Microcredit for local and regional development Maria Nowak, Co-founder and President of Adie (France) and of the European Microfinance Centre Co-founder and Member of the Board of the Microfinance Centre for Central and Eastern Europe Open days Brussels October 10, 2007

2 A universal concept : labour + capital = creation of wealth poor people need access to credit and are creditworthy European model of microfinance The European model is based : on a post industrial not pre industrial demand on a developped banking sector having a major role to play as regards supply on a institutionnal environment build for large companies rather than self emplyment and microenterprises has be adapted to different regional and historical conditions

3 Regional context Central and Eastern Europe Transition economy Collapse of the public sector Massive unemployment Support of international aid Developping banking sector Western Europe Welfare state Deindustrialisation Exclusion and social aid Segmented support of the goverments and banks Highly developped banking sector Large but not visible microenterprise and informal activities sector Microenterprises = 91,5% of the total number of enterprises in Europe Informal sector = 10-15% GDP

4 Target population Central and Eastern Europe Western Europe Non bankable clientele : Transition poor : highly qualified and non qualified labour Roma Long term unemployed and people on welfare Immigrants Bankable clientele : Self employed / informal sector microentrepreneurs Small entrepreneurs without access to banks

5 A large market gap Demand Microcredit market estimated at 2 million clients (29% of low-income Households) existing microentrepreneurs : 17% potential microentrepreneurs : 83% Acording to a survey carried out in Poland in 2006 : Supply Total number of loans to microentrepreneurs estimated in 2005 at to low income microentrepreneurs

6 An important impact on local and regional development Central and Eastern Europe Western Europe Large part of agriculture in economy Transformation of state farms or cooperatives in private farms Low part of agriculture in economy Changing European Agricultural Policy Creation of off-farm jobs absorbs hidden unemployment in agriculture and helps modernization of farms Creation of off-farm jobs supports development of deprived rural areas Rural areas Urban areas Collapse of the public sector Pockets of poverty Deindustrialisation and export of jobs Poor commuities with high proportion of immigrants Creation of self employment and microenterprises helps reducing local unemployment

7 Future vision for Europe  an inclusive and sustainable financial sector based on a continuum of MFIs all segments of clientele Non bank MFIs Filling a market gap Bankable clientele Sustainability, based on high volume of operations, low risk, reduced transaction costs due to new technologies and appropriate interest rates reached with Short term subsidy Business development services Direct lending Extension of bes practises Long term subsidy Business development services Partnership banks/non banks Extension of best practises Downscaling banksMicrofinance banksCredit Unions Responding to a market failure Non bankable clientele

8 Lessons drawn and transfer of know how Entrepreneurship never dies Microcredit may be sustainable Complementarity of outreach and sustainability Importance of grant funding and technical assistance for a good start Development of private investment funds Danger of passive employment policies Limits to increase the rate of interest Need of business support to deprived groups How to mobilize structural funds for new member countries Partnerships banks/MFIs National and European guarantee funds From West to East From East to West

9 Thank you !