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1 Micro-Credit as a tool for Entrepreneurship in Europe Philippe Delvaux European Commission Directorate General for Regional Policy.

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Presentation on theme: "1 Micro-Credit as a tool for Entrepreneurship in Europe Philippe Delvaux European Commission Directorate General for Regional Policy."— Presentation transcript:

1 1 Micro-Credit as a tool for Entrepreneurship in Europe Philippe Delvaux European Commission Directorate General for Regional Policy

2 2 12% / 3.2bn 65% / 17.7bn 9% / 2.5bn 14% / 3.7bn ERDF support to Small Businesses 27 billion 27 billion

3 3 9 255 1 693 21 228 Informal sector (Income-generating activities) > 250 employees 50 - 250 employees 10 - 49 employees 0 - 9 employees 23,2 million enterprises in EU 92% of enterprises 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 µCµC Number of enterprises in the EU (x 1000)

4 4 Particularity of micro-credit Many issues at the same time Many issues at the same time Many parties involved Many parties involved Several approaches over the world Several approaches over the world A mix of funding and technical assistance A mix of funding and technical assistance Matches real needs Matches real needs Existing instruments Existing instruments However, an important gap in the market.

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

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

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

8 8 To take what exists into account and look at ways to increase the provision of micro-credit in the EU Build confidence in micro-creditBuild confidence in micro-credit Contribute to develop the microfinance sectorContribute to develop the microfinance sector Promote entrepreneurship through micro-creditPromote entrepreneurship through micro-credit Encourage networking of stakeholdersEncourage networking of stakeholders Challenge

9 9 A gap in the policy A gap in the policy Timely proposals Timely proposals High EU acceptance High EU acceptance Motivation of stakeholders Motivation of stakeholders Lessons learnt from the financial crisis Lessons learnt from the financial crisis Big Brother JEREMIE in the background Big Brother JEREMIE in the background JASMINE designed as a quality system JASMINE designed as a quality system Provision of large funding thanks to EPMF Provision of large funding thanks to EPMF Success factors

10 10 Existing policy tailored initiativesExisting policy tailored initiatives No usable sector specific statisticsNo usable sector specific statistics Many stakeholders involvedMany stakeholders involved Opposed views of interest groupsOpposed views of interest groups SubsidiaritySubsidiarity Difficulties

11 11 11/2007: Micro-credit initiative (COM 2007/708) Improve the legal & institutional environment 1. Improve the legal & institutional environment Further develop entrepreneurship 2. Further develop entrepreneurship A Communication on micro-credit Develop Capacity Building for MFIs 3. Develop Capacity Building for MFIs Provide Funding for MFIs with financial standing 4. Provide Funding for MFIs with financial standing

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

13 13 JASMINE 11/2007: Micro-credit initiative (COM 2007/708) Improve the legal & institutional environment 1. Improve the legal & institutional environment Further develop entrepreneurship 2. Further develop entrepreneurship 4. Provide Funding for MFIs 3. 3. Develop Capacity Building for MFIs A Communication on micro-credit 3.Develop Capacity Building for MFIs

14 14 Institutional assessment and/or rating for selected MFIs Institutional assessment and/or rating for selected MFIs Subsequent training to selected MFIs. Subsequent training to selected MFIs. A range of business support services available for all 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). 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 JASMINE on line A quality label to be awarded to good MFIs. A quality label to be awarded to good MFIs. JASMINE toolkit R T

15 15 EPMF 11/2007: Micro-credit initiative (COM 2007/708) Improve the legal & institutional environment 1. Improve the legal & institutional environment Further develop entrepreneurship 2. Further develop entrepreneurship 3. Develop Capacity building for MFIs 4. Provide funding for MFIs A Communication on micro-credit 4. Provide funding for MFIs

16 16 Part of the response to rising unemployment and social exclusion resulting from the financial crisis. Part of the response to rising unemployment and social exclusion resulting from the financial crisis. To To offer a new chance to the unemployed and open the road to entrepreneurship for some of Europes most disadvantaged groups (Commission communication June 2009: A shared commitment for employment) (Commission communication June 2009: A shared commitment for employment) European Progress Microfinance Facility

17 17 EPMF – Key features Micro-credit to Final Beneficiaries trough 1. Guarantees (implemented through EIF) 1. Guarantees (implemented through EIF) on microcredit portfolios ( 25 million from EU resources) on microcredit portfolios ( 25 million from EU resources) 2. Debt and equity instruments 2. Debt and equity instruments by means of a Fonds Commun de Placement – Fonds dInvestissement 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 ( 46 000 loans) 3. Expected total leverage: 500 million (+ 46 000 loans)

18 18 Improving the provision of micro-credit has the potential to develop entrepreneurship 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. It is a complex issue involving many actors, but can be a win-win undertaking for all. Quality makes the difference Quality makes the difference Both the banking and non-banking sector have a part to play Both the banking and non-banking sector have a part to play Conclusions

19 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 20 Challenging Micro-credit Thank you Your suggestions

21 21 Thank you for your attention DG REGIO – Unit D3 Financial Engineering – Major Projects regio-financial-engineering@ec.europa.eu


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