ministry of Economy, Ministry of Finance and Ministry of Employment)

- Crédal (cooperative microfinance institution operating in Wallonia and the Brussels Region)

- Brusoc (a subsidiary of the partly state-owned venture capital company BRIC operating in former "Objective 2" part of Brussels Region)

- Hefboom (private MFI operating in Flanders and Brussels Region)

Commercial banks do not offer their own microcredit products, they only act through partnerships with microfinance institutions (MFIs).1

1 The “Fonds de participation” has partnership agreements with several commercial banks in Belgium so that borrowers may apply for a loan directly to their usual commercial bank. Crédal has a partnership with the Bank of the BelgianPost for the granting of low rate consumption loans. The loans are granted directly by the Bank of the Belgian Post to which repayments are paid. The main feature of those consumption loans is that Crédal will intervene in case of failure to repay in order to find a settlement. In addition, Crédal has partnership with some commercial banks for its funding.

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Sources of funding for microcredit providers

- MFIs receive financing mainly from public sources either at national, regional or European (European Social Fund, European Investment Fund and European Regional Development Fund) level.

- Public MFIs (Fonds de participation and Brusoc) are financed mainly by public authorities: Federal Government and Brussels Region.

- Crédal, private MFI, is financed by public and private sources.2

As cooperative it receives financial support from their members.

- Hefboom, private MFI, is financed by private sources. It is a cooperative which receives financial support from its members.


Financial autonomy of public MFIs (i.e. Fonds de participation and Brusoc) is difficult to assess since they are financed mainly through public resources. Interest rates set by Brusoc and Fonds de participation do not allow them to reach sustainability.

The private MFIs (Crédal& Hefboom) are not financially autonomous: their operational costs for microcredit activities are covered by private donations.

Usury rules (interest caps)

Usury rules only apply to consumer loans.

However, the Fonds de Participation for its “prêt lancement” (business start-up loan) which makes up 85-90 % of the Belgian microcredit market fixes its interest rate following general objective criteria and the market evolution of rates - the gap between the applied rate and the market rate may not exceed 5% and not fall below 3%.

Tax incentives Private MFIs operating as authorized cooperatives, such as Crédal, may deduct dividends paid to their members up to €160/annum. However, there is no reduction of corporate tax.

Tax deduction to natural persons upon donation to MFIs.

2 For example, part of the entry fees of a mutual fund (SICAV) of the commercial bank “Dexia” supports Crédal. Crédal is also supported by Trios Bank, an ethical bank that invests in projects promoting sustainable economic development.

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Access to guarantee schemes for banks and non bank microcredit institutions

The regional government of Wallonia has set up a guarantee scheme for people who are granted a commercial bank loan < €25,000 from a traditional commercial bank.

Sowalfin, the Walloon Company of Financing and Guarantee for SMEs (Société Wallonne de Financement et de Garantie des Petites et Moyennes Entreprises).


Access to such databases

Databases on mortgage and consumer loans administrated by National Bank of Belgium

No information on investment loans

No direct access available for MFIs

MFIs can however require that applicants for micro-loans communicate their credit history.


MFIs have to report the granting of any consumer credit to "Central database for loans to private individuals".

Banks have to report granting of loans to microenterprises > €25,000 to "Central database for loans to enterprises".


- Creation of MFIs

- Lower regulatory requirements to issue securities

Suggested measures to improve existing framework/create a new framework for microcredit and microenterprises


- Maintain unemployment benefits during transition period from unemployment to self-employment or setting up a microenterprise

For microcredit:

- Implement specific regulations applicable to MFIs

- Set up tax incentives for investment into MFIs.

- Widen the scope of sources of funding available to MFIs acting

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through partnership with banks

- Foster guarantee schemes for MFIs

- Carry out more studies on the impact of microcredit

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JURISDICTION SUMMARY: BULGARIA

Source: EMN with Nachala


- “Free professions” - lawyers, doctors, dentists, farmers. While in the past there was no obligation to register a company, now there are different requirements, for instance the farmers have to register in the municipality where they own a land;

- “One man company or trader” - this still is the lowest level of registration;

- “Sole limited liability company” - there is fixed capital which is the level of responsibility of the company to third party;

- “Limited liability company” - formed from more than one owner; there is also fixed capital which is the level of responsibility of the company to third party but it is higher than the above one;


There are too many requirements and procedures and the process is very slow.

There is no simplified status or procedure for self-employment or microentreprises.

There is no system of “one-stop-shop”.


There is no financial income support during the transition for unemployed or welfare recipients who set up a business and no provisions to allow a return to unemployment benefits or welfare in case of failure.


N/A

Specific laws & regulations applicable to microcredit, self-employment and microenterprises

There is no special law supporting microcredit

Banking monopoly - The central bank gives very strong support to all trade banks, but does not accept MFIs in the country as normal financial players in the field of microfinance

MFIs are registered either under the Cooperative Act, the Law for credit institutions or the Commercial Law

MFIs do not have right to collect deposits

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Commercial banks: They grant a small number of small size loans but for consumer purposes and not for small business (i.e. Procredit bank)

Specialised microcredit banks: Procredit bank - Their average loan size is much higher than the loans given from the MFIs - that means that the bank supports SMEs but not microentrepreneurs

Credit cooperatives: Cooperative Union of Popular Funds; Cooperative Union “Association of Popular Savings Societies on the Internet”; National Cooperative Union (NCU) Evrostart; Federation of PMRCAs (Private Mutual Rural Credit Associations)

MFIs (joint stock companies): Nachala 2007 EAD; Ustoi; Mikrofond EAD


Main sources of funding available to (non-bank) microcredit institutions – for the cooperatives – are fees and loans from members and loans from creditors as well as grants from donors.

For the other type of MFIs there are grants from donors, shares from shareholders and loans from different investors, creditors.

Commercial loans – trade banks and funds from abroad and trade banks from the country

Equity investments – foreign investors (very rare cases)

Soft loans - It is difficult to find sources for soft loans; in Bulgaria the MFIs do not have experience with such loans.

Subsidies and donations from international aid: USAID and other similar organisations from developed counties

There is only one State programme supported with funds from the State budget


Some of the non-bank microcredit institutions (the biggest ones such as Nachala, Mikrofond, Cooperative Union of Popular Funds and Ustoi) achieve operational and financial sustainability.


There is no limitation on the interest rates.

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The interest rate level depends on the market.

Because of the mentality and lack of experience, the MFIs in the country have to compete with the interest rate of the trade banks. It is not possible to implement the world-wide experience for microloan interest rates. On the other side MFIs are not allowed to mobilise deposits and the funds they work with are with high cost. This is why for MFIs is not easy to be financially sustainable.

Different MFIs have different targets and missions. Some of them have social targets and their own evaluation systems, but there is no common one.

Tax incentives N/A


There are no national guarantee schemes for banks and non-banks institutions providing microcredit.

Some of the MFIs received guarantees from the mission of USAID in the country, but no Bulgarian bank accepted them and gave better loan conditions to the MFIs.

Database recording borrower history

Access by non-bank microcredit institutions to such databases

There is a credit bureau only for the trade banks. The central bank does not allow MFIs to have access and to share their own database in the credit bureau.

Since recently private bureaus have started and maybe it is a question of time (year or more) to start to operate efficient. Hopefully they will not ignore the MFIs.


The major MFIs wish to share their data, but the central bank does not accept it.

Significant initiatives taken to

If the MFIs can have some support from the EU commission, there will be a chance for the Bulgarian MFIs to participate in the competition for

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develop microcredit

the EU funds. (i.e. Jeremie funds)

Suggested measures to improve existing framework/create a framework (as applicable) for microcredit and microenterprises


- Reduce procedures for registration and many requirements to start any small business.

- Reduce taxes (there are no simplifications for new entrepreneurs)

- Facilitate access to credit

- Promote business development services as population lacks business experience

- Tackle the following issues: availability of proper workers (high level of emigration); difficult market; illegal import of goods which destroys the national producers; disloyal competition; high level of inflation

For microcredit:

- Create a special law for MFIs with their participation in the process. The MFIs should be regulated and widen their scope of finance in order to have cheap funds and have a chance to grow, to be sustainable ad to serve more poor clients and people from rural areas where the population is underserved by banks.

- Reserved EU funds to Bulgarian MFIs only as they cannot compete with banks. The funds from the EU programmes and projects are provided only to the trade banks. The justification is that the funds are only given to regulated institutions (understand: banks). This means that MFIs will be excluded from EU funding as long as they are not regulated. However, the trade banks do not serve the socially excluded small entrepreneurs and self-employed persons. The banks give only mortgage and consumer loans, but not for start-up businesses.

- Authorise access to credit bureau for MFIs

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JURISDICTION SUMMARY: DENMARK

Source: EMN


- Sole proprietorship

- Limited liability: ApS Company (anpartsselskaber) or A/S Company (aktieselselskaber)


According to World Bank Going Business Denmark ranks high when business friendliness is measured by the time and cost needed to start up a business: It requires 4 procedures, takes 6 days, and costs 0.00% GNI per capita to start a business in Denmark.

Denmark has very little regulation of hiring and dismissal and is, together with U.K. and Ireland, the country in Europe with the most gentle rules concerning employment protection.

The business administration has been facilitated by the creation of a business portal Virk.dk, which provides the entrepreneurs a one point access to the public sector

Financial support programs during the transition period (from unemployment to self-employment)?

Today there seems to be no allowance for new entrepreneurs starting out of unemployment.


Not specifically for microenterprises.

In 1997 an offer was introduced that provides a maximum of 12 hours of free consultancy before the initiation of the business. This offer changes from region to region. The consultancy has to be finished before the actual creation of the business.

There are five regional business counselling centres, providing support and free counselling - for SMEs. The centres also create business networks, run incubators for new entrepreneurs and organise workshops and courses in business related topics. The centres receive funding from the regional municipalities, the Danish Ministry of Economic and Business Affairs and the European Social Fund.

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Source: EMN

Denmarks biggest business counselling centre is EVU: Erhvervscenter for Etablering, Vækst og Udvikling. The EVU established a Knowledge Centre for Ethnic Entrepreneurship (”Videnscenter for Etnisk Erhvervsfremme”) funded by the City of Copenhagen and EU. It aims to collect and distribute information concerning the various possibilities and challenges characteristic to ethnic entrepreneurs through research and outreaching business support.

In 2005, the Danish government set up a new loan structure: “Kom-i-gang-lån” loans are distributed through regular banks. The loans are granted through a public guarantee, covering 75% of the possible loss of the banks. Together with the loan, the entrepreneur is given access to business support and counselling. The banks provide these services together with local partners.

Specific laws & regulations applicable to microenterprises, self-employment and microcredit?

No specific laws regarding sole proprietorship/ microbusiness nor microcredit.


There are no registered microcredit institutions specifically targeting excluded people and/or immigrants in Denmark.

Commercial banks provide business loans in the frame of the new “Kom-i-gang-lån” loan structure.

Savings Banks: JAK


Commercial loans

Government funding

Do non bank microfinance providers achieve operational / financial autonomy?

No non bank microfinance providers in Denmerk


N.A.

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Source: EMN

Tax incentives for microenterprises/ investment in MFIs?

N.A.

Access to guarantee schemes for banks and non bank institutions providing microcredit?

Vaekstkaution is a national loan guarantee scheme.

Existence of database recording credit history?

Only private credit bureaus exist

Obligation for non bank microcredit institutions to provide their borrowers' credit history to such databases?

No non-bank microcredit institutions in Denmark


None regarding microcredit

The government aims to develop entrepreneurial educational programmes, and is creating accessible and competent advice centres. It is also promoting access to capital by supporting private venture capital structures and new financial instruments, among them microfinance.

Measures aiming to reduce the administrative burdens through easier registration and electronic governance, as well as tax-reductions, are being planned and implemented. The government aims to reduce the administrative burdens up to 25% by 2010.

From January 1st of 2008, the current EVU is replaced by a Business Contact Centre (Erhvervskontaktcenter) administered by the Copenhagen municipality. This can be seen as an acknowledgement

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Source: EMN

that EVU projects have been successful.

Suggested measures to improve existing framework/create a framework for microcredit and microenterprises

For microenterprises/self-development:

- Include microenterprises and self-employment into political programmes; do not focus on high-growth business start ups only

- Simplify administrative procedures: these are difficult for people with lower education, and especially for immigrant entrepreneurs

- Established public loan guarantees which - in a better way than the present “starting up loans” - take into consideration the financial conditions of specific target groups. The “starting up loans” are criticised because they are too expensive - as the interest is too high, and because these loans require security in terms of capital, residence or the proof (for immigrant women) that the husband has a job.

- Set incentives for formal business start up, i.e. through financial support during transition from unemployment to self-employment.

- Promote business incubators and business development services, especially for long-term unemployed keeping in mind the needs of specific target groups

For microcredit:

- Foster collaboration between banks, business-advice centres and the interested firms in order to ensure that cheap, risk-oriented loans are available

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JURISDICTION SUMMARY: FINLAND

Source: EMN with Finnvera

Types of vehicles available for microenterprises/ self-employment

All existing company forms are usable.

Most simple company form: "company name" (registration as "private entrepreneur"). Other forms: “unlimited partnership company”, “limited partnership company” and “limited company”.


Registration with Trade Registry administered by National Board of Patents and Registration of Finland (NBPR).

Registering a company in terms of a private entrepreneur is relatively easy. Information registered is automatically communicated to tax authorities. Official announcement of the registration will take in general about two weeks. Registration cost varies by company form: € 65 - € 330.


Existence of start-up grants

Business development services

Finland Employment and Development Centres; Job and Society Agencies; Women Enterprise Agencies; services provided by Finnvera

Enterprises can also have help and assistance for questions concerning registration on the web site of “Enterprise Finland”.


For microenterprises:

No specific rules exist, general corporate rules apply

For microcredit:

Finnvera´s operations are governed by its own special legislation: In the domestic financing the Act on the State-owned Specialised Financing company (443/1998) dictates the purpose of Finnvera. The Act on Credits and Guarantees provided by Finnvera (445/1998) further targets the operations. Finnvera does not collect deposits.


- Cooperative banks (OP)-bank group provide their customers with small loans against collateral

- Local co-operative banks

- Savings banks

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- Promotional bank: Finnvera (state-owned)


- Commercial loans: international financial markets

- Equity investments: The State of Finland (owner of Finnvera plc)

- European sources: European Investment Fund, European Regional Development Fund

Do non-bank microcredit providers achieve operational / financial autonomy?

As a result of the income tax exemption (see “tax incentives”), it will be easier for Finnvera to achieve the self-sufficiency target set for it by the State, its owner.

Usury rules (Interest caps)

No usury rate

Tax incentives Since beginning of 2008 income tax exemption is granted to Finnvera

No tax relief for individuals or companies that invest in MFIs


All commercial banks can have access to Finnvera’s Small Enterprise Guarantee Scheme. Most commercial banks participate in the Small Enterprise Guarantee function.


Access of non- bank microcredit providers to such databases

Various commercial credit bureaus which trade such information

Finnvera also has its own database which is confidential

Finnvera’s database is confidential and not marketable

Obligation for non bank microcredit institutions to

Legally valid credit losses and delinquents are reported to register as prescribed by law

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provide their borrowers' credit history to such databases


- The most comprehensive reform was the establishment of a Ministry of Employment and Economy in the beginning of 2008. The ministry was formed of the current Ministry of Trade and Industry, the Ministry of Labour and a part of Ministry of the Interior. The new Ministry has two ministers. The new ministerial structure will simplify regulatory matters related to regional Development and the Employment and Economic Development Centres.

- An Entrepreneurship Policy Program implemented by Government: The Finnish enterprise service system is organisation-oriented and complex. The supply of services should be clarified in a more customer-oriented direction, based on national service channels. The objective is that customers receive public enterprise services impartially and on equal grounds throughout the country as easily as possible and based on the same operating model. The reform is carried out the new Ministry, Ministry of Employment and Economy.

- Finnvera runs a special credit programme for female entrepreneurs

Suggested measures to improve existing framework/create a new framework (as applicable) for microcredit and microenterprises


- Reduce barriers to set up new business: bureaucracy related to starting and managing a company, taxation, high social security contributions

- Promote positive image of self-employment and micro entrepreneurship

For microcredit:

No suggestions at the present moment

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JURISDICTION SUMMARY: FRANCE

Source: EMN with Adie

Types of corporate vehicles available for microenterprises and self-employment

- Individual enterprise (Entreprise individuelle)

- Personal company with limited liability (Entreprise unipersonnelle à responsabilité limitée - EURL)

- Limited liability company (Société à responsabilité limitée- SARL)


Cost of registering an individual enterprise is between 50 and 100 € approximately

In August 2003 administrative measures have been eased under the “Loi pour l’Initiative Ecomomique”: business registration and modifications/ cessation requests can be made via Business Formality Centres (“Centres de Formalités des Entreprises CFE”) that act as a one-stop business registration window.


Financial support programmes for self-employment out of unemployment exist for persons receiving unemployment benefit and social aid in the preparation period of the business project: and after the setting up of the business.

In case of ceasing the new activity, a formerly unemployed person may take up again his/her remaining rights to allocations for up to 3 years. A person having received social minima has the possibility to ask once again for social minimum allowance.

Other governmental financial support programmes specifically connected to enterprise set-up by persons in a precarious situation are:

- EDEN (Encouragement au Développement d’Entreprises Nouvelles – Encouragement for the development of new enterprises) : This is a repayable loan without interest and collateral (similar to quasi equity) subordinated to obtaining a complementary loan (from a bank or a microcredit association) of at least half of the amount of the reimbursable advance asked for.

- ACCRE (Aide aux Chômeurs Créateurs et Repreneurs d’Entreprises – Support for unemployed persons setting up or taking over an enterprise): Under certain conditions French law grants exoneration of social charges for enterprise set-up by the unemployed and beneficiaries of social minima. The provision of ACCRE has been simplified and its target group has been extended in 2006.

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Business support is of the highest importance in France due to the complex legal environment for new enterprises. This is even truer for the target groups of non-bank microcredit which are often not familiar with administrative procedures or management techniques.

New entrepreneurs who are supported by ACCRE may benefit from advice from organisms authorised by the local government.

Divers organisms provide advice, training or mentoring services:

- Organisations that are financing microenterprises and providing their services in addition to financial products: Adie (microcredit), France Initiative (quasi equity) , France Active (guarantee)

- Organisations that are specialised in support but do not provide financial services: Chambers of Commerce, Chambres des metiers, Boutiques de Gestion (RBG)

Specific laws & regulations applicable to microcredit, microcredit providers and microenterprises

- A simplified framework has been set up: the fiscal regime for microenterprises. The main objective of this regime is to reduce fiscal obligations for solo-entrepreneurs. It applies to individual enterprises with an annual business volume limited to 73,000 or 27,000 euros depending on the type of activity.

- Non-bank microcredit institutions are allowed to borrow for on-lending. Since the n°2001-420 law of 15/05/2001, non for profit associations are allowed to borrow in order to lend to unemployed persons and beneficiaries of social minima who would like to set up their business during the first five years of a new enterprise. This simplifies loan management and improves loan disbursement. To date only Adie is authorised under this law.


- Non bank MFIs=> Adie

- Banks if one respects the DG Enterprise definition of microcredit (loans below 25 000 euros)


Adie finances its credit resources through banks that make available credit lines, through social savings, own funds and loan funds from public authorities.

Operational costs are covered by different sources such as EU structural Funds (FSE, FEDER), the State and local governments, private enterprises (Corporate Social Responsibility) and some donations from

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individuals. Adie clients contribute through the solidarity contribution and the interest rate applied to each microcredit.


This is not the case at the moment, but Adie expects to cover its credit cost within 3 years time through revenue on loans; Business development services will remain subsidised as a “public service for economic and social development”.


The usury rata has been abolished. Interest rate cap for loans to solo-entrepreneurs has become possible through article 7 of the n°2005-882 law of 02/08/2005 in favour of SMEs..

This law included a report from the Banque de France evaluating the impact of the abolished usury rate. This document with the title « Rapport au Parlement. Les incidences de la réforme de l’usure sur les modalités de financement des petites et moyennes entreprises » stresses that the former regulation tended to exclude enterprises representing a higher risk. The evaluation highlights the positive effect of the abolishment of the usury rate. It facilitated access to credit for small enterprises and has not produced the perverse effect feared by many.

Tax incentives A favourable fiscal regime has been implemented for donations to associations. The n°2003-709 law of 1st August 2003 relative to patronage to associations and foundations authorises a fiscal deduction of 66% for donations to individuals realised in a limit of 20% of imposable revenue and of 60% for enterprises for donations up to 0.5% of business volume.


Risk coverage is assured by the FGIE guarantee fund (Fonds de Garantie de l’Insertion par l’Economique) fed by the Social Cohesion Fund (Fonds de Cohésion Sociale; “Loi n°2005-32 of 18/01/2005 de programmation pour la cohésion sociale”); the European Investment Fund, partner banks, own funds and the borrowers.

The Social Cohesion Fund proves 73 M€ over a period of 5 years and considerably increases the means of guarantee for microcredit. It has two target groups: microenterprises set up by persons in precarious situations as well as non for profit organisms.

Databases recording borrowers’ history

There is a banks’ database: the FCC (fichier central des chèques impayés) and the FICP (fichier des incidents des crédits aux particuliers) of the Banque de France.

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Access to such databases

They are not accessible to non-bank microcredit institutions at the moment but this might change soon due to an action by Adie in this field.

In order to better manage risk microcredit organizations authorized in the frame of article L511-6 of the Monetary and Financial Code should have access to the databases. The purpose is not to increase the selection of entrepreneurs due to theses databases, but to take prevention measures regarding the credit amount and the support to ensure reimbursement and increase the chances that the business will have success.


Non-bank microcredit institutions do not have the obligation to provide information on their borrowers’ credit defaults to this database. It will change if they have access to the database.


- The different laws already given as examples previously

- Partnerships between banks and non bank MFIs (Adie) or between banks and guarantee or quasi-equity providers (France Active/Fir)

- Those are significant steps towards the development of microcredit

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1. Remove the obstacles related to the carrying of different types of business

Access to self-employment remains limited due to a number of barriers related to persons, businesses and types of enterprises. These barriers incite persons to work in the informal sector which provokes disloyal concurrence to registered entrepreneurs, loss of resources to the State and most of all Lack of dignity for those concerned.

Article 4 of the French Constitution stresses the principle of entrepreneurial liberty that can only be restricted through a non- discriminatory legal decree justified by the motive of public security or protection of the environment.

2. Improve the system of social contributions

The system of social contributions remains too heavy. The system of capped contributions (“bouclier social”) set up in March 2007 limits social contributions and allows microenterprises to calculate their contributions in a simplified manner. These are important improvements, but they only apply to enterprises registered under the micro-regime which still Is not adapted for all types of businesses.

The measures implemented in 2007 regarding social contributions should be extended to businesses that are not registered under the fiscal regime of microenterprises, but that have a business volume corresponding to this regime.

A more ambitious reform should be implemented regarding progressive imposition of social charges depending on revenue, unifying the regime and abolishing minimal contributions.

3. Provide more and less expensive business premises

Premises are too expensive for very small enterprises in the city centre, and they are paradoxically very rare in the suburbs.

A bigger part of the budget of the National Agency for Urban Regeneration could be provided to the construction and planning of adapted premises at low price, for microentrepreneurs.

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Renting of already existing premises should be facilitated through information and confidence-building amongst funding providers.

Legislative measures are necessary to allow mixed usage of social housing for activities without nuisance

For microcredit:

The Bill on the modernization of economy to be passed in the next months includes :

- enlarging of the article L 511-6 of the monetary and financial code allowing non bank institutions to borrow and on-lend

- access of the non bank institutions to the Central Bank databases

-the remaining obstacle to the development of microcredit is the lack of funding for coaching and business development services.

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JURISDICTION SUMMARY: GERMANY

Source: Latham & Watkins Frankfurt/Hamburg & EMN with DMI and EVERS&JUNG


Micro-enterprises may either be established by individuals or by business partners becoming self-employed:

- sole proprietorship (Einzelkaufmann /-firma);

- limited liability company (Gesellschaft mit beschränkter Haftung – "GmbH");

- business partnership (Personengesellschaften): general partnership; limited partnership;


Depending on sector of business, various prior formalities are required: registration with tax authorities; Trade Surveillance Office (Gewerbeaufsichtsamt); Social Insurances (Krankenkassen, Rentenversicherung, Berufsgenossenschaft); Construction Office (Bauamt); Registration in commercial register (Handelsregister) via notarial act (applicable to all businesses except very small businesses and partnerships organised as a GbR (Gesellschaft bürgerlichen Rechts))


The Federal Government offers support loans managed by KfW Mittelstandsbank and have to be applied for via applicant's own bank ("house bank"):

- Micro-loan (StartGeld, up to 50,000 €)

- Capital for new start-ups (ERP-Unternehmerkapital für Gründungen)

- Business loan (Unternehmerkredit)

Subsidies can also be obtained through Employment Agency (Agentur für Arbeit) by recipients of unemployment benefit (Arbeitslosengeld I/II) wishing to set up a business:

- Start-up subsidy (Gründungszuschuss)

- Initial financial support for people setting up a business (Einstiegsgeld)

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- Sponsorship for advisory services (Beratungsförderung)

- Sponsorship for advisory services for start-ups: Gründercoaching Deutschland

- Centers for founders of a business (Gründerzentren)

- Assistance provided by German MFIs

- Networks: several local, regional and national networks for founders of SMEs offer broad information, qualification, personal advice and coaching for people who plan to set up a business, contacts to capital investors and customers, exchange of experience etc.


- Legislation restricts lending activities to banks only

- General corporate and trade law rules (such as German Limited Liability Company Act (GmbH-Gesetz) and German Trade Code (Handelsgesetzbuch) and general tax laws (in particular the German Trade Tax Act (Gewerbesteuergesetz), Corporate Income Tax Act (Körperschaftsteuergesetz) and Income Tax Act (Einkommensteuergesetz), and Valued Added Tax Act (Umsatzsteuergesetz) apply in the same way to self-employment and microenterprises


- A key role to promote microcredit in Germany is played by promotional banks (KfW Mittelstandsbank being the most active actor) at federal and regional (“Länder”) level. KfW Mittelstandsbank is a state-owned promotional bank. It does not, in general, directly grant microloans, but it gives funds to house banks which arrange credits and on-lend funds to borrowers. Thus, first contact for applicants for microloans is always their house bank. Similar promotional banks exist in each of the 16 “Länder”.

- KfW Mittelstandsbank, Federal Ministry of Economy and Technology, Federal Ministry of Labor and Social Affairs and GLS Gemeinschaftsbank e.G. created Microfinance Fund Germany (Mikrofinanzfonds Deutschland) to provide capital for micro-lending and acquire and manage capital used for lending. Technically, loans are still granted by applicant's house bank which has been elected for cooperation and has to execute a cooperation agreement with the Fund. Amount of loans must not exceed €10,000; loans have a term of approximately 2 years. Microfinance Fund Germany exempts lending banks from all credit risks and

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covers losses in cases of an event of default. As remuneration for coverage of credit risk, i.e. guarantee given by Fund, the house bank has to pay a commission which currently amounts to 5% p.a. This commission is paid out of interest paid by borrowers. Current interest rate is 10% (5% for “Mikrofinanzfonds Deutschland”, 5% for co-operating bank).

- German non bank microcredit providers accredited by the German Microfinance Institute (Deutsches Mikrofinanz Institut e.V - DMI) are not comparable to international MFIs which are mostly licensed credit institutions and grant credits themselves. German MFIs do not grant loans since they do not hold necessary license for such banking business: loans are granted by "house banks" instead. DMI-MFIs act as intermediaries between borrower’s (start-up’s / microenterprises) and banks:

consultancy & technical support for borrowers

preparation of loan application (via DMI-Software) and collection of all necessary documents

forwarding loan application & recommendation of loan delivery to co-operating bank (GLS Bank; Sparkasse Offenbach (saving bank); Volksbank Villingen-Schwenningen (cooperative bank)

provision of risk capital (20% of yearly loan portfolio agreed with “Mikrofinanzfonds Deutschland”)

loan monitoring & further (non-financial) support

crisis management & liquidation of securities

participation at DMI-Benchmarking as an instrument for transparency to funders / sponsors and exchange of results between microfinance practitioners is compulsory for DMI-MFI’s.

- Several other semi-public and private schemes providing microcredit exist often in form of co-operations between regional business support institutions, regional authorities and regional banks (“Sparkassen” and “Volks- und Raiffeisenbanken”).

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Public sector funds on regional, national and European level


Microfinance Fund Germany can theoretically reach financial sustainability and operational autonomy. Since liability of regional MFIs to cover credit losses is capped to 20%, capital of Microfinance Fund Germany would only be diminished if default rate in loan portfolio exceeded 20%. If default rate of credits is between 10% and 20%, capital of Microfinance Fund Germany would remain stable, but regional MFIs would produce losses. If default rate of credits was below 10%, capital in Microfinance Fund Germany would stay stable and regional investors would receive a return on their investment.

However, in practice so far non of the DMI members issuing loans covers operational lending costs (please see the following example):

average loan amount: 7.000 Euro

maximum gratification 10% (no loan default): 700 Euro

actual gratification / deduction of average loan default 6,5%: 245 Euro

average credit period: 24 months

result: 122,50 Euro / loan / per year for technical assistance loan application and ongoing support

MFI’s put in a claim to receive processing fees similar to banks (Example: Housebank will receive a processing fee of 1.000 Euro for public loan programme “KfW StartGeld”).


The rule of "significant disproportion" of interest rate which is designed to protect weak borrowers from lenders who exploit their economic weakness which is applicable to consumer loans does not appear, for the time being, to hinder the development of microcredit

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Tax incentives - For trade tax purposes a tax allowance in amount of €24,500 applies to individuals and partnerships

- Small and medium-sized enterprises can be subject to special appreciation rules: taxable profit may be decreased in certain years to a large extent

- Entrepreneurs with turnovers in preceding business year below €17,500 and with expected turnovers of below €50,000 within the current year can opt not to be subject to VAT


- German banks operating as "house banks" have access to guarantee schemes provided by guarantee banks in each of the 16 “Länder” if they provide microcredits in the framework of established programmes to promote microcredits, e.g.:

- KfW Mittelstandsbank-programmes "KfW-Startgeld" provide default guarantees of 80% of loans

- Microfinance Fund Germany exempts the co-operating bank of local MFI 100% from all liability (e.g. GLS Bank, Sparkasse Offenbach, Volksbank Nürtingen-Schwenningen – other local banks will follow)

- Regional promotional programs: similar guarantees are available and generally assume around 70-80% of credit liability. For instance, Bavarian development bank LfA Förderbank Bayern combines its start-up program "Startkredit" with option "HaftungPlus" which releases relevant house bank from 70% of its liability

Existence of database recording credit history

Access for non-bank microcredit providers to such databases

Several credit bureaus that record credit history (Schufa-database, Creditreform) are managed by private entities and aim either at profits or at sharing information between members of such entities on cooperative basis. However, individual's consent is required prior to communication of any information.

Access to information, in general, is only permitted to costumers of those databases who, in return, oblige themselves to file all information they gather in their course of business with database.

However, most of these databases grant access to information recorded therein to third parties for a certain fee if relevant individual has consented to a release of such information to third parties.

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Each individual may access information recorded on itself and convey them to non-bank MFI.

Obligation for microcredit institutions to provide their borrowers' credit history to such databases

No, but can be organised by contract.


1) The German Microfinance Institute DMI plays a key role in the Microfinance Fund. It is a private law, non-profit association whose members are mainly start-up advisory centres, financial institutions, public agencies and other associations tasked with promoting economical development. The aim of German Microfinance Institute is to collect knowledge and gain experience in the field of microfinance so as to establish a microfinance sector in Germany.

The German Microfinance Institute trains and accredits so-called Microfinance Institutions (Mikrofinanzierer) which provide both support and financing-related services. MFIs (usually, start-up advisory centres, economic development organizations, local authority entities or consulting companies after having received necessary training and accreditation by German Microfinance Institute) identify valuable business ideas, advise potential borrowers in their plans, analyse credit applications and recommend to banks to grant loans.

MFIs are also involved in servicing of loans; MFIs bear risks of loans recommended by them and have to indemnify Microfinance Fund Germany if it has to cover losses. However, if borrowers do not default, MFIs receive a bonus of 10% of capital repayments of loan. This means that if default rate of loans promoted by MFIs is below 10%, MFIs realize profits. This mechanism works as an incentive for MFIs to thoroughly check ideas and projects which they intend to recommend.

2) In the last years KfW has organised several meetings and workshops bringing together all relevant players in the field of microfinance in Germany to discuss development and problems.

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Suggested measures to improve existing framework/ create a new framework (as applicable) for microenterprises and microcredit

For microcredit:

- Improve Scale and Efficiency of MFIs: the number of loans issued through all DMI members is limited – it was below 200 in 2006 and possibly around 200 in 2007. Through MFIs’ eyes risk/return-ratio is inappropriate (lack of programmes for capacity building / to finance start-up of MFIs; low gratification / lack of processing fees, but 20% risk assuming). So finding federal / regional / local funding sources for the development of MFI’s has high priority for DMI and MFIs and is very power consuming.

- Promote cooperation with banks

- Link the funding for refinancing and operational costs. With regard to public funding, there is often a separation of funding between operational and refinancing costs. Only focusing on one and neglecting the other leads to a distorted allocation of money within the organisation.

- Enable funding options for private investors. For private donors it is often hard to fund microfinance providers, which do not possess a charitable (dt.: gemeinnützig) status. Donors therefore can not necessary claim these costs. In the view of increasing corporate social responsibility, tax laws should be improved and private funding to microfinance institutions should be deductible.

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JURISDICTION SUMMARY: HUNGARY

Source: EMN with HMN; Microfinance Market Study by MFC for CEE and NIS


- Sole proprietorship

- Limited partnership

- General partnership

- Limited liability company


In 2007 several laws have been passed in the frame of the „Tuned to Business” programme of the Ministry of Economy that aims at easing administrative burdens for setting up a business and to improve the operational conditions of enterprises within the frames of the convergence programme: possibility of online registration; reduced registration fee; procedure time: 8-15 working days


Supporting developments that create jobs: In the call for application the employment organisation stressed that enterprises operating in socially and economically disadvantaged areas should have supplementary support for the sake of new jobs.

Support of keeping jobs: The non-returnable grant given to the employer may range from 25 to 75 % of the added amount of wages and contributions of the relevant employee. In 2006 this support enabled nearly 7,400 employees, who would have otherwise got redundant, to keep their jobs.

Payment of contributions instead of employers who employ formerly unemployed people: This support is to urge the employment of job-seekers by paying the employer’s expenses relating employment (medical and social insurance contributions, employer’s contribution and health care contribution) in part or total.

Supporting the process of becoming an entrepreneur: the support enables unemployed people who become entrepreneurs to finance their social security contributions. In 2006 approximately 2,700 people received grants supporting the process of their becoming entrepreneurs, which is 658 less (i.e. 19.4% less) than in the previous year.

Support of self-employment specifically for job-seekers: this support can be given to job-seekers to whom the employment centre could not offer a suitable job and who undertake to employ themselves - by starting or joining a business -, furthermore they have the initial funds to start the

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business - at least 20% of the investment - as well as the necessary financial security for repayment.


- State-owned organisations aiming to develop SMEs (e.g. the Hungarian Development Bank, Creditguarantee, Regional development Holding etc., EXIMbank Corvinus), and support brokerage organisations (MAG Close Corp. etc.), which are established and continuously financed by the state

- Non-profit development agencies (NGOs), which are not founded directly by the state but partly execute state functions as well.

- Chambers (of commerce and industry, agriculture and special fields etc.)

- Entrepreneurial business federations, trade associations: VOSZ, GYOSZ, IPOSZ, KISOSZ, Innovation Association, Association of Business Incubators etc.

- Enterprises providing business-type services (financial institutes, enterprises of property development, consultancy and training etc.)

- The national network of enterprise promotion foundations (LEA network)

Specific laws & regulations applicable to microcredit, self-employment and microfinance

Hungary allows both bank and non-bank MFIs to provide credit to microenterprises. However, non-bank lending is limited. MFIs are legally licensed to disburse credit but not to collect savings. There is no specific law for microcredit; it is regulated in the following laws:

· Act XXXIX/2003 on the modification of Act CXII/1996 about lending institutes and financial enterprises: It defines operational rules and conditions for profit-oriented actors of the financial market. On the basis of Article (1) h. in §2 of the act lending from the National Microcredit Fund of MVA and the microlending activities of the enterprise promotion foundations in the county and the capital city ® are exempt from the action of this law.

· Government Decree No. 2163/2004. (July 5th) to settle the operation of the Microcredit Program, Microcredit System realised by utilizing the rights and Funds relating the revolving regional and national credit funds financed by PHARE, and their connecting credit guarantee funds: It authorizes the Minister of Economy and Transport to practise the owner's rights relating the state-owned Microcredit

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Funds on behalf of the Hungarian Republic. Financial settlement of the funds with the EU has not been accomplished before the preparation of this study.

· Act LXXVI/2007 about the modification of Act XX/2001 on the Hungarian Development Bank: §1 of the law enables MFB to take part in the finance of loans needed for the microlending activities of the Hungarian Enterprise Promotion Foundation and the enterprise promotion foundations in the counties and the capital city on the basis of a government decree.

Other regulations:

The National Microcredit Programme is operated on the basis of the "Microcredit Manual" as approved by the Ministry of Economy and Transport.


Bank microcredit:

- 37 commercial banks: only microenterprises at the very top of band for turnover are drawing don bank credit; banks tend to offer their entrepreneurial loan products more and more often to the micro- and small enterprises creating competition for public funds.

- KAVOSZ Chambers of Commerce: Subsidised Széchenyi Card loans disbursed through commercial banks (OTP, Erste Bank, Volksbank, Inter-Eruope Bank, MKB Bank) and savings institutions

- 169 cooperative credit unions

Non bank microcredit:

- Hungarian Foundation for Enterprise Promotion (MVA) – non-profit organization under the supervision of the Ministry of Economy and Transport: since 2001 national co-ordinator of the National Microcredit Programme and caretaker of the National Microcredit Fund; has changed its name to Hungarian Enterprise Promotion Network Consortium non profit PLC in 2007.

- Foundations: 20 Local Enterprise Agencies (LEAs): exclusive local administrators of the National Microcredit Programme on behalf of PHARE

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- MFIs: Mikrohitel (lends smaller amounts) in cooperation with Autonomia NGO; target group: Roma


- Ministry of Economy and Transport (MET): Microcredit Fund; authority over the National Microcredit Programme

- Hungary Development Bank (MFB): Microcredit Plus Program in co-operation with the Hungarian Enterprise Promotion Network Consortium since 2005

- Hungarian Centre for Economic Development and Subsidy Intermediation Ltd. (MAG Zrt.): created by the Government through merging former subsidy intermediary organizations. MAG Zrt. became a major subsidy intermediary agency responsible for the Economic Development Operational Program financed under the EU Structural Funds.

- Hungarian Enterprise Finance Ltd.: The company was established in 2007 in order to become the holding fund of the JEREMIE programme, using ERDF resources.

- Commercial loans: Microcredit Ltd is a profit-oriented financial enterprise supported by non-profit organisations but it does not collect deposits.

- Soft loans: A microcredit programme called GOP-4 microcredit (named after the Economic Development Operative Program) was issued in late 2007. This resource, coming from EU funds (ERDF), is provided to MFIs and banks by the Hungarian Enterprise Financing Ltd. at a price of 0.5%

- PHARE and government grants within the framework of the National Microcredit Programme

Operational / financial sustainability

Non-bank microfinance institutions (MFIs), either state-sponsored (MVA) or Mikrohitel which operates on half the funds required to break even, lack sustainability.

It seems that LEAs are self-sustainability even with relatively low interest rates, partly due to the fact that LEAs - as non-profit organisations - have tax allowances, operate in a national network and run other business development programmes that cover a part of the costs (counselling, training, business incubators etc.).

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There is no interest cap in Hungary.

Between 1992 and 2007 the interest rates in the National Microcredit Programme were equal to the respective base interest rate of the central bank.

Non-LEA microfinance institutes realised a higher interest but their volume both in clientele and dispersed loans is low.

The interest rate of the GOP-4 microcredit programme issued late 2007 has an upper limit: that is the EU reference interest rate + maximum 2 %-point.

There is the view that there are very few potential enterprises whose financial background and business activities would enable them to realise a significant development from a credit burdened with a high interest and that high interest would result in business failure.

Tax incentives LEAs receive tax and duty allowances on their activities of public utility (as any other foundation does on its activities of public utility).


The State Guarantee Agency (Hitalgarancia) has played a meaningful role in microcredit development. Through partnerships with institutions that provide microcredit, the Guarantee Agency (Hitalgarancia) has helped to mitigate risk and lower credit costs, thereby increasing scale.


Access by non-bank microcredit institutions to such databases

The Bank Supervisory Authority database records borrower defaults for credit institutes.

Non-bank microcredit institutions do not yet have access to such information. The LEAs can rely on the data of their own network and the information from members of the Microcredit Censorship Board.


No obligation

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JEREMIE and the new EU initiative on microcredit

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1. Reduce administrational and taxation burdens - It is currently under preparation to significantly reduce the taxes and contributions payable by enterprises with less than 10 employees from 2009 as a positive result of the convergence programme. A major part of enterprises benefit from a so called Simplified Enterprise Tax (Hungarian acronym EVA), which radically reduced tax burdens and their administration.

2. Provide access to finance for new entrepreneurs - A wide range of the population has little accumulated capital. The financial institutes do not welcome and finance small enterprises willingly due to low profitability and high risk of small loans. lending organisations have a much too “careful” business policy due bore remarkable losses en masse in the early '90s

3. Create a favourable economic environment for microenterprises which promotes growth, encourages entrepreneurs to join the formal economy, and allows access to finance.

4. Improve efficient operation of the enterprise development institution

5. Promote entrepreneurial culture - It significantly hindered the development and efficient operation (or simply the survival) of the enterprises in the sector that the population did not have notable entrepreneurial traditions, experience or knowledge.

For microcredit:

1. Allow microlending by non-banks in order to lower average loan size to reach more microenterprises, single person entrepreneurs and the working poor.

2. Reduce dependence by the national programme on subsidised donor funds for microcredit schemes. This distorts the microlending mechanism and inhibits financial innovation. Subsidised donor programmes should complement, not compete, with private capital to provide small loans otherwise not available.

3. Promote cooperation between banks, government agencies, MFIs and NGOs to optimise the potential of all service providers.

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4. Introduce innovations in IT and information collection. This will enable commercial banks to downscale their lending activities by simplifying procedures and MFIs to deliver credit on a large scale.

5. Where public funds are being disbursed, there needs to be an active monitoring and evaluation system to ensure accountability and impact measurement.

6. Strengthen the networking of LEAs and facilitate access to GOP 4 funds. Limit resources to one particular microfinance institute in a region proving specific standards and results.

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JURISDICTION SUMMARY: IRELAND

Source: EMN with First Step and intrepid Management Consultants


- sole trader

- partnership

- limited liability company (including partnerships)


Registration, inter alia, for tax purposes

If one wishes to register as a company, the cost c. €150.

To start business in one’s own name, no cost.

In both cases must register with Revenue, with no cost applicable.


- The Irish government provides "back to work schemes" and assists new microenteprises and self-employment with financing of their company. Individuals can return to welfare should business fail.

- First step (MFI) provides access to funding


State funded agencies:

- 35 City Enterprise Boards

- County Enterprise Boards and

- Area Partnership companies


No, other than revenue, planning, labour, health and safety, etc. where applicable.


- Commercial banks: Bank of Ireland, AIB Bank, Ulster Bank (RBS)

- One MFI operating nationally in Ireland: First Step Microfinance

- Approximately 500 independent local credit unions, however such

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entities are only authorized to lend to consumers (not for business purposes)

Sources of funding for non-bank microcredit providers

Loans from a joint body set up by banking community (The Social Finance Fund), and from Enterprise Ireland (State body which assists start up and development of businesses).

Do non-bank microcredit institutes achieve operational / financial autonomy?

First Step operates autonomously: rates set on loans do not allow sustainability and other revenue streams are developed to insure sustainability.


No interest caps: interest rates are set by financial institutions in consultation with the Financial Regulator.

First Step sets its rate below this benchmark.

Tax incentives - Thresholds for VAT returns and year end reporting based on business size exist in relation to setting up of a business.

- First Step has a specific "charitable status" and is only subject to VAT. First Step is not subject to Corporation taxes.

- Individuals and corporations which donate funds to First Step can benefit to extent of 20% relief on amounts donated up to €100,000 per year.

Access to guarantee schemes for banks and non-bank microcredit institutions

First Step has access to guarantees provided by banking community fund (please see Section "Sources of funding") and by European Investment Fund.


Access by non- bank microcredit institutions to

Irish Credit Bureau

MFIs can access such information if they are members of Irish Credit Bureau.

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such databases


Only if MFI is member of Irish Credit Bureau


Initiatives of Financial Regulator to regulate microcredit, self-employment and microenterprises

Creation of Enterprise Ireland

Suggested measures to improve existing framework/create a new framework for microcredit and microenterprises


Implement stringent business regulatory and compliance issues.

For microcredit:

N.A.

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JURISDICTION SUMMARY: ITALY

Source: Latham & Watkins Milan; EMN and micro.bo


Two categories of vehicles are available:

- “società di persone” (similar to partnership), which encompasses: “società semplice”, “società in nome collettivo” and “società in accomandita semplice” and

- “società di capitali” (similar to business corporation), which includes: “società per azioni", "società in accomandita per azioni" and "società a responsabilità limitata”

Corporate forms most likely to be used for microenterprises are the “società di persone”

Italian law does not provide for a general legal framework concerning self-employment and microenterprises. However, there are some legal instruments that specifically relate to and regulate the assistance and promotion of self-employment and microenterprises.

In this respect Legislative Decree No. 185 of 21 April 2000 (the "Decree") introduced incentives to facilitate creation and development of enterprises and self-employment in certain geographical areas and with regard to specific groups of people.

Pursuant to the Decree, the microenterprises must:

- be a newly set up "società di persone" (exclusion of joint stock corporations and limited liability companies)

- not pursue mutualism

- have its registered office is within economic disadvantaged areas identified by European Union

- be composed of unemployed adults resident in disadvantaged economic areas and

- pursue a project in area of production of goods and service sectors

If all criteria set up by Decree are met, the microenterprises can be an eligible beneficiary of non-repayable grants, subsidized loans for investments and grants for operating expenses

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Approximate cost of a public notary to set up a “società di persone”: €2,000 (whereas public notary costs to set up a “società di capitali” are in average double)

Minimum capital requirements exist for the two following forms of “società di capitali”:

- €120,000 for “Società per azioni”

- €10,000 for “società a responsabilità limitata”

No minimum capital requirement for "società in accomandita per azioni" or for any corporate form of “società di persone”


Those persons who carry out a self-employed activity - which had been started prior to the termination of the employment relationship - can be eligible to unemployment benefits.

Otherwise, unemployment benefits may be granted only if the self-employed activity is not carried out on a continuous basis


Business development centers are the result of the collaboration among regional and local public institutions, usually jointly with the private sector (i.e., Business Associations, Chambers of Commerce, local banks and individual enterprises etc.)

Furthermore, private companies, universities, Agenzia nazionale per l’attrazione d’investimenti e lo sviluppo d’impresa S.p.A. and some Italian local public entities provide "business incubators" to assist new businesses in their start-up phase (services provided against remuneration or free of charge depending on provider)

With regard to the Decree (please see Section "Types of institutions providing MC"), Agenzia nazionale per l’attrazione d’investimenti e lo sviluppo d’impresa S.p.A. - a financial intermediary wholly owned by and under control and surveillance of Ministry of Economy - is in charge of the applications' review process, the granting of credit facilities and the subsequent monitoring phase. If all criteria set up by Decree are met, microentreprises can benefit from technical assistance in investment realization

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Other measures Employees (with a seniority of at least 1 year) dismissed in the context of a mass redundancy who intend to start a self-employed activity (or to develop on a full-time basis a self-employed activity already started during their previous employment) can obtain an advance payment of their unemployment indemnity by presenting a special request to National Social Security Institute together with the documents proving the start-up of an independent activity


Tax incentives to support microenterprises and self-employment (please see Section "Tax Incentives")

No general legal framework concerning self-employment and microenterprises (however, please see the Decree in Section "Types of vehicles available for microenterprises and self-employment ")

No specific national legislation or regulations on microcredit


- Cooperative banks: Banca Popolare Etica, Banca Popolare Pugliese, Banca Popolare di Ancona, Banche di credito cooperativo, Banca di Credito Cooperativo di Roma, Credito Cooperativo Ravennate e Imolese; Banca di Bologna

- Financial intermediaries (pursuant to Article 106 of the Italian Banking Act): Mag2 Finance s.c.ar.l. (Mutue di Auto Gestione- MAG), Mag6 Società Cooperativa

- NGOs in partnership with banks: micro.bo, Caritas Italiana, Microcredito di Solidarietà S.p.A., Agenzia nazionale per l’attrazione d’investimenti e lo sviluppo d’impresa S.p.A.

- Foundations: please note that most do not - and are not allowed to - provide microcredit. However, they provide the funds that guarantee the institutions providing microcredit. Fondazione di Venezia; Terre in Valigia; Fondazione San Carlo; Fondazione Field; Fondazione Antiusura Iteresse Uomo; Fondazione La Casa; Compagnia di San Paolo

- Commercial banks: Banca del Piemonte, Banca Monte dei Paschi di Siena, Intesa San Paolo, etc.

- Specialised microcredit bank: Banca Prossima (established by Intesa San Paolo)

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- Governmental, regional sources of funding

- Private sources (foundations)

- European sources


The cooperatives Società Mutua per l’Autogestione that provide microcredit (i.e., the financial intermediaries Mag2 Finance s.c.ar.l. and Mag6 Società Cooperativa) appear to have achieved operational and financial autonomy


Yes: pursuant to Law No. 108 of 7 March 1996, the Bank of Italy publishes every three months the interest rate caps for macro-categories of financial operations. An interest rate higher than the interest rate cap is in breach anti-usury

Legal interest caps cannot exceed the double of the average market interest rate identified on a quarterly basis by the Italian Exchange Office (Ufficio Italiano Cambio)

Tax incentives - "Tax regime for new business activity and self-employment" In the fiscal year during which business activity begins and for the two following years, net profit carried out by a natural person is subject to a flat 10% rate of a "substitutive tax" if the revenues do not exceed €30,987 per year. Furthermore, the ordinary accountancy rules and obligations do not generally apply when this tax regime is applied. As mentioned, this regime is "temporary" (i.e., applicable only in the first three-year period at most)

- "Tax regime for lowest taxpayers" applicable to self-employed natural persons provided that:

annual revenues do not exceed €30,000 per year

no employees and

instrumental material assets purchased in previous three years do not exceed €15,000

- The net profit, calculated on “cash” basis (in place of the “accrual” one) is, inter alia, liable to a flat 20% substitutive tax rate. VAT is not charged on the invoices issued (and, thus, the VAT exposed in

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the invoices received is not deductible).


- Yes: a guarantee fund for small and medium enterprises - expressly applicable to micro-enterprises - is managed by Mediocredito Centrale S.p.A. (the "Central Guarantee Fund"). Banks and Financial Intermediaries (Article 107 of the Italian Banking Act) can request to be guaranteed by the Central Guarantee Fund when the final beneficiaries are enterprises that satisfy specific requirements or fall within certain categories.

- Nation-wide mutual guarantee scheme for the craft sector, industrial and commercial micro-enterprises: CONFIDI

- BIC Lazio is an agency that manages a guarantee fund of €3.5 million established by Regione Lazio to support lending from €5,000 to €20,000.

- Compania de San Paolo has created a guarantee fund to secure the banks that lend in the projects of the foundation.


Various databases exist:

A) the "Centrale dei Rischi" database managed by the Bank of Italy and the "Centrale Rischi di Importo Contenuto" database managed by SIA-SSB (each a "Database")

Subject to specific provisions being met, the following entities must communicate to the to the competent Database its risk position towards a client:

- banks

- companies belonging to a banking group

- banking, financial and instrumental companies at least 20% of whose capital is held by companies belonging to a banking group or by an individual bank and

- financial intermediaries (Article 107 of the Italian Banking Act)

(each an Information Provider)

B) the "Sistemi di Informazione Creditizia" managed by private entities (the "Private Databases")

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Access for non-bank microcredit providers to such databases

The following entities provide information to the Private Databases:

- banks

- financial brokers

- other private entities that, in the exercise of commercial and/or professional activities, grant an extension for the payment related to the supply of goods and/or services

(each a Participant)

MFIs may access such databases provided that it can be qualified as "Information Provider" or "Participant" under Italian law


With regard to each Database in A) and the Private Databases in B) above, only if the non-bank microcredit institution is respectively an Information Provider or a Participant.


- Legislative Decree No. 185 of 21 April 2000 (please see Section "Types of vehicles available for microenterprises and self-employment")

- On 31 July 2007, the Ministry of Interior and, inter alia, Bank of Italy, Italian Banking Association, National Association of Italian Municipalities and Confederation of Italian Industry entered into a framework agreement in which they undertake to, inter alia, increase microcredit use

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- Reduce costs and simplify procedures for setting up microenterprises

- Promote business incubators and professional support

- Absence of simplified status to set up microenterprises

For microcredit:

- Soften regulatory requirements for non-banking institutions engaged in microcredit as their principal/exclusive activity. The current status of Italian law foresees that only Financial Intermediaries – which are subject to, inter alia, strict patrimonial requirements and to prudential supervision – are allowed to grant microcredit

- Establish a uniform and commonly agreed definition of microcredit

- Implement regulation for microcredit

- Implement tax incentives for individuals/corporations that invest in MFIs and promote and support guarantee funds accessible to those institutions that meet defined standards of governance, proficiency, transparency and accountability

- Set up a network of institutions involved in the Italian microcredit sector in order to support the activity of Microfinance Committee and to develop further activities

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JURISDICTION SUMMARY: THE NETHERLANDS

Source: EMN with TriodosFacet; Microfinance Market Study by SEON foundation


- Registration of a private company in various legal forms

- Registration as self-employed without personnel (ZZP - Zelfstandige zonder personeel)

- Registration as a private, self employed (vrij beroep)


Registration has to be made with the Chamber of Commerce, with the Fiscal Authorities (VAT number, status of self-employed or entrepreneur).

Fees for registration (annual) are based on the number of employees.

Absence of simplified status for microentreprises. They fall in the same category as small enterprises employed (ZZP) or self-employed.

There are no one-stop centres. However in some municipalities there are so called “enterprise centres” where some business development services are jointly offered.

Political decision makers try to tackle this issue in a more structural way by promoting and/or stimulating collaboration between specialised services providers.


There are two special phenomena:

- Unemployed persons who depend on minimum social welfare (Bijstand) and who are eligible for assistance to start one’s own business under a special programme (BBZ) may receive income support in the starting phase for a maximum period of 18 months. The decision is taken by the Municipality on a case-by-case basis. This is not specific for micro-enterprises. Under the responsibility of the Ministry for Social Affairs and Employment a pilot programme is underway to open this facility for any person on social welfare.

- In theory the ZZPer (Zelfstandige zonder personeel) - Self-employed without personnel - retains built-up social welfare entitlements if his/her venture fails within 3 years; the other entrepreneurs have no rights on social welfare.

Once a person registers with the Chamber of Commerce he/she looses his/her social welfare status and generated income is deducted from the

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social benefits.


A number of options exists (all with relative limited effects in numbers reached):

- Persons in the BBZ programme (see above) have the possibility to receive counselling and advisory services in the preparatory stage. These services are rendered by private business development service providers; most of them operate on a modest scale at local level. There is only one network organisation (IMK) that operates nation-wide; payment for these services is attractive for individual advisers/ consultants not for companies

- In the pilot programme of the Ministry for Social Affairs and Employment this facility is for any person on social welfare.

- There are various projects funded mainly under EU/ Equal/ D2 or similar programmes (and or by local authorities) that make it possible to offer – temporarily! – business development services, in many cases targeted at special groups of socially excluded persons. Payments are often similar to those under aforementioned projects.

- There exist various networks of volunteers (retired business persons) that offer ad-hoc business development advisory services; some of them such as Ondernemersklankbord have a more permanent character; those volunteer groups are quite accessible for socially excluded.

- There are limited experiments by private organisations (such as Hands On) that recently launched business development services linked to credit / finance programmes; those services again are rendered by volunteers (some of whom even contribute in cash to such programmes).

- Upcoming are the special interest groups that organise business development service rendering amongst the members by the members (sometimes with ad hoc funding by local authorities); see for instance Zwarte Zaken Vrouwen Network (ZZVN); it is doubtful whether they reach the socially excluded

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Specific laws & regulations applicable to microcredit, microenterprises and self-employment

There is no specific legislation on microcredit, but for credit and savings mobilisation. As soon as a private organisation wants to take savings or deposits it has to adhere to all laws and regulations in this field and needs an operating license either from the Dutch National Bank (DNB) or the Authority of Financial Markets (AFM).

The national Advisory Council in Microfinance in the Netherlands will present an advise on Legislation and regulations for Microfinance (institutions and users) by October 2008. The Centre of Microfinancing of the University of Applied sciences INHOLLAND will undertake a special research on this topic. The results of this research will be used by the Council. This research will be based on the best practices on Microfinance from the Southern- and European countries.

A generally accepted definition for microcredit does not exist in the Netherlands; however the limit for microcredit is sometimes set at 35.000€.


- Government: BBZ programme (see above)

- Commercial banks: the most popular form of credit is the overdraft facility:

- Fortis Bank has started a microfinance project and channelled a small amount of its own funds (€100.000) in that project (CSR);

- Some of the Gemeentelijke Krediet Banken (Municipal Credit Banks) started in 2007 to develop special facilities for micro borrowers (amounts not yet known);

- Rabobank cooperative bank operates de facto as a general bank.

- Few private organisations exist that are specialised in and dedicated to providing microloans. Only recently such initiatives are deploying: i.e. SEON, Hands On, Start Smart.

Upcoming but not yet visible are small savings/ credit groups set up by migrant groups; no regulation yet for this.

Sources of funding for non bank microcredit institutions

- Commercial loans: banks

- Equity investments: banks and equity funds

- Soft loans: mainly with funds from the Ministry of Social Affairs and Employment, sometimes on limited scale with own funds

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- Subsidies and donations from:

- National person - ad hoc

- Private institution - various donor organisations such as VSB Fonds, Start Foundation, DOEN Foundation

- European sources: Equal/ESF/ etc

There are no public sources.


This will require a change in mind-setting.


There is no interest cap on commercial loans/ investment loans, but central bank discount rates, open and transparent market and competition clearly determine the rates.

Since January 2006 there is a law on financial services for consumer loans. Per January 2007 maximum rate to be charged on top of the discount rate is 18%.

There has been a serious debate about the level of the interest rates that could be charged on consumer credit especially by mail order firms. It is felt socially unacceptable to leave this rate free.

Tax incentives There is no specific tax exoneration for microcredit but several for small enterprises: i.e.:

- exemption from paying VAT if the amount to be paid is limited (less than Euro 1345);

- extra tax reduction in the first year of operation of the business;

- tax incentive for individuals lending to relatives of friends up to € 40.000 (Tante Agaath facility);

There are three tax facilities for individuals investing in risk capital either directly or through certain registered organisations.

Access to guarantee

- There are no special guarantee schemes in support of microfinance

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schemes for banks and non bank institutions providing microcredit

(institutions/ lending programmes).

- Banks have access to a national Guarantee facility in support of lending to SME: BBMKB, an unfunded scheme, with ex-post evaluations, offering 50% coverage on a supplementary basis, mainly above €25.000. Most beneficiaries are SMEs already in existence for several years and guaranteed loans amounts are often beyond €100.000. Although it has often been argued that the scheme could also be used for micro borrowers its present procedures are not yet adequate to do so. The Council for Microfinance therefore proposed the Government to amend procedure and/or introduce an adjusted guarantee scheme for micro credit.

- A pilot is underway in Rotterdam, Leeuwarden and Lelystad under guidance of the Ministry for Social Affairs and Employment whereby the BBMKB facility is opened up to banks who lend to persons depending on social welfare who start a new business with external funds (loans from those banks) – guarantees for loans up to €31.000 with average of €22.000.

- Private guarantee funds such as the SEON fund for minorities and women (guarantees up to € 16.000).

- The deposit guarantee scheme of De Nederlandsche Bank (DNB) to protect private individuals and small businesses having deposits (up to €20.000) with a bank that is under the supervision of DNB.


Access for non bank microcredit institutions to such databases

The Bureau Krediet Registration BKR in Tiel is a credit reference bureau accessible to all banks.

Only members (banks but also a number of other institutions) have access to the information of BKR; individuals have to request the personal data of BKR through their own bank.

Obligation for non bank microcredit institutions to provide their borrowers' credit history to such

No obligation

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databases


National level:

In 2007 the National Advisory Council on Microfinance in the Netherlands presented its first policy recommendation to the Netherlands Government. This advice was taken over by the Government and is now being implemented.

In this advice, the Council presents an approach for the Dutch situation based on relevant experience gained inside as well as outside the Netherlands. The approach proposed consists of three interrelated components:

1. Promotion and distribution of the services by local microfinance initiatives: these are existing or new organisations from which (potential) entrepreneurs may obtain information, advice as well as specific types of business support. On a local level, they also make people more aware of available microfinance opportunities. For example, they can make use of scouts from local communities to actively approach target groups.

2. Coaching by a network of trained volunteers and professionals: Coaches may be members of national networks but will also often have a permanent home base with a local initiative, due to the culture of the specific target group and the individual perspective adopted by specific local initiatives.

3. Simplified access to financial assistance is realised via a guarantee fund, a screening system and agreements with parties providing the funds. The four large banks have promised to also participate collectively in this financial assistance model, at least for 2008.

The Council is of the opinion that these three components should be brought together in a kind of franchise model. In this model, elements for which benefits of scale are important are structured in a centralised fashion; this includes marketing, administrative processing of funding requests, and contact with national government bodies. The local initiatives should be given ample opportunity to develop their own profile for their own target groups.

The Council proposes the implementation of a franchise system in order to benefit optimally from the expertise and networks of established organisations such as Ondernemershuizen (Dutch Entrepreneurial Centres) and Chambers of Commerce as well as other microfinance

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initiative. In this scenario, the local organisations enter into an agreement with a (small) national project organisation. As a result, they can display the franchise label and make use of the support services offered, thereby guaranteeing a nationally set minimum level of services for the target group. It should be noted that the franchise concept proposed here does not mean that the participating organizations contribute to financially supporting the national organization.

European level:

Parties in The Netherlands are awaiting what the EU Microfinance Initiative will bring; the official reaction will be submitted in the course of the months March/ April 2008.

Suggested measures to improve existing framework /create a framework (as applicable) for microcredit and microenterprises


- Build up the capacity of Business Development Services such as mentoring and coaching

- Extend the outreach of public programmes; do not only focus on persons receiving social welfare benefits

- Better inform potential entrepreneurs about the possibilities of microfinance for self-employment and entrepreneurship

For microcredit:

- Increase the scope and outreach of private MFIs: only 200 microcredits are yearly issued by specific projects undertaken by non financial institutions and banks. This is a rather poor result as about 20 non financial institutions supply microcredit and at least 10 non-commercial business development organisations are active

- Incite more banks to enter the sector

- Inform practitioners about the fact that lending by private non-banking organisations is allowed by the central bank

- Assess the actual demand for micro-credit before starting a microfinance initiative

- Decide whether it is still wise to invest in building up traditional Microfinance Institutions or focus on designing and introducing innovative credit delivery mechanisms such as the recently launched BizNer Bank or the Booper, both operating on the internet with

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extremely low costs and short processing times.

JURISDICTION SUMMARY: POLAND

Sources: EMN based on Microfinance Market Study in Poland by MFC


Limited liability companies

Joint-stock companies


According to experts, efforts have been made to shorten registration procedures. In 2006, the average duration was between 30 and 60 days, which was considered as acceptable. Apparently, costs for setting up are still very high.


- Polish Agency for Enterprise Development - governmental agency under authority of Ministry of Economy which allocates grants to regional funds

- Regional Financing Institutions which act as partners of Polish Agency for Enterprise Development

- Non-bank MFIs: Fundusz Mikro, Rural Development Foundation, FDPA, Inicjatywa Mikro (see “Types of institutions providing microcredit”)

Local development initiatives to support the creation and survival of micro-enterprises and self-employment are widespread in the country through the establishment of “Micro-credit Loans Funds” put in place by public authorities (regional). There were 76 loan funds in 2003, but with large regional difference and no strong interconnections.

There is apparently no coherent national strategy for the improvement of the financial support for micro-enterprises and no national programme focusing on fostering self-employment for socially excluded people.


The National SME Services Network consists of 180 cooperating outlets in 190 localisations in Poland. This network consists primarily of regional and local development agencies, business support centres,

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chambers of industry and commerce, and local non-profit foundations and associations, which render various services directly to small business sector.

The Consultation Centres (PK) function as first-contact institutions for small and medium-sized enterprises. In 2007 around 190 were in service.

Development services to help socially excluded people remains weak if not non-existent (strategic orientation toward business generating cash flow).


There is no special legal regulation for micro-finance providers.

The existing regulation, although it does not support directly microfinance, establishes an environment in which it is relatively easy to create microcredit institutions, and in which they can conduct their activities. The legal base for conducting business activities is regulated by the Freedom of Business Activity Act, which specifies the principles for undertaking and conducting business activities in Poland. As a general rule specified in Art. 6 of the Freedom of Business Activity Act, anyone is free and permitted to undertake and pursue business activity under equal rights, subject to conditions set forth by law.

The requirements to set-up a micro-loan fund are as follows (which apply for micro-credit funds supported by public resources). According to its statue the fund has to operate not-profit or allocate the profit for its statutory goal. The micro-loan fund is a legal entity, which, by resolution of a relevant body, sets up a separate block of finance to grant loans to micro and small sized enterprises. The amount of any loan given cannot exceed 120 000 zloty (app. EUR 30 000). Loans shall not be provided to enterprises in difficulty within the meaning of the Community Guidelines on State aid for rescuing and restructuring firms in difficulty (O.J. C 288, 9.10.1999). Finally, a risk assessment must be carried out.

Credit Unions – SKOK – operate under special legislation for credit unions. The legislation is very favourable and contributed to the very fast development and growth of SKOKs in Poland.


- Commercial banks: PKO BP, Cooperative Banks, Pekao SA and BPH (largest providers)

- Credit Unions: SKOK (Krajowa Spółdzielcza Kasa Oszczednosciowo - Kredytowa / National Association of

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Cooperative Savigs and Credit Unions) – mainly focussing on consumption credit

- Non bank MFIs (registered as limited liability company): Fundusz Mikro, Inicjatywa Mikro Sp.z o.o., FWW (Fundacja Wspierania Wsi -Rural Development Foundation), Fundacja na Rzecz Rozwoju Polskiego Rolnictwa (Foundation for the Development of Polish Agriculture - FDPA)

- Polish Association of Loan Funds (Polskie Stowarzyszenie Funduszy Pożyczkowych) represents interests of such Funds from all over Poland on national level and supports their activities to develop microenterprises. However, their outreach is very limited.


- Government sources, inter alia, regional government

- Private funds

- International (World Council of Credit Unions, USAID) and European sources (ESF, EIF, ERDF)


Only Fundusz Mikro has achieved financial and operational sustainability.


Yes, "Anti Usury Act" applies to non-bank MFIs

Tax incentives None


Guarantee Funds for SMEs financed from Sectoral Operational Programme “Improvement of Enterprise Competitiveness” realised by Polish Agency for Enterprise Development. Over 50 guarantee funds operate on territory of Poland (e.g. 4,743 guarantees provided in 2006). 87% of these loans were provided by banks and 10% from Loan Funds. Over 70% of guarantees were provided to SMEs.

Data protection rules

No information available

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Access by non bank microcredit providers to such databases


In 2002 a national government programme to build an integrated system of regional and local financial institutions for SMEs, was launched (Capital for Entrepreneurs).

Suggested measures to improve existing / create a new framework (as applicable) for microenterprises and microcredit


- Improve knowledge of potential entrepreneurs about microcredit and microenterprise finance providers

- Promote access to finance for microenterprises

For microcredit:

- Authorise non bank MFIs to use a short and effective procedure in acquiring the legal title to collect debts

- Allow tax exemption for non bank MFIs

- Abolish interest rate cap

- Improve accounting regulations concerning principles of loan loss reserves; allow MFIs to treat their loan loss reserves as a cost

- Reduce taxes that have to be paid by Polish MFIs on the interest they remit to foreign lenders (now: 20%).

- Ensure better geographic coverage of microcredit providers, in particular in those areas where demand is highest

- Promote cooperation between banks, non-bank MFIs, government agencies and support institutions to ensure maximum leverage; stimulate innovation in product development and delivery channels to provide microcredit to un-served segments

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JURISDICTION SUMMARY: PORTUGAL

Source: EMN with ANDC


During the past two years some measures have been implemented in order to make the process of starting up a small company easier, faster and less bureaucratic.

“Empresa na Hora” (“on the spot firm”) desks have been set up: they allow the whole process of creating a company to be carried out in one office (one-stop office) and on the same day. This has, in fact, considerably reduced bureaucracy and speeded up the process.

However this is a procedure that has not been widely implemented in microcredit practices.


- One of the main problems for socially excluded persons who would like to create a micro-business or self-employment is the fact that there is no gradual reduction of aid, in other words, once the micro-enterprise is created the proponent looses all social income support he/she was receiving up until that moment.

- Moreover, if the micro-enterprise fails, the micro-entrepreneur will not be eligible for unemployment benefit as are other employed workers.


- With the exception of the support services made available by the charity institutions who work with socially excluded people, there are no specific services for those people, namely in terms of business development.

- IEFP (Employment and Vocational Training Institute) has been trying to implement, through their “Programa Rede” (Network Program), tuition and consultancy actions for small businesses, to take place after start-up. - It is important to point out that this is has no relation to microcredit.


- In Portugal, only banks and financial institutions are allowed to take deposits and/or grant loans and offer other financial products. Institutions such as ANDC, dealing in microcredit, are “forced” to negotiate agreements with banks determining the conditions under which they are prepared to grant microcredit.

- Credit unions, with the exception of Caixa de Crédito Agrícola, are non-existent in Portugal. Caixa de Crédito Agrícola is nowadays, locally, a commercial bank like any other, although it still maintains a certain proximity with the rural and farming populations. The various

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Caixas de Crédito Agrícola are members of Caixa Central de Crédito Agrícola.

- There is no legislation on microcredit or microfinance activities.


- Commercial banks: Millennium bcp (BCP), Banco Espírito Santo (BES), Caixa Geral de Depósitos (CGD) and Montepio Geral. BCP, BES and CGD have agreements with ANDC to provide loans to projects they propose. Montepio has an agreement with Santa Casa da Misericórdia de Lisboa, only for the city of Lisbon. Millennium bcp, in addition to the agreement they have with ANDC, have also set up their own microcredit product, which despite being aimed at those unable to obtain commercial loans, covers a range of people whose level of exclusion is not as serious as those targeted by ANDC.

- Credit unions: The Caixas de Crédito Agrícola are starting, at a local level, partnerships to promote microcredit projects

- Associations in partnership with banks: Associação Nacional de Direito ao Crédito (ANDC), by means of agreements signed with Millennium bcp, BES and CGD.


- Commercial loans: carried out by commercial banks by means of agreements with microcredit institutions (in this case, only ANDC)

- Subsidies and donations: Subsidy from the Ministry of Labour and Social Solidarity (Employment and Vocational Training Institute), proportional to the number of financed initiatives, justified by the fact that, while promoting microcredit, ANDC also promotes employment.

- Aid comes mainly from public sources, although also, to an extent, from private sources. There are no autonomous administrative regions in Portugal and therefore all support is centralized.


This is one of the problems faced by microcredit institutions.

From an operational perspective - because they do not grant loans themselves - they are not able to generate income and are therefore dependent on those who finance them, namely the State.

This support is regulated by agreements signed by the parties involved, which may or may not be renewed, leaving the institutions in a state of great dependency.

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It is not certain that microcredit institutions could be financially independent, even if they could grant loans and practice higher interest rates.

Usury rules (Interest caps)

There is no legislation on this matter.

However, ANDC in its agreements with the financial institutions has defended an interest rate close to Euribor at 90 days plus a 2 to 3% spread, which is similar to that used for home loans.

In the case of the microcredit programme, developed by Millennium, the interest rate applied depends on the risk of the project and is usually around 15%.

There is no evaluation system of the impact of interest rates.

Tax incentives Since there is no legal framework, there are no benefits for microcredit institutions.

The same happens with individuals or companies, since legally there are no microfinance institutions.


Mutual Gurantee Systems are starting to appear and operate in Portugal, making access to financing easier, although they require beneficiaries to become shareholders.

However, for inclusion purposes, there are no guarantee schemes to cover financing of socially excluded people, other than those created by the institutions themselves -such as ANDC- imperative to the agreements signed with financial institutions.

Unlike other countries, there are no institutions whose activity is to guarantee projects in the area of social economy and solidarity.

Existence of a database recording borrowers’ history

Access by non -bank microcredit institutions to such databases

The Bank of Portugal (Central Bank) controls credit information.

Only banks and financial institutions can access this information and only for their clients or potential clients.

ANDC may have access to that information when authorised by potential

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clients.


There is no obligation for non-bank microcredit institutions to provide information on their borrowers’ credit defaults to such institution or database, since in legal terms, microcredit institutions do not exist as financial institutions.


National level:

- The development of microcredit in Portugal has been a slow and difficult process. Over the past three years, especially since the International Year of Microcredit, there has been a greater awareness of this instrument.

- It should be pointed out that the government, through its Employment and Vocational Training Institute, has supported, from the beginning, the activity of Associação Nacional de Direito ao Crédito (ANDC).

- However, besides the support to ANDC’s activity and the interest always shown, so far no significant steps have been taken towards the development and legal framework of microcredit as a financial institution with specific characteristics.

European level:

- On a European level, the reflection that has been promoted in its midst is an important contribution to a greater unity in decision making by member states on this subject.

- The document “Microfinance Community Initiative” is a vital step towards the creation of institutional conditions that match the demands of microcredit development, as an effective instrument to overcome the ever greater market flaws, which can be found even in the most developed countries.

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Suggested measures to improve existing framework/create a framework (as applicable) for microcredit


- Improve access to financing.

- Improve business training and technical support as well as coordination among different organisations involved.

- Implement adequate inclusion policy.

For microcredit:

- Implement legislative framework on microcredit.

- Carry out evaluation studies on impact of microcredit.

- Allow the future microcredit institutions to operationally articulate their needs in terms of the structural and sustainable development of micro entrepreneurship initiatives, with other initiatives developed by local governments, regardless of their nature.

- The lack of appreciation for the risk taken by those suffering from serious social and economic exclusion who take on the responsibility of creating their own employment or small business, particularly the cutting off of social aid after creation of self-employment and the lack of support in case of failure.

- The lack of coherent commitment on the part of governments to include microcredit in the active employment policies, in spite of the references made in various plans (PNAI, for example).

- Reluctance from social institutions, still with a strong “assistentialistic” mindset, to adhere to microcredit as a solution for some exclusion situations.

Sustainability difficulties for organisations and great dependency from public funding.

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JURISDICTION SUMMARY: ROMANIA

Sources: 2 EMN Surveys, Benchmarking Microfinance in Romania 2005 – 2006 Study; Presentation on the Romanian microcredit Scheme


Easiest form to implement microenterprise: limited liability company

Easiest for to implement self employment : authorised physical person

(authorised individual entrepreneur)


- Registration and licensing of MFI as Non-Bank Financial Institutions - Microfinance Companies

- Limited Liability Company: average timeframe for registration is one week (reduced from 8 weeks) and costs related to this procedure amount to approx. €200.

- The registration of the individual entrepreneurs (freelancers, family associations, etc) is de-centralised and takes place at the community fiscal and administrative office; the average time necessary to register is two weeks and the costs are around 50 euros.

- There is a one-stop-shop administrated by the Chamber of Commerce and Industries network and the Trade Register.

- The Ministry of SMEs is testing the new on-line registration system available since fall 2007. This system will further reduce the costs and time necessary for the registration.


There are no provisions or specific financial instruments that accompany less favourable social groups, including unemployed, to be reinserted into economic activities.

On 12 March, 2007 the Government organised the first reunion of the recently set up National Commission for Social Inclusion whose agenda was to discuss mechanisms and procedures for social inclusion of the most un-favourable groups.


There is a well managed Business Development programme implemented through the employment agencies. The unemployed may have access to it. For the other categories there are specific business development programmes but their impact is rather punctual and not sustainable.

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The existing legal framework is recognising the Microfinance Sector as part of the Romanian financial sector. This is due to continuous lobbying effort to make the stakeholders aware of the sector’s main characteristics: efficient financial services with a positive social and development impact.

In less than 2 years the Romanian microfinance sector, passed from not being regulated at all, to the other extreme overregulated.

The most important laws are:

- Government Ordinance no. 40 sets up a framework for licensing of non-bank credit organisations to administer public funds

- Microfinance Companies Law no. 240 creates an favourable environment for MFIs to grow and expand their portfolio of products and support services with micro-loans of up to €25,000

- Government Ordinance no. 28 regulates non-banking financial institutions sector. National Bank of Romania is supervisory authority of all non-bank financial institutions, which include leasing companies, mortgage companies, credit unions and MFIs

- Law no. 300/2004 regarding physical persons and familial associations carrying out economic activities independently

The drafting of the current microfinance legislation was based on general microfinance principles, at the same time taking into account the Romanian legal, economic and cultural background:

- Minimum share capital imposed: 200.000 euros in order to ensure the self-sustainability of microfinance companies and enhance market legitimacy and reputation: By imposing this minimum share capital, microfinance companies are forced to be more efficient in their activities and achieve desired self-sustainability.

- Limited regulatory barriers for market entry of microfinance companies, as “finance-only” entities absence of limitations on foreign ownership, management and sources of capital: This is especially true since the recent European Union integration of Romania and anticipated economic development will most likely determine a decrease or termination of donor granted funds and force current microfinance entities to seek non-donor sources for

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funds on-lent to micro-borrowers.

- Consumer protection by truth-in-lending requirements: (1) protection of borrowers against “abusive” lending and collection practices, and (2) “truth in lending” - providing borrowers with accurate, comparable and transparent information about the cost of loans. This is designed to be an efficient tool to help applicants evaluate the true cost of micro-credit, and this should promote price competition on the microfinance market. Finally, the requirement to disclose interest rates may determine microfinance companies to focus on the necessary steps to increase efficiency and thus lower interest rates.


- Commercial banks;

- Specialised microcredit banks : Pro Credit Bank, Transilvania Bank;

- Credit unions : represented by National Association of Credit Unions (credit unions can only lend to natural persons and cannot receive any deposits);

- Foundations: Centre for Economical Development CDE, a non bank financial institution that administrates currently only the micro-credit lines from World Bank through the Romanian Ministries for micro companies, self-entrepreneurs from the former mining areas , farmers and unemployed;

- Associations: Local or community development projects with micro-credit component developed by local associations with no commercial purpose within a limited location and timeframe, not aimed particularly to become sustainable;

- Non-bank financial Institutions – Micro credit Companies (MFIs): Opportunity Romania, CAPA Finance, Express Finance, FAER, LAM, ROMCOM – extending business micro-credits to micro enterprises, self-employed and farmers,

- National Bank of Romania (Central Bank) regulates microfinance activity, registers and licenses MFIs;

- Besides the first 8 Micro Finance Institutions established with the support of international donors, around 20 newly NBF Companies established under the new legal framework registration and licensing

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with the National Bank of Romania.- the newly established NBF Companies are extending mainly consumer credits for personal investments of the borrowers .


- Commercial loans: BRD - Groupe Sociéte générale ; OPIC

- Equity investments: Balkan Accession fund, Coop- East, Oikocredit, etc

- Soft loans: BERD, Oikocredit, Coop – East; the interest of the loan is at commercial level but the loans are accompanied by technical assistance grants, risk funds.

- Guarantee: Deutsche Bank

- Romanian Government as contributor to the Micro-credit schemes implemented by MFI and administrated through the related Ministries e.g. Ministry of Labour, Ministry of Development, Min. of Economy and Finance, etc.

- International sources: Initially : CHF - International, Opportunity International, Soros Fundation, USAID, Swiss Confederation, MEDA; World Bank, IFC, BERD; EU funds (PHARE)


Yes


- No usury rules

- System of evaluation of the social impact of this situation: self-evaluation and external evaluation at request of the donors and funders, eg. Micro-Finantza rating on social performance assessment of CAPA finance and OMRO; Banyan Global US impact assessment on the targeted beneficiaries of the USAID investment funds granted to Romanian the MFIs: CAPA, Omro and Express finance.

Tax incentives - Tax exemption for micro-loans granted by credit unions;

- Companies that invest into MFIs (however it difficult to apply and to

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obtain this tax exemption due to the complicated procedure);


- Romanian Rural Guarantee Fund (providing guarantee to the rural clients of CDE)

- Public Guarantee Fund for SMEs

Existence of database recording borrowers’ history

Ability of non bank microcredit providers to access such databases

The National Bank of Romania (NBR) administrates a database for default loans of minimum amount of €5,000 named Central Banking Risks Office.

Other credit agencies:, Credit Bureau administrated by the banks association.

Non-bank micro-credit providers can access the NBR database, but it is not free of charge.

Microcredit providers are authorised to exchange and share information on the credit history of borrowers with the Central Banking Risks Office, Credit Bureau ‘s information can be consulted only by banks.


No obligation.

The experience in other countries suggests that when microfinance companies begin to compete with each other for customers, over-indebtedness and default will rise sharply unless microfinance companies have access to a database that captures relevant aspects of their clients’ credit history.

At the same time, available credit history may allow microfinance companies to be much more aggressive in lending without collateral requirements and may also have a beneficial effect on competition among lenders. The combination of credit bureaus and statistical risk-scoring techniques has expanded lower-income groups’ access to credit.

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- Implementation of “Romanian Microcredit Scheme” funded by EU-PHARE programme, the Romanian Government and BERD: micro-loans for microenterprises and start-ups;

- Special microcredit schemes for rural areas former mining areas and unemployed entrepreneurs;

Suggested measures to improve existing / create a new framework for microenterprises and microcredit

For microenterprises

- Maintain unemployed allowance for the first year of operation as self-employed

- Reduce labour taxes for employees

- Subsidize the cost of registration of micro-enterprise for unemployed entrepreneurs

- Adapt financial reporting standards for microenterprises and SMEs

- Improve access to financial services (80% of microenterprises are not bankable)

For self-employment:

- Renewal of authorisation each year

- Pension and social security contributions are not considered as deductible expenses

- Limited access to financial services

For microcredit:

- Establish a legal framework at EU level for non saving MFIs and for the micro-credit banks

- Extend risk funds and special guarantee funds for the beneficiaries and microcredits to disadvantaged groups

- Reduce and simplify the reports of MFIs for the National Bank

- Reduce average cost of borrowed capital which is too expensive for MFIs

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- Simplify the procedures of transformation of an MFI to a micro-credit bank

- Foster benchmarking at EU level of MFIs for both financial and social performance and best practice shared among countries sector

- Provide specialised technical assistance and training to new MFIs

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JURISDICTION SUMMARY: SLOVAKIA

Source: EMN with Integra Venture


There is no simplified status or procedure for self-employment or for microentreprises.

There is no one stop shop, bur the registration process has been simplified over the past few years.


There is no financial income support during the transition for unemployed or welfare recipients who set up a business or provisions to allow a return to unemployment benefits or welfare in case of failure. This is a major obstacle.


- The para-statal organisation “National Agency for the Development of SMEs” provides business development to larger SMEs. However, their support for microenterprises and socially excluded persons is very limited.

- There are some NGOs that focus on providing business development for microenterprise start-ups and socially excluded people.


No specific laws and regulations, general corporate rules apply.

Essentially there is a banking monopoly, although there is limited freedom to grant loans to limited companies and co-operatives, provided that these are made out of the companies own resources.

There is no credit union law in Slovakia.


- commercial banks

- foundations: Integra Foundation

- associations: VOKA

Due to existence of banking monopoly which prevents foundations and associations from receiving deposits from the public, foundations and associations can only grant loans from their capital


- Equity investments: Angel investors

- Soft loans: specialist microcredit funds in Western Europe

- Donations from natural persons (in practice, small amounts only)

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- Very limited public and private sources

Operational / financial autonomy?

Very rarely


No interest caps; no system of evaluation of the social impact of this situation

Tax incentives Only incentive: There are tax breaks for companies that set up a “protected workplace” for the employment of disadvantaged groups.


Private guarantee scheme arranged by Integra

Database recording borrower credit history?

Access of non- bank microcredit providers to such databases

Such credit bureau exists

Non bank microcredit providers do not have access to this database


No obligation

Significant initiatives taken to develop

National Agency for Development of SMEs

Integra, based in Slovakia, has developed microenterprise schemes in

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microcredit Romania, Bulgaria, Serbia and Russia.

Suggested measures to improve existing / create a new framework (as applicable) for microenterprises and microcredit


- Set up tax incentives

- Improve access to finance for microenterprises

- Reduce social security costs to employ workers

For microcredit:

- Set up tax incentives

- Create a legal framework for either credit unions or non-bank MFIs

- Authorise non bank MFIs to take savings

- Enable the use of EIF, JEREMIE or similar instruments to provide local funding for non-bank microcredit providers

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JURISDICTION SUMMARY: SPAIN

Source: Latham & Watkins Barcelona and EMN with Caja Granada and Nantik Lum de Microfinanzas

Types of vehicles available for microcredit and self-employment

Two most common corporate forms:

- Limited Liability Company (Sociedad de Responsabilidad Limitada)

- New Entrepreneurship Limited Liability Company (Sociedad Limitada Nueva Empresa)


Limited Liability Company:

- Central Commercial Registry (Registro Mercantil Central): obtaining corporate name

- Notary Public: grants public deed of incorporation, which contains by-laws and evidence of deposit of share capital in a financial entity; notarial fees amount approximately to €300 where minimum share capital subscribed (for a LLC €3,005)

- Inter alia, payment of taxes related to incorporation (approx. 1% of share capital)

- Commercial Registry: registration of company

New Entrepreneurship Limited Liability Company: share capital, which ranges from €3,012 to €120,202; process of incorporation which is mostly electronic; no possibility of appointment of board of directors (Consejo de Administración) as management body; corporate purpose does not need to be specific but it has to be one of following: agricultural, livestock farmer, forest, fishing, industrial, construction, commercial, tourist, transportation, communication, intermediation or professional services in general; legal entities cannot be shareholders of company; maximum 5 shareholders who can incorporate a company; only shareholders may participate in management body.


Spanish public authorities and private institutions (chambers of commerce (Cámaras de Comercio)) provide income support during the transition for unemployed or welfare recipients who set up a business.

Spanish labour authorities allow total or partial capitalisation of unemployment subsidies to which an individual is entitled in a sole instalment provided that certain requirements are fulfilled.

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Social Microcredit Support Ogranisations SMSOs (see below) provide potential microcredit clients with training and preparatory courses in business management, negotiation, and/or banking processes.

Public and private training programmes for socially excluded people in general: Public Institute of Employment (Instituto Público de Empleo) promotes different courses for unemployed people which allow them to acquire and/or develop specific skills that may help them to set up a business as entrepreneurs.

For New Entrepreneurship Limited Liability Company: Puntos de Asesoramiento e Inicio de Tramitación ("PAIT"): regionally based governmental entities implemented to assist entrepreneurs in general. Main functions of PAIT are: arranging an appointment with Notary Public; filling necessary documents and forms in order to obtain corporate name; delivery of Unique Electronic Document (Documento Único Electrónico). PAIT offices play a dual role: (i) inform and advise entrepreneurs in definition and processing of their entrepreneurial initiatives, assist them during first years of activity; and (ii) manage incorporation of company through Unique Electronic Document.

Other measures Spanish legal framework to set up microenterprises has been structured in two different systems:

- a system which is composed by two different entities: (a) an entity which is in charge of selecting projects and of their following up (SMSO); and (b) an entity which is responsible for loan and financial issues arising from it (f.ex. Instituto de Crédito Oficial ICO) and

- a system in which one entity is in charge of both selection of project (usually through a feasibility committee) and into financing (usually through a financing committee) (COOP 57)


No specific rules

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- Public institutions: Microcredit Programme for Entrepreneurial and Business Women of the Women’s Institute co-financed by ESF and in partnership with “La Caixa”

- Savings banks: CAI, Caixa de Catalunya, BBK (solidarity deposit), Caja Granada (solidarity bank card)

- Specialised microcredit banks: Microbank

- Commercial banks: Banco Santander Central Hispano, Grupo Banco Popular, BBVA (mainly Corporate Social Responsibility)

- Social Microcredit Support Organisations SMSOs - acting as intermediaries between the end client and the financial institution (training; selection and monitoring of projects): Fundación BBVA para las Microfinanzas; “Un Sol Mon” of Caixa Catalunya savings bank; Fundacion CajaGranada Desarrollo Solidario of CajaGranada saving bank


Credit lines:

- ICO Microcredit Line channeled through about 40 private financial institutions and social work institutions (Instituciones de Asistencia Social);

- Savings banks’ funds for social work

Operational costs:

- European funds (ESF, EIF)


Depending on particular structure of non-bank MCIs, it is possible for them to achieve financial and operational autonomy

Some non-bank MCIs can be considered financially autonomous, since they obtain financing through contributions of their own partners or through their investments and their MC projects. From an operational perspective non-bank MCIs are most of times autonomous, however it is necessary to point out an increasing trend towards collaboration with banking institutions (e.g. Fundación un Sol Món-Caixa Catalunya)

However, the microcredit system in Spain may be thought as more appropriate to care for the poorest strata through subsidised credit than to achieve financial and operational sustainability. In all cases,

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microcredits are either directly or indirectly subsidised through savings banks funds for social work, national public organisations or European funds.

Savings banks use their funds for social work to support their microcredit programmes. These funds are non-refundable, thus enabling the savings banks to sustain losses in the short to medium term.


Yes, existence of a usury law

Tax incentives - New Entrepreneurship Limited Liability Companies are entitled to tax benefits related to tax debts in connection with taxes accrued during the period from their incorporation through the first two years of existence.

- If microcredit is subject to tax regime for non-profit entities, interests arising from microcredit would be partially tax exempted. However, if interests arising from microcredit are really low, tax benefits are equally minimal.

- Possible tax deduction for individuals or enterprises that carry out, among others, capital grants to patronage and non-profit entities (foundations, associations for public benefit, NGO, etc): individuals are entitled to a deduction of 25% of capital grant amount from total tax liability amount, and legal entities are entitled to a deduction of 35% of capital grant amount from total tax liability amount.


Risks arising out of microcredit are generally assumed by the institution providing microcredit.

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Access by non bank microcredit providers to such databases

Various databases record this type of information: inter alia, Defaults Register administered by Interbank Cooperation Center; EQUIFAX database administrated by National Association of Financial Entities.

Access to financial data is only allowed when a third party needs such information in order to be able to assess the financial soundness of an individual, if the third party is already in a relationship with the individual, or it is about to enter into such a relationship.


No such obligation


- The important work of the savings banks

- The important work of the SMSOs (Social Microcredit Support Organisations) to develop the spanish model.

- Setting up of the ICO line and the Women´s Institute Microcredit line by the Public Administration.

- In December 2007, Spanish savings banks and their industry organization CECA launched the Spanish Network of Microfinance with the objective of promoting debate and lobbying to create necessary financial regulation in the microcredit industry.

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- Reduce bureaucracy as it delays proceedings affecting to a greater extent small entrepreneurs with limited financial resources

- Promote evaluation processes regarding feasibility of self-employment and microenterprise projects

- Implement specific regulations on setting up of microenterprises and on self-employment

For microcredit:

- Establish a consolidated legal and regulatory framework microcredit

- Reduce tax rates for new microenterprises (fiscal fees and social security)

- Create a credit register accessible by all entities

- Strengthen professional capacity of SMSOs through both technical and financial support from financial institutions and the government

- Strengthen public support for establishment of post-graduate courses on microcredit in public universities in order to increase both the number of experts in field and social awareness

- Improve evaluation systems re. feasibility of projects and consequently of their selection by microcredit providers

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JURISDICTION SUMMARY: SWEDEN

Source: EMN (+ALMI)


Administrative and tax procedures for micro-enterprises are complicated.

Start-ups can find relevant information needed to start a business at the internet-service Startlinjen (Start-up line).


Starta eget bidrag (start-up grants) are intended for job seekers who start their own business. The grant is intended to supplement the business owner’s living expenses during the first 6 months of his/her start-up period. It is provided if the business is estimated likely to be financially viable. The target group is: unemployed individuals, people at risk of losing their jobs and people living in certain less developed areas.


Two organisations work nationwide, NUTEK and ALMI. They provide business support to start-ups and established businesses. The target group is unemployed individuals, people at risk of losing their jobs and people living in regional development areas.


No specific rules for microenterprises; general corporate rules apply

There is no specific framework for micro-finance providing institutions.

The general legislation for financial institutions (Lag om bank- och finansieringsrörelse 2004:297 Förordning om bank- och finansieringsrörelse SFS 2004:329) fixes inter alia the amount of capital financial institutions have to raise to start their business. Very extensive rules exist, for instance on how to secure the savers money etc.

Non-governmental non-bank actors do not have the possibility to lend.


Promotional bank: ALMI Företagspartner (state-owned)

Cooperative Bank: Ekobank, JAK Bank

NGO: NEEM

Savings Banks

Sources of funding for

- Central and local government: Swedish Industrial Development

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Source: EMN (+ALMI)

microcredit institutions

Fund; Sixth Swedish National Pension Fund

- EU funds


Microcredit programmes depend on public subsidies.


There is no usury law in Sweden.

The Legislation about government financing by ALMI Företagspartner AB (Förordning om statlig finansiering genom ALMI Företagspartner AB SFS 1994:1100) states that ALMI is obliged to take a higher interest rate than banks, due to a higher risk and in order not to compete with banks.

Tax incentives N.A.


A new initiative, a Credit Guarantee Association (in Västerbotten), has started in the north where it is very difficult to obtain loans due to widespread lack of collateral. The seed capital of the members’ contribution is being used as a guarantee for commercial banks.

Existence of database recording borrower history

Access of non -bank microcredit institutions to such databases

N.A.

Obligation for non bank microcredit institutions to provide their borrowers' credit history to such

N.A.

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Source: EMN (+ALMI)

databases


No specific initiatives regarding microcredit.

Entrepreneurship has gained acceptance among public authorities.

There has been a rapid increase in the supply of entrepreneurship courses and programmes at universities and schools.



- Develop a clear policy for self-employment and microfinance

- Create an environment that is small-business minded in terms of entrepreneurial context, legal framework, tax system and co-operation between the different systems (financial system, labour market and social system). Keep in mind specific target groups (women, immigrants, ect.).

- Reduce walls between social, employment and financial systems. The financial sector does not show much interest in the issue of support to self-employment as a career for the unemployed.

For microcredit:

- Allow non-governmental non-bank actors to lend

- Foster the debate on micro-credit and the role to be played by banks, savings banks, welfare and employment institutions.

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JURISDICTION SUMMARY: UNITED KINGDOM

Source: Latham & Watkins London, with assistance of the Community Development Finance Association


Microenterprises (defined as an enterprise with less than 9 employees) or self-employment can be established through a variety of different vehicles:

- sole trader

- partnership

- limited liability partnership

- limited liability company or

- company limited by guarantee

For smallest businesses, it is more usual to operate as a sole trader or in partnership with a business partner.


The simplest way to establish a small business through self-employment is to set up as a sole trader. There are no registration fees but the sole trader must be registered with HM Revenue & Customs as self-employed. Similarly, if a business is operated by two or more partners, each partner must register as being self employed.

Private companies and limited liability partnerships are required to be registered at Companies House which also requires payment of certain fees (currently £20 for incorporation and £30 annual fee).

There are certain regulatory exemptions available to small to medium enterprises (which have an annual profit of less than £250,000, i.e. about 310,000€) such as less onerous obligations for lodging company accounts.

The UK does not have a one-stop-shop. However, the UK government has established the Small Business Service, a UK government agency, whose aim is to help small businesses in a variety of ways, including providing front office and registration assistance; local advisory centres (Business Link offices); and advice through a website.

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Financial support programmes during transition period

Governmental income support programmes to support transition from unemployed to setting up a business:

- Unemployment benefits are available to individuals seeking work on condition that the individuals can show they are seeking work;

- Unemployment benefits (Job Seeker Allowance) can continue to be provided during a transition period as a self-employed business is set up, tapered according to level of income that is being derived from self-employment. Where allowance is tapered, a test-trading period of six months is put in place to allow for a period of transition until the business is self-sufficient.


- Small Business Service

- Advice is provided by: non-governmental bodies, such as Leonard Cheshire Foundation, which supports disabled people to live independently and PROWESS, an organisation which promotes women’s enterprise support.

- Advice as well as financing is provided through Community Development Finance Institutions (CDFIs) which are ‘not for profit’ third sector organisation.

Other measures Social entities can establish themselves through Community Interest Company ("CIC") which has been set up specifically for socially established enterprises. A CIC can be established as any one of a private company limited by shares, a private company limited by guarantee or a public limited company. To set up a CIC, a "community interest test" and "asset lock" test are applied, which ensure that CIC is set up for a community purpose and assets and profits are dedicated to these purposes.

A trade association has been set up in the UK to support CDFIs: Community Development Finance Association (cdfa) whose mission is to support development of finance sector that provides finance for disadvantaged and underserved communities and contributes to increasing prosperity of such communities.

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No specific legislation that only relates to microcredit. However, there are various acts and regulations which apply to microfinance:

- Laws relating to CDFIs: CDFIs can be registered under the Industrial & Provident Societies Act, 1965. An Industrial & Provident Society is an alternative corporate form to a company. Societies created under the Act benefit from exemptions under the Financial Services and Markets Act 2000 and are able to raise capital through the issue of redeemable shares known as withdrawable share capital. Redeemable share capital is known as risk capital, so CDFIs are not regarded as credit institutions or as carrying out the business of banking.

- Government Supported Lending (Small Firms Loan Guarantee Scheme) operates through government and bank collaboration with BERR providing 75% of security for a particular loan while bank takes 25% of risk. It enables banks to lend more freely to those who are a lender credit risk or are less able to provide collateral.

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- Commercial banks

- Community Development Finance Institutions: CDFIs are not banks (they do not take deposits), they are encouraged to lend in markets less serviced by normal banks. CDFIs are independent organisations whose primary purpose is to provide finance, and related support, to enterprises in disadvantaged communities. They operate in a more complex policy environment, with a plurality of activities, products and missions that go beyond just microfinance. Community Development Finance Institutions are generally formed as either Industrial and Provident Society or a company limited by guarantee. If registered as an Industrial and Provident Society under Industrial & Provident Societies Act 1965, an alternative corporate form is created which benefits from certain exemptions under the Financial Services and Markets Act 2000 including being able to raise capital through issue of redeemable shares (known as withdrawable share capital). Redeemable share capital is known as risk capital, so CDFIs are not regarded as credit institutions or as carrying out business of banking. Examples of CDFIs: Street Cred, Women's Employment, Enterprise & Training Unit (WEETU), Fair Finance.

- Credit Unions, which are limited in interest rates that they can charge, with loans being capped at 2% a month (or 26.8% per annum). In practice this is not a restriction, with credit union loans typically being offered at interest rates well below that cap.


- Commercial loans: corporate social responsibility programmes that lead to them investing in micro-finance, via CDFIs and credit unions

- Equity investments: for example by buying shares in one of the CDFIs that are registered as Industrial and Provident Societies. Investments are structured through issue of redeemable shares and may also qualify for CITR scheme (please see below)

- Soft loans: often provided on a fairly adhoc basis

- Subsidies and donations from:

Government agencies, Regional Development Agencies and Housing Association

Private institutions

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Funds can also be raised through bonds. For example, on a regular basis Shared Interest (finance provider for fair trade producers) raises funds to on-lend to Oikocredit through a five year bond issuance.

- International aid: JEREMIE (Joint European Resources for Micro to Medium Enterprises) and JESSICA (Joint European Support for Sustainable Investment in City Areas) programmes.

- National level: Phoenix Fund to support development activities in organisations which provide enterprise support in disadvantaged areas and/or to under-represented groups.


Even though most CDFIs are partially dependant on subsidies from public and private sources, CDFIs have operational independence allowing them to allocate those funds as they determine, subject to investments they make falling within specified limits and criteria under relevant legislation.

Moreover, certain CDFIs such as Charity Bank and Triodos Bank have achieved operational self-sustainability, so do not rely on public or private subsidies. Other CDFIs have benchmarks which they are attempting to meet to establish operational self-sustainability within certain time frames.


Only regarding credit unions (please see above)

Research work on the social impact of credit unions and CDFIs is carried out by academics, such as the Personal Finance Research Centre at Bristol University, and think tanks like the New Economics Foundation.

Tax incentives Community Investment Tax Relief (CITR) is a scheme which provides tax relief for investors investing in Community Development Finance Institutions. This tax incentive is available to individuals and companies. It comes in form of a tax relief, which reduces investor's income tax (or corporation tax) liability. Investors can (over a period of time) get tax relief of up to 25% (5% per year over 5 years) of amount they have invested in a CDFI on their income or corporation tax liabilities.

Access to guarantee

Small Firms Loan Guarantee Scheme (SFLG) enables small entrepreneurs with viable businesses to borrow, backed with a guarantee

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http://www.shared-interest.com/

http://www.oikocredit.org/



schemes for banks and non bank institutions providing microcredit

from BERR (Department for Business, Enterprise and Regulatory Reform) for 75% of the loan amount. 25% of the risk is not guaranteed with lender adopting risk


Access by non-bank microcredit providers to such databases

Financial databases, Experian and Equifax provide credit information, borrower history and defaults for lenders to assess credit rating of borrowers

Community Development Finance Institutions can access these databases through purchasing a membership


No


- Creation Community Interest Companies

- Community Investment Tax Relief

- Small Firms Loan Guarantee Scheme

- Encouragement of Basic Bank Accounts

- Small Business Service

- New Deal Programme

Suggested measures to improve existing framework/create a new framework (as applicable)


Individuals going into business have to opt between being a sole trader (which has unlimited liability) or setting up a company (as shareholder they may be subject to double taxation, as company will be liable to pay tax on profits on top of personal tax liability that individual liable will

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for microcredit and microenterprises

incur on any distribution from company).

For microcredit:

- Further incremental changes could lower the barriers to micro-credit in the UK. For example, increasing the current 6 month tapering period of welfare allowances during the initial stage of a micro-enterprise business would provide a greater opportunity for the business owner to develop a sustainable business.

- A relaxation of the rule of mutual exclusiveness of the Small Firms Loan Guarantee and the Community Investment Tax Relief scheme for CDFIs would stimulate greater private and social investment under the CITR and a reduction in the risk of lending via the SFLG. This would increase investment in the sector as a whole as risk is decreased and rewarded is increased, and improve the impact that CDFIs can make towards developing people and their communities.

- Support with appropriate finance is needed to enable CDFIs to grow their operations and portfolio. The European Union can support the future development of the sector via appropriate funding schemes which provide capital for both on-lending to micro-enterprises and to cover operational costs of running CDFI.

- Stronger assistance to develop CDFIs' capital strategies would guide their long-term sourcing of appropriate private and social investment to grow their organisation at a sustainable level.

- Due to the UK CDFI sector still being relatively new, any regulation from Europe would need to be appropriate to the size and scale of the sector. Principles-based self-regulation would enable CDFIs to develop, without a too onerous regulatory burden that this emerging sector might not have the capacity to respond too.

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