JOB CREATION BY BOOSTING ENTREPRENEURSHIP HOW TO STIMULATE AND FINANCE THE CREATION OF MICROENTERPRISES ? CICERO FOUNDATION March,

A - Why is it so difficult to stimulate the creation of micro enterprises in Europe ? « It is not easy to find a black cat in a black room, especially if the cat is not there » (Confucius)

March 11, 2005Cicero Foundation Informal sector employees 50 to 249 employees 10 to 49 employees 1 to 9 employees No employees Thousands of enterprises Source : EUROSTAT In spite of their importance, micro enterprises are not recognized in a « wage labour » and a « welfare state » culture

March 11, 2005Cicero Foundation4 creates high fixed costs for small enterprises increases need for administrative and business advice Complexity of the regulatory and administrative framework The real problem is not lack of entrepreneurship but a hostile institutional environment

March 11, 2005Cicero Foundation5 results in an « informal sector trap » Family allowances Health insurance Pensions Micro enterprise B Annual income : Micro enterprise A Annual income : Micro enterprise C Annual income : Insurance contributions (51% of the income) (42% of the income) (41% of the income) High national insurance contributions and difficult administrative transition from unemployment to enterprise creation

March 11, 2005Cicero Foundation6 Access to credit and risk capital limited o Banking sector regulations set a « usury rate ceiling » and give the right of borrowing and on-lending to the banks only o Banking sector is reluctant to develop micro credit because of high operational costs, lack of collateral, lack of experience as regards a low-income clientele o Majority of micro enterprises and especially micro enterprises created by unemployed have no equity o Majority of micro enterprises are sole traders not eligible to risk capital

B - How to develop micro enterprises ? Lessons from ADIEs experience 3 success 'factors

March 11, 2005Cicero Foundation8 1)A demand-driven, bottom-up approach oAssociation created in 1988 by three volunteers, without any capital, inspired by the Grameen bank experience oAdies mission : help unemployed to create their own job oA 5 years pilot phase allows to find clients, identify obstacles to self-employment, work out methods and control risk oInitiative and entrepreneurship of the unemployed are the engine of the programme. ADIE provides access to financial and non financial services.

March 11, 2005Cicero Foundation9 2) - Partnership with banks oUnder the banking law an association can lend only out of its own funds. oThe banks are keen to extend their clientele and improve their social image if the association takes in charge all social and financial intermediation, controls the risk and externalizes the additional costs. oThe partnership with Credit Mutuel (1994) is extended to other cooperative banks and some commercial banks. oThe French Association of Banks helped ADIE to pass a law authorizing associations financing the micro enterprises created by unemployed to borrow and on-lend. The Government tries to eliminate the « usury rate ceiling » but faces the opposition of the Parliament.

March 11, 2005Cicero Foundation10 3) - Public support oThe additional costs of front-office, business training and advice are taken in charge by the Government, the European Social Fund and the Local Governments. oThe risk (6,5%) is shared between the banks (30%) and ADIE (70%). oADIE is counter-guaranteed by a public Guarantee Fund (FGIE) and the European Investment Fund. oUnited Nations have chosen 2005 to be the International Year for Micro Finance: a true recognition

C - Results and lessons to be drawn

March 11, 2005Cicero Foundation12 Target population : qualifications

March 11, 2005Cicero Foundation13 Target population : social status

March 11, 2005Cicero Foundation14 Types of activities Examples : Carpenter Painter Market seller Grocery shop Beauty shop Hair dresser Multi-services Mechanics Massage Tattoo shop

March 11, 2005Cicero Foundation15 Loans Granted

March 11, 2005Cicero Foundation16 A well developed local network o 22 regional delegations o 104 offices o 300 rep offices o 6 initiative shops o 287 employees o 700 volunteers

March 11, 2005Cicero Foundation17 Diversity of financial products oLoans for the creation and development of micro businesses o euros maximum o Market interest rates (currently 5,2 %) o + Solidarity contribution (0.1% per month) o Term 24 months maximum o Personal guarantees from friends or family cover 50% of the loan oProgressive loan amounts and solidarity groups for income generating activities in deprived areas oComplementary products oQuasi-equity funds : interest-free subordinated loans oRegional grants associated with ADIE loans oEquipment loans to test the projects

March 11, 2005Cicero Foundation18 Other services o Business training sessions o Marketing and legal advice o Administrative, support o Micro business circles o Internet forum and micro-entrepreneurs virtual association aimed at : o Exchange of experience o Mutualisation of certain services o Information and training o Proposals to the government

March 11, 2005Cicero Foundation19 Operational results oActive clients : oOutstanding loans : 23,6 million euros oNumber of loans disbursed : oRecovery rate : 94% oNumber of micro enterprises created : oNumber of jobs created : oCost of creating a micro business (risk and operational costs, including business support) : 2000 euros = 1/10 annual cost of an unemployed oSurvival rate (2 Years): 64% oSuccess Rate: 75%

March 11, 2005Cicero Foundation20 Pierre Electricity Amir Open Market seller Samira Street Shop Vincent Internet Why we exist?