1. Micro-Credit as a tool for Entrepreneurship in Europe
Philippe Delvaux
European Commission
Directorate General for Regional Policy
You may or may not know that
An important concern for Cohesion Policy is to improve access to finance for SMEs, in the Member States and the regions, and this includes micro-enterprises
Why so?
Simply because Cohesion policy is the biggest provider of EU funds supporting small businesses
Total business support for is € 55,000,000,000, thereof € 27 billion are directly targeted at SMEs, including micro-enterprises.

2. ERDF support to Small Businesses
12% / €3.2bn
65% / €17.7bn
9% / €2.5bn
14% / €3.7bn
ERDF support to SMEs is very consistent
€ 27 billion

3. (Income-generating activities)
Number of enterprises in the EU (x 1000) 9
255
1 693
21 228
Informal sector
(Income-generating activities)
> 250 employees
employees
employees
0 - 9 employees
23,2 million enterprises in EU
92% of enterprises in
Europe are micro-enterprises
(up to 9 employees)
Informal sector represents
10 to 15% of GDP
Active population below the
poverty line : 28 million
Micro-credit :
Max. Amount: €25,000
0 - 9 employees
Turnover: max 2 Mio Euros
This pyramid shows the distribution of EU enterprises according to their size.
It is worth noting that more than 92% of enterprises are very small enterprises falling within the definition of micro-enterprises
Even more challenging is the large part of the informal sector in the GDP µC

4. Particularity of micro-credit
Many issues at the same time
Many parties involved
Several approaches over the world
A mix of funding and technical assistance
Matches real needs
Existing instruments
However, an important gap in the market.
However, there is a real microcredit paradox:
Why so?
Because of this (next slide)

5. A few reasons
Different types and understanding of what is micro-credit, what it should be.
Various approaches. No one-size-fits-all model.
Lack of standards.
Absence of collateral from part of the borrower.
Administrative cost of small loan not proportionate to its amount.

6. Challenging Micro-credit
Funds
Interest
rates
Statistics
Financial
Engineering
Coaching
Rating
agencies
Revolving
Funds
Social
Inclusion
Quality label
Loans
µ-Finance
networks
Banks
Training
Capacity
building
µ-credit
Self-
employment
MFI €
Mentoring
Savings
Banks
Seed
capital
Grants
Bankability
Employment
µ-enterprise
Growth
and jobs
Credit
Unions
JEREMIE
Regional
Policy
Challenging Micro-credit
Consumer
protection
Lisbon
Strategy
European
Council
EIB
ESBG
Basel II
Sustainability
µ-credit
providers
Charities
Structural
Funds
µ-finance
EIF
European
Social
Fund
Legislation
PROGRESS
Member
States
Equity
Codes of
Conduct
Regions
Guarantees
Social
Responsibility
Win-win
European
Parliament
2020
Strategy
Interest
rate
subsidy
Character
based
lending
Mezzanine
finance
European
Commission
Trust
Non-bank 6 6

7. Challenging Micro-credit
World
Bank
Usurary
rates
Communication
on µC
Yunus
Challenge
EGAF
Mix
Market
CGAP
Social
benefits
Development
countries
Leverage
EPMF
LuxFlag
Deprived
populations
Women
Poverty
Unemployment
MFI $
µ-finance
funds
Grameen
Bank
Collateral
Basel III
Financial
Crisis
EU Budget
Public
Banks
Subsidiarity
CIP
Supervision
Over
indebtedness
Challenging Micro-credit
Cooperative
Banks
Public Banks
Additionality
EESC
Yunus
EQUAL
Communication
Over
indebtedness
Change
Mindsets
Lobbies
Services
MFC
EAFRD
IFRS
Strategic
Planning
To be regrouped by
Policies
Instruments
Principles
Actors
Stakeholders
University
Financial
Inclusion
Financial
Regulation
PHARE
Awareness
raising
Governance
Globalization
Procedures
Information
systems
Entrepreneurship
Definitions
Risk
Management
Client
Relations 7 7

8. Challenge
To take what exists into account and look at ways to increase the provision of micro-credit in the EU
Build confidence in micro-credit
Contribute to develop the microfinance sector
Promote entrepreneurship through micro-credit
Encourage networking of stakeholders
You may or may not know that
An important concern for Cohesion Policy is to improve access to finance for SMEs, in the Member States and the regions, and this includes micro-enterprises
Why so?
Simply because Cohesion policy is the biggest provider of EU funds supporting small businesses
Total business support : € 55,000,000,000

9. Success factors A gap in the policy Timely proposals
High EU acceptance
Motivation of stakeholders
Lessons learnt from the financial crisis
Big Brother ‘JEREMIE’ in the background
‘JASMINE’ designed as a quality system
Provision of large funding thanks to EPMF
Developing the provision of micro-credit in the EU is a challenging undertaking which understates a process of change
It is however not a single man’s job. It involves a large number of stakeholders
Is not solely a financial issue as well. It also requires appropriate and qualified intermediaries
JASMINE seeks to develop the potential of micro-credit providers and to make adequate funding available to them
JASMINE seeks to foster as much synergies as possible between the actors on the micro-credit scene
Partnership between banks and MFIs needs to be encouraged, as it can be a win-win undertaking for all. 9

10. Difficulties Existing policy tailored initiatives
No usable sector specific statistics
Many stakeholders involved
Opposed views of interest groups
Subsidiarity
You may or may not know that
An important concern for Cohesion Policy is to improve access to finance for SMEs, in the Member States and the regions, and this includes micro-enterprises
Why so?
Simply because Cohesion policy is the biggest provider of EU funds supporting small businesses
Total business support : € 55,000,000,000 10

11. A Communication on micro-credit
11/2007: Micro-credit initiative (COM 2007/708)
1. Improve the legal & institutional environment
2. Further develop entrepreneurship
3. Develop Capacity Building for MFIs
4. Provide Funding for MFIs with financial standing
Changes to the legal and institutional environment:
Increasing the number of micro-credit providers/MFIs
Relaxing interest caps for micro-credit operations
Allowing MFIs access to borrower databases and facilitating their evaluation of the risks
Reducing operating costs applying favourable tax schemes
Adapting national regulation
Ensuring single market rules are applied to micro-credit
Incorporating micro-credit into regulation and accounting standards
Technical Assistance: General support for the consolidation and development of non-bank micro-credit providers/MFIs in the Member States and Regions, including assessment of MFIs, training, publications, technical manuals, guides, software, information, organization of conferences and seminars, etc
Funding: Equity, debt instruments, risk sharing instruments, guarantees, etc 11 11

12. Examples of changes to the legal and institutional environment
Development of micro-credit providers/MFIs
Relaxing interest caps for micro-credit operations
Allowing MFIs access to borrower databases and facilitating their evaluation of the risks
Reducing operating costs applying favourable tax schemes
Adapting national regulation
Ensuring single market rules are applied to micro-credit
Incorporating micro-credit into regulation and accounting standards

13. A Communication on micro-credit
11/2007: Micro-credit initiative (COM 2007/708)
1. Improve the legal & institutional environment
2. Further develop entrepreneurship
4. Provide Funding for MFIs
JASMINE
Develop Capacity Building for MFIs
Develop Capacity Building for MFIs
Changes to the legal and institutional environment:
Increasing the number of micro-credit providers/MFIs
Relaxing interest caps for micro-credit operations
Allowing MFIs access to borrower databases and facilitating their evaluation of the risks
Reducing operating costs applying favourable tax schemes
Adapting national regulation
Ensuring single market rules are applied to micro-credit
Incorporating micro-credit into regulation and accounting standards
Technical Assistance: General support for the consolidation and development of non-bank micro-credit providers/MFIs in the Member States and Regions, including assessment of MFIs, training, publications, technical manuals, guides, software, information, organization of conferences and seminars, etc
Funding: Equity, debt instruments, risk sharing instruments, guarantees, etc 13

14. JASMINE toolkit
Institutional assessment and/or rating for selected MFIs
Subsequent training to selected MFIs.
A range of business support services available for all MFIs.
A code of good conduct for MFIs to provide guidelines and advice to MFIs on raising the standard of their services and operations (Vademecum on micro-credit).
JASMINE on line
A quality label to be awarded to “good” MFIs. R T
quality label : to help them attract borrowers in confidence and to raise funds on the private capital market.

15. A Communication on micro-credit
11/2007: Micro-credit initiative (COM 2007/708)
1. Improve the legal & institutional environment
2. Further develop entrepreneurship
3. Develop Capacity building for MFIs
Changes to the legal and institutional environment:
Increasing the number of micro-credit providers/MFIs
Relaxing interest caps for micro-credit operations
Allowing MFIs access to borrower databases and facilitating their evaluation of the risks
Reducing operating costs applying favourable tax schemes
Adapting national regulation
Ensuring single market rules are applied to micro-credit
Incorporating micro-credit into regulation and accounting standards
Technical Assistance: General support for the consolidation and development of non-bank micro-credit providers/MFIs in the Member States and Regions, including assessment of MFIs, training, publications, technical manuals, guides, software, information, organization of conferences and seminars, etc
Funding: Equity, debt instruments, risk sharing instruments, guarantees, etc
EPMF
4. Provide funding for MFIs
4. Provide funding for MFIs 15 15

16. European Progress Microfinance Facility
Part of the response to rising unemployment and social exclusion resulting from the financial crisis.
To ‘offer a new chance to the unemployed and open the road to entrepreneurship for some of Europe’s most disadvantaged groups’
(Commission communication June 2009: ‘A shared commitment for employment’)
quality label : to help them attract borrowers in confidence and to raise funds on the private capital market.

17. EPMF – Key features
Micro-credit to Final Beneficiaries trough
1. Guarantees (implemented through EIF)
on microcredit portfolios (€ 25 million from EU resources)
2. Debt and equity instruments
by means of a Fonds Commun de Placement – Fonds d’Investissement Spécialisé (FCP-FIS)
(up to + € 225 million = € 75m from EU + up to € 100m from the EIB + up to € 50m from other investors)
3. Expected total leverage: € 500 million ( loans)

18. Conclusions
Improving the provision of micro-credit has the potential to develop entrepreneurship
It is a complex issue involving many actors, but can be a win-win undertaking for all.
Quality makes the difference
Both the banking and non-banking sector have a part to play
Developing the provision of micro-credit in the EU is a challenging undertaking which understates a process of change
It is however not a single man’s job. It involves a large number of stakeholders
Is not solely a financial issue as well. It also requires appropriate and qualified intermediaries
JASMINE seeks to develop the potential of micro-credit providers and to make adequate funding available to them
JASMINE seeks to foster as much synergies as possible between the actors on the micro-credit scene
Partnership between banks and MFIs needs to be encouraged, as it can be a win-win undertaking for all. 18

19. Announcement on JASMINE Two messages:
Continuation of JASMINE after 2011
Unanimous positive feedback received from actual JASMINE stakeholders
Adaptation of the scheme from 2012 on to include greenfield MFIs
Increased provision of business support services for MFIs (JASMINE online)
Availability of a Code of Good Conduct for MFIs
Help MFIs raising standards in micro-credit lending & operating practice
Micro-credit stakeholders actively involved in the draft of the content
Document under final revision: Final version available by end of June 2011

20. Challenging Micro-credit
Your suggestions
Thank you 20 20

21. Thank you for your attention DG REGIO – Unit D3 ‘Financial Engineering – Major Projects‘