COPIE Access to finance manual: Designing microfinance operations in the EU

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Presentation from the capacity building seminar “Financing business start-up by under-represented groups”, 27-29 June 2012, Trento - Italy …

Presentation from the capacity building seminar “Financing business start-up by under-represented groups”, 27-29 June 2012, Trento - Italy

Organised by the Local Economic and Employment Development (LEED) Programme and its Trento Centre at the OECD in collaboration with the Directorate-General Employment, Social Affairs and Inclusion of the European Commission

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  • 1. Designing microfinanceoperations in the EU A manual on how to build and implement microfinance support programmes using the ESF Designing microfinance operations in the EU 1
  • 2. Acknowledgements PrefaceThis guidebook has been developed by In 2007 the Managing Authority of Flanders, together with Managing Authorities inthe Thematic group “Access to finance” Germany, Czech Republic, Spain and , Lithuania decided to set up a Thematic groupof the “ Community of Practice on In- “Access to Finance” within the “Community of Practice on Inclusive Entrepreneur-clusive Entrepreneurship” in the Euro- ship” (COPIE) in the European Social Fund (ESF).pean Social Fund. Compiled by external The need for this Community and thematic group arose, on the one hand, from theconsultants from the Deutsches Mikrofi- desire to capitalize on the vast experience concerning working on business creationnanz Institut, Brigitte Maas and Stefanie gained in the EQUAL programme, and, on the other hand that despite the high im-Lämmermann, it draws on input from portance and growing recognition of self-employment, microbusiness and micro-ESF Managing Authorities, Intermedi- credit at EU level, national ESF and ERDF bodies are still challenged to include theseate Bodies and microfinance projects in domains in their National Reform Plans and the associated operational programmes.Lithuania, Germany, Italian regions of This manual therefore aims to assist ESF and ERDF Managing Authorities to organ-Calabria – Basilicata - Sardinia and Lom- ize the implementation of a microfinance scheme through financial engineering in thebardia, Spain, Latvia, Greece, the Czech framework of their inclusive entrepreneurship policy.Republic and Flanders (Belgium) The Communities of Practice (CoPs) are commonly defined as “groups of people whoA special mention goes to all the Mem- share a passion for something that they know how to do and who interact regularly tobers of subgroup Access to Finance of learn how to do it better”. The knowledge gained and shared between 2007 and 2011the Community of Practice (CoP) on by members of the Community from all over the European Union, is presented inInclusive Entrepreneurship in the ESF this guidebook. It is hoped that Managing Authorities, Intermediate Bodies and otherwho have been central to the develop- stakeholders involved in the design and implementation of European Social Fundment of this work by providing advice, programmes will find it a helpful tool to realize their commitment to make Europe’scomment and feedback. people and companies better equipped to face new challenges in order to create a smart, inclusive and sustainable growth in their Region, Member State and Europe. Louis Vervloet Joeri Colson General Director Project Manager ESF- Agency Flanders Thematic group Coordinator ESF-Agency Flanders2 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 3
  • 3. Index List of abbreviationsList of abbreviations 5 2.8.2 Quality management 52 CIP Competitiveness and Innovation Framework1. Introduction 7 2.9 Ensuring schemes are reaching out and meeting Programme 1.1 What is microfinance? 8 the needs of specific target groups 63 1.2 COPIE (Community of Practice on 2.9.1 Welfare bridge – transition from unemployment COPIE Community of Practice on Inclusive Inclusive Entrepreneurship) 8 to self-employment 63 Entrepreneurship 1.3 Aims of this manual 9 2.9.2 Cooperation and partnerships 64 DMI Deutsches Mikrofinanz Institut e.V. 2. Implementing microfinance as part of the policy cycle 11 2.9.3 Product design 65 EC European Commission 2.1 Agenda setting 11 2.9.4 Communication and marketing 68 ECB European Central Bank 2.1.1 Why should inclusive entrepreneurship 2.9.5 Processing time 70 2.9.6 Appropriate non-financial services 70 EIF European Investment Fund and access to finance be put on the policy agenda? 11 2.1.2 Microfinance in Europe 15 2.9.7 Gathering data on lending to target groups 71 EMN European Microfinance Network 2.1.3 Evidence for the need to put inclusive entrepre- 2.10 How to ensure quality in microfinance operations 72 EPPA European Parliament Preparatory Action neurship/access to finance on the policy agenda 17 2.10.1 Risk management 73 ERDF European Regional Development Fund 2.2.Creating a shared vision for inclusive entrepreneurship/ 2.10.2 Codes of Conduct 75 ESF European Social Fund mobilising key stakeholders for action/formulating an 2.10.3 Training and capacity building 76 2.11 Monitoring and evaluation arrangements, JASMINE Joint Action to Support Microfinance Institutions integrated strategy 20 2.3.Conducting an ex ante evaluation for the performance and results indicators 77 in Europe microloan scheme 25 3 Conclusions and Recommendations 83 JEREMIE Joint European Resources for Micro to 2.4 Formulating an integrated strategy for inclusive Bibliography 86 Medium Enterprises entrepreneurship/access to finance for all 28 Appendix 89 LMBL Mortgage and Land Bank of Latvia 2.4.1 Microfinance under ESF 29 a. Definitions 89 b. Community of Practice on Inclusive Entrepreneurship NRP National Reform Programme 2.4.2 Time period for fund implementation 35 2.5 How to select a fund operator 37 (COPIE) 90 NSRF National Strategic Reference Framework 2.6 How to select financial intermediaries 40 c. COPIE tools 93 OP Operational Programme 2.7 Organising the professional management of a d. The place of microfinance in the new programming SROI Social Return on Investment microfinance system – key intervention parameters 45 period 2014-2020 94 PSCI Programme for Social Change and Innovation 2.7.1 Complementing microfinance by interest rebates 45 Progress Microfinance and Social Entrepreneurship (PSCI) 96 2.7.2 Combining loans and grants 47 A framework for the next generation of innovative financial 2.7.3 How to share the cost of microfinance instruments – the EU equity and debt platforms 97 between stakeholders 48 e. Business support 98 2.8 Establishing synergies between financial and non-financial f. Performance monitoring 100 support schemes (at all levels) for busines starters 52 g. Microcredit programmes funded by ESF 104 2.8.1 Types of linkages 52 Microcredit programmes funded by the ESF in table form 1064 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 5
  • 4. 1 Introduction Of all EU businesses, 91.8% are micro1. ods based on credit histories to assess firms forms part of the 2008 Small Busi- This group of businesses is accountable their lending, and they take collateral ness Act, the Europe 2020 Strategy, the for more than two-thirds of the EU’s to secure it. However people from dis- relaunched Single Market Act and the workforce. Micro- and small enterprises advantaged groups often have neither a new EU Structural Fund programmes. are the engine of the European economy. business track record nor any collateral. Moreover, microcredit is being opera- However, setting up and developing Moreover, the financial crisis and the tionalised through the 2007 JASMINE a microbusiness in Europe is still bur- ensuing economic recession have made Technical Assistance programme, fol- densome. People from disadvantaged debt financing more expensive and dif- lowed in 2009 by the European Progress groups face particular difficulties in es- ficult to obtain, while regulatory reform, Microfinance Facility which provides tablishing a small business or becoming particularly the Basel II regulation, has €200m to European microfinance insti- self-employed, and this includes, but is made access to finance even harder. tutions in the form of loans, guarantees not limited to, (long-term) unemployed Banks are gradually withdrawing from and equity. Lately, financial engineering and economically inactive people, mi- the local and mutual economy, partially has been introduced as preferred strate- grants, young people, lone parents (of- as a result of stricter banking regulation. gy for the use of the EU Structural Funds ten women), disabled persons and sen- Therefore, the European Union has by Member States. iors. Beside high administrative barriers, made small enterprises and microcredit access to finance is a major problem for a high priority across the European Un- them. ion’s internal, regional, enterprise and Commercial banks are reluctant to lend employment policies. Improved regula- small amounts because the transaction tion and better access to finance by small costs of managing small loans are high and profit margins are low. This discour- 1 A ‘micro-enterprise’ is defined as ‘an enterprise which employs fewer than 10 ages banks from making business loans persons and whose annual turnover and/or annual balance sheet total does not exceed €2 million’. (Annex to Commission Recommendation 2003/361/EC of less than €25,000. Banks also perceive of 6 May 2003). In comparison, 6.9% of businesses are small (fewer than 50 lending small loans to self-employed employees), 1.1% are medium (fewer than 250 employees) and 0.2% are large persons and micro-entrepreneurs as too (more than 250 employees) (Eurostat – European Business: Facts & Figures, risky. They use elaborate scoring meth- 2009)6 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 7
  • 5. 1.1 What is microfinance? Thus, a distinction is generally made 1.2 COPIE Business Support and Access to finance Chart 1: Structure COPIE 2 between microenterprise lending and in- (Community of Practice for (for more information, see Appendix b orMicrofinance is the provision of basic fi- clusion lending. Microenterprise lending Inclusive Entrepreneurship) go to services to poor (low-income) targets nearly bankable clients (new and European Toolpeople, who traditionally lack access to existing enterprises) with loan amounts To develop more favourable conditions This manual was developed by COPIE’sbanking and related services (Consulta- at the upper end of the €25,000 limit. In for the growth of self-employment and Access to Finance thematic group. Quality Entrepreneurial Access to Integratedtive Group to Assist the Poor (CGAP) contrast, inclusion lending is intended for microenterprises in the EU, the Commu- Management Education Finance Business Supportdefinition). This includes credit, but “unbankable clients”, persons who are nity of Practice on Inclusive Entrepre- 1.3 Aims of this manualalso, for instance, microsavings, micro- likely to remain excluded from the bank- neurship (COPIE) was created in 2007. Itinsurance and microleasing. In the EU, ing system in the medium to long term. is a learning network of ESF Managing The COPIE Access to Finance baseline Action Planningthe focus is on microcredit. So far, only In fact, especially (long-term) unem- Authorities and Implementing Bodies study carried out in 2009 shows that de-limited experience with microsavings or ployed or economically inactive people at national and regional level in Europe. spite the high importance and growingmicroinsurance exists, mainly due to the who wish to take the first step to earning COPIE puts a focus on the ESF prior- recognition of self-employment, micro-strict regulation, for instance with regard an independent income often look for ity groups: the (long-term) unemployed, business and microcredit at EU level, of what worked and works especiallyto deposit-taking2. less than €5,000. In the same way, peo- economically inactive persons, single national ESF and ERDF bodies have only well. Examples that have been found to be ple who wish to make a transition from parent households, women, migrants very marginally taken up these issues in particularly innovative or can be consid-Microcredit is defined in the EU as the informal economy or from a low- and ethnic minorities, young people, their National Reform Plans3 and the as- ered as good practice are highlighted withloans below €25,000, and addresses two paid job to self-employment tend to take seniors and disabled persons. sociated operational programmes. a light bulb throughout the document. Togroups: small financial steps at first. The focus of COPIE is to describe and ex- This manual therefore aims to help ESF complement this, information about and As the cost of managing small loans is change good practice on inclusive entre- and ERDF Managing Authorities to organ- links to the current funding programmes- microenterprises, defined as enterprises high and as the target groups most often preneurship among EU Member States, ise the implementation of a microfinance are provided where relevant. employing less than 10 people need additional advice and business sup- to learn from each other and transfer scheme through financial engineering in- disadvantaged persons (unemployed port services, microfinance programmes knowledge and experience to other en- the framework of their inclusive entre- or inactive people, those receiving in Europe are hardly sustainable. Gov- trepreneurship support systems, in order preneurship policy.4 The document fol- social assistance, immigrants, etc.) ernment support is therefore needed. to close existing gaps or simply to pro- lows a step-by-step approach through the 2 Nevertheless there are successful examples such as the ACAF model of self- who wish to go into self-employment Experience shows that even if the micro- mote continuous improvement. COPIE main decision points in the policy cycle. financing communities in Spain (microsavings), the possibility of credit un- lending operations per se might be finan- has five thematic groups: Strategy and It also analyses existing microfinance pro- ions and cooperatives to take deposits as well as the microinsurance product but do not have access to traditional cially sustainable, the pre- and post-loan offered by ADIE in France. banking services Action Planning, Entrepreneurship Edu- grammes from COPIE partners and other 3 formerly National Action Plans for Social Protection and Social Inclusion advice will always rely on subsidies. cation, Quality Management, Integrated countries/regions and presents examples 4 A definition of financial engineering can be found in Appendix a.8 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 9
  • 6. 2 Implementing microfinance as part of the policy cycle The setting up of a microfinance and/or c) Organising the implementation of 2.1 Agenda Setting self-employment support scheme can be the scheme: 7) establishing synergies seen as part of a policy cycle with the aim between financial and non-financial of developing/ensuring an environment support schemes, and between na- 2.1.1 Why should inclusive entre- conducive to self-employment and busi- tional and regional levels, 8) pathways preneurship and access to finance ness creation. This process is composed from unemployment/inactivity to en- be put on the policy agenda? of three major parts: trepreneurship: ensuring schemes are Entrepreneurship and self-employment a) Identifying the place of inclusive en- reaching out and meeting the needs are labour market activation tools. trepreneurship policy in relation to of specific target groups, 9) quality Many people, especially from ESF target other active labour market policies: of microfinance institutions and ser- groups (unemployed people, migrants, 1) agenda setting, 2) creating a shared vices. women, people aged 50+, young people) vision/mobilising key stakeholders, have a hard time finding a job, but they 3) ex-ante evaluation, 4) formulating Each of these steps in the policy cycle could make very good entrepreneurs. an integrated strategy for inclusive is described below. Where appropriate, Supporting them in establishing a busi- entrepreneurship; cases from different EU countries as well ness or becoming self-employed is not b) Defining the place of microfinance as good practice examples are presented. only a way of usefully bridging periods in the inclusive entrepreneurship of unemployment and saving benefits strategy: 5) organising professional to be paid out. It is also a manner of de- management of a microfinance sys- veloping people’s creativity and innova- tem (key intervention parameters for tive potential and gives them a feeling of microfinance schemes, such as loans, trustworthiness and usefulness. Well-de- guarantees, interest rebates, fees, col- signed, inclusive entrepreneurship poli- lateral, grants, incentives for success, cies foster economic and social inclusion. who provides what, spreading of risk In the UK studies have been carried out and costs…), 6) how to select a fund to show the Social Return on Investment manager and financial intermediar- (SROI) of entrepreneurship and micro- ies; finance programmes, meaning that the Designing microfinance operations in the EU 11
  • 7. amount of public money granted to thescheme is a fraction of the amount of To help assess the current climate for 1) strategy, Application of the COPIE tool shouldmoney consequently saved in terms of inclusive entrepreneurship in a given 2) culture and conditions, lead into policy strategies to improve thesocial benefits that did not have to be country or region, the COPIE project de- 3) start-up support and training, performance of entrepreneurship sup-paid out to the beneficiary as he or she veloped the European Tool for Inclusive 4) support for consolidation and growth port systems in Europe.had become self-employed or found a Entrepreneurship ( andnew job owing to the microcredit pro- copie-tools-copie-diagnosis-tool). The 5) access to finance.gramme. Such evaluations show the so- COPIE partners have already tested thiscial and economic utility of microfinance tool in order to better understand the Germany: An assessment of inclusive entrepreneurship based on the COP-schemes. quality of their current mode of delivery IE tool was carried out in two sites: the city neighbourhood of Berlin-MitteSocial return on investment (SROI) and to detect their individual needs. Be- (2007) and the region of Rheinhessen (2008). In Berlin the availability of fi-“Social Return on Investment (SROI) analysis is a process of Net present value of benefits tween 2007 and 2010, the European Tool nancial products for new entrepreneurs was rated weak. In Rheinhessen the assess-understanding, measuring and reporting on the social, en- SROI = Net present value of investment was applied to 17 European regions and ment showed a strong commitment to support entrepreneurship, mainly due to thevironmental and economic value that is being created by an In 2005 WEETU (Women’s Employment, Enterprise and Train- cities. The tool takes stakeholders sys- existence of EQUAL projects, but a lack of financial support for entrepreneurs fromorganisation. SROI shows how social and environmental out- ing Unit), a Norfolk-based social enterprise and CDFI in the tematically through a process including vulnerable groups.comes translate into tangible monetary value, helping organi- UK, commissioned the Enterprise Research Centre to conduct an analysis and synthesis of enterprisesations and investors of all kinds to see a fuller picture of the an independent evaluation of the impact of its programmes in support in their region, sub-region or In the Belgian region of Flanders, the COPIE tool was applied in 2007 andbenefits that flow from their investment of time, money and terms of their effectiveness and social and economic returns to city. It is targeted specifically at entre- 2011 and revealed in 2007 that access to finance is the area in which the Flem-other resources. This investment can then be seen in terms of the wider community. WEETU’s Full Circle (FC) and STEPS preneurs from groups such as the unem- ish enterprise support system scores best. This area receives good scores fromthe return or the value created for individuals, communities, programmes aim to increase women’s economic and educa- ployed, women, migrants and ethnic mi- policy-makers and specialist advisors, but lower scores from entrepreneurs.society or the environment. […] tional opportunities. FC provides training, support and small norities, 50 plus, young people under 30, A key strength is the wide availability of start-up financing and this is true also forA SROI ratio is a comparison between the value being gener- loans to women who wish to start up or develop a business, people with disabilities and social enter- disadvantaged groups. However, points of improvement exist: the time delay untilated by an intervention and the investment required to achieve while STEPS helps women to re-enter the workforce or gain a prises. It consists of a matrix analysis that the subsidies are received is too long and the subsidy amounts are sometimes toothat impact. However, a SROI analysis should not be restricted better paid job. Looking at the 254 clients that benefited from identifies the main gaps or challenges to low, which causes liquidity problems for start-up firms. In Flanders, microfinance isto one number, which should be seen as a short-hand for ex- the programmes, the study showed – beside other benefits the support system for entrepreneurship provided mostly by the government, social enterprises and non-profit organisations,pressing value. Rather, it presents a framework for exploring – that for every £1 invested in WEETU, £5.80 of social value in the main themes of: so the report highlights the need to involve commercial banks. Another strong pointan organisation’s social impact, in which monetisation plays an would be created for society in terms of reduced welfare costs is the availability of high-quality financial management support for entrepreneurs.important, but not an exclusive, role.” (nef, 2008) and increased tax contribution. (Enterprise Research, 2005)12 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 13
  • 8. 2.1.2 Microfinance in Europe as customer evaluation models and scor- Different models of microcredit provi- ing from banks. sion exist in Europe. In Western Europe the sector has only started developing By contrast, in Central and Eastern Eu- since the year 2000, although some ini- ropean countries microfinance opera- tiatives had already been set up before tions have been in operation since the that date. Because of the strict regula- 1990s as private initiatives (often backed tory framework which gives banks the by international funders), started to fillSetting up an inclusive entrepreneur- exclusive right to grant credit, the link- a gap in an environment characterisedship policy means addressing all the age model prevails: support organisa- by a lower banking density. For instanceareas that are needed to create a favour- tions accompany the clients and cooper- in Romania and Bulgaria microfinanceable environment for would-be entrepre- ate with banks to disburse the loans. A organisations have a specific status asneurs from disadvantaged groups: en- legal exemption was introduced in 2001 non-bank financial intermediaries andtrepreneurship education, start-up and in France, where registered microcredit are allowed to lend. Moreover, special-business support, and access to finance. organisations fulfilling certain require- ised microcredit banks exist. Credit co-Regarding access to finance for entrepre- ments are allowed to borrow from banks operatives and credit unions are alsoneurs and self-employed people, public and on-lend to self-employed people and involved in microfinance and providefunders are tending to move away from microentrepreneurs themselves. In Italy, a wide range of financial services in-the provision of grants and towards the a similar law is currently being drafted. cluding saving and borrowing facilitiesdisbursement of repayable advances Although the linkage model results in and also insurance; however, normally,or microloans. Although new entrepre- more complicated and often longer loan their focus is exclusively or primarily onneurs certainly need some form of grants decision and disbursement procedures, personal finance and not on lending toand support via continued (unemploy- it does have certain advantages: while businesses. Financial organisations withment) benefits in the first months of their the banks obtain specific information on a specific legal status allowing them tonew economic activity, giving them ac- the customer segment and can outsource engage directly in microlending also ex-cess to loans rather than grants is not part of their operating costs, the non- ist in the UK. Here, specific non-govern-only a way of making them responsible, profit organisations support their initial mental, mainly non-profit and officiallybut also of sustaining financing possibili- target group with an extended range of non-bank organisations, the “commu-ties, where grants risk ceasing to exist. products while learning techniques such nity development financial institutions” Designing microfinance operations in the EU 15
  • 9. (CDFIs) lend to small businesses and individuals in disadvantaged areas. Based on 2.1.3 Evidence for the need tothe rationale of responding to market imperfections, promotional banks also engage put inclusive entrepreneurship/in microfinance operations, in the framework of public programmes. access to finance on the policy agendaChart 2: Microcredit organisations The most recent EMN Survey “Overview - Microloan sizes (including not only The October 2011 ECB Bank Lending “real” businessman/-woman. As a re- of the Microcredit Sector in the European business, but also personal mi- Survey shows that throughout the last sult, people are not able to realise their NGOs specialised in microfinance Microcredit banks Union”, which is based on data from 170 croloans) vary between €220 and two years almost a third of SMEs that business plans and self-employment and microfinance providers in 21 European €30,000, with banks, non-bank finan- applied for a bank loan did not get any microentrepreneurship are not able to ADIE in France, ANDC in Portugal Mikrobank in Spain, FM Bank in Poland countries, illustrates the heterogeneity of cial institutions and government bod- credit or got less than they applied for. reach their full potential. Their contribu- Inspired by international practice Transformed from NGOs/foundations to the European microfinance market (Jayo ies offering larger loans than credit Compared to 2007, the success rate in tion to job creation and economic inclu- Integrated non fiancial services bank et al, 2010): unions, NGOs, savings banks, and obtaining finance decreased by 19% in sion on the local, regional and national NGOs, focus on specific groups Credit cooperatives - Sixty percent of the respondents are foundations; 2010. And the highest rejection rate oc- level is limited. Where private initiatives not-for profit organisations (17% few- - Fifty-nine percent of respondent lend- curs among micro-companies employ- do not exist, public intervention is need- WEETU in GB, NCN in Norway Crédal and Hefboom in Belgium, er than in the previous survey); ers do not require guarantees; the ing less than ten people: a 16% rejection ed. Nachala in Bulgaria Small scale (exeption: Prince Trust) - Microfinance is provided by either remainder require either collateral rate in the period of March to August A telling argument in favour of promot-Finance seen as added value for enterpise Special legal status; in Romania, Poland, small organisations or bigger institu- or participation in a guarantee pro- 2011. A similar trend can be observed on ing the establishment of microfinance support Lithuania, Ireland, Great Britain tions (where microfinance represents gramme; the national level. schemes in Europe is the impressive up- Non-bank financial institutions Institutional support programmes only a small part of the overall activi- - The most pressing problem for the Small loans are not profitable for a bank. take of microfinance and entrepreneur- Patria Credit, ROMCOM-Romania Fonds de Participation in Belgium, ties). 24% of the responding lenders microfinance providers is the lack of Often, microentrepreneurs do not have ship programmes by new entrepreneurs Invega in Lithuania focus only on microfinance, while for access to long-term funding. normal bank securities and banks are and self-employed people. Different MFls in Eastern Europe almost half of the respondents the ac- unaccustomed to serving specific self- types of programmes and their results Part of existing programmes of CDFls development banks tivity represents only a small portion employment target groups, whose busi- are shown below.Fair Finance, Business Finance Solutions of the overall activities; ness plans might not conform to banking - Fifty-seven percent of the microfi- standards. Self-employed entrepreneurs Only in Great Britain nance organisations provided fewer (especially young people, women, mi- than 50 loans in 2009; only 13% pro- grants, persons working part-time etc.) Source: adapted from EMN vided more than 400 loans; do not fit the usual public image of a16 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 17
  • 10. ESF-funded microfinance programmes5 ciency and renewable energies). Only the tourism and ICT sec- nomic Affairs, Agriculture and Innovation, the Ministry of So- Nowak, at that time programme manager at the French Devel- In Latvia the “Support to Self-employment and Busi- tor did not match expectations – the €25,000 ceiling effectively cial Affairs and Employment and three major Dutch banks. The opment Agency, together with two other volunteers, founded ness Start-ups” programme was set up in 2009 with excluded many projects in these areas. Fifty-four per cent of Dutch Council for Microfinance with HRH Princess Máxima Adie with the financial support of several private founda- ESF and government resources totalling €32.7 million. all the fund’s microloans went to women, a very high rate as a member was the driving force behind the setting up of a tions, the government, the French development bank Caisse desThe purpose of the programme is to boost economic activity in when compared to other microloan programmes in the EU, coherent microfinance system (see 2.2). Dépôts et Consignations (CDC) and the European anti-povertythe country by developing the knowledge and skills of business where the average is around 33%. Qredits works nationwide in the Netherlands and provides fi- programme. Adie provides microfinance to socially and finan-start-ups and providing them with the financial support they nancing for micro- and small business up to €35,0006 (average cially excluded persons. Moreover, Adie’s advocacy activitiesrequire. The results of the programme so far (as of 02/09/2011) In Germany the federal guarantee fund “Mikrokredit- loan amount: €18,000) and coaching for existing and start-up have played a huge role in ameliorating the administrative andare convincing; they have exceeded the initial targets: fonds Deutschland” was set up in January 2010 with microentre¬preneurs. The government stands surety for 80% regulatory environment for microfinance and microenterprises• 1,938 signed agreements with applicants regarding partici- the sum of €100m (€60m from the European Social of each loan. In February 2011 Qredits also signed a €20 mil- in France. pation in the programme (target: 1,200 persons); Fund and €40m from the Federal Ministry of Employment and lion guarantee and loan deal with the EIF under Progress Mi- Today Adie has 463 staff in 130 branches and works with over• 1,033 persons trained (target: 1,200 persons) Social Affairs), with the aim of improving access to loans up crofinance in order to extend support under €25,000 to over 1,700 volunteers all over France and its overseas territories. It• 537 loan agreements totalling €9.31 million signed (target: to €20,000 for start-ups and microbusinesses. The goal of the 1,000 small businesses in the Netherlands, many of whom are provides microloans up to €6,000 that through combination 800 entrepreneurs); fund is to disburse 15,000 loans by 31 December 2015. Serving higher risk borrowers. Over the last three years, Qredits has with public loan funds can reach €11,000. Adie has public and• grants totalling more than €1.68 million issued. clients with a migrant background, women entrepreneurs and extended 1,750 microloans. Qredits’ objective is to become sus- private funding. The business support side, which is separate companies offering apprenticeships is of special importance. tainable by reaching a total of 7,500 applicants and 2,500 loans from the loan department, is dependent on subsidies. TheThe average loan amount disbursed is of €18,000, indicating Since the start of the fund in 2010, the number of disbursed disbursed per year. organisation cooperates with all French banks and has estab-that the entrepreneurs actually need lower amounts than was loans is more than 250% above what was initially planned. lished partnerships with private firms. Adie constantly pilotsinitially thought. By December 2011 6,600 microloans totalling €39m had been In France the microcredit organisation Adie was set new programmes such as Créajeunes for young people and a given out, with a default rate of only 3%. Forty-one per cent up in 1989 at a time when unemployment caused by programme for rural areas. Sardinia: The results of the ESF-funded “Fondo Micro- of the clients have migrant backgrounds and 33% are women. the restructuring of the economy became a major prob- Since its inception Adie has given out 93,011 microcredits total- credito” programme, which was set up on 4 December The main business areas are services, retail, catering and hand- lem and the RMI7 social allowance scheme was set up. Maria ling more than €255m (Adie, 2010). 2009 with a sum of overall €50m, show the high de- icraft.mand for such a programme: when the first call was launched 5 A summarizing table as well as a chart of all mentioned programmes can be found in Appendix 2009, there were nearly 2,400 applications. Out of these, 1,900 Microfinance programmes with a combination of public and 6 In November 2011 the loan ceiling was raised from €35,000 to €50,000 through an agreement with EIF.were eligible and 956 were accepted for a microloan. €41m was private funds 7 Until 2009, the Revenu Minimum d’Insertion (RMI) was a social allowance that applied to personsallocated. About 80% of the funded projects fall under the se- In the Netherlands Qredits started its operations in over 25 years of age who had exhausted their unemployment benefits or whose resources were inferior to a fixed ceiling. On 1st June 2009 it was replaced by the Revenu de Solidarité Active (RSA). It nowlected priority areas (mainly retail trade, manufacturing, social January 2009. The microfinance provider was set up in also applies to persons aged under 25, who are lone parents or who have already worked for two years.and personal services, environmental protection, energy effi- 2008 as a private foundation by the Ministry of Eco-18 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 19
  • 11. In contrast, the Lombardy region in Italy has decided on an already re-incentivising common vision as a basis to develop a strategy for labour market integration through microfinance:2.2. Creating a shared vision for inclusive the deep-rooted cooperative system. It is used as a channel to entrepreneurship/ mobilising key stakeholders for promote the labour market integration of socially disadvan- action/formulating an integrated strategy taged people.A precondition for designing an inclusive the ideology of any one particular politi- creasing the number of business start-ups The Greek EQUAL programme supported a num- Since 2008, the Italian region of Lombardy has run aentrepreneurship strategy is the crea- cal party. overall, and regional policy (revitalising ber of projects on social enterprise and inclusion. JEREMIE programme that is believed to be unique. Ittion of a common vision that is shared Self-employment, entrepreneurship and deprived urban and rural areas). However, these projects were run by many different uses €40m from ESF and private money from banksby all involved stakeholders. Ideas that microfinance are at the crossroads of Funding and carrying out pilot projects and fragmented organisations. It was only with the estab- to make loans of €4,000 to individuals, for investment in theare invented by somebody else tend to several policy fields: employment pol- on certain topics is one way to create a lishment of the Social Economy Law in September 2011 that shares of their co-operatives. The scheme was set up as a re-face more resistance than ideas that we icy (addressing problems of structural common vision. In many countries, pro- stakeholders, local communities, citizens and vulnerable sponse to the diagnosis that co-operatives and especially socialgenerate ourselves. It is not unusual for change in certain sectors and integrate jects on inclusive entrepreneurship have groups came together to build up social economy structures. co-operatives are excluded from the credit market – a fact thatorganisations to have different objec- target groups into the labour market); been carried out under the EU EQUAL The discussion and negotiation among all relevant parties to is aggravated by the financial crisis. Its objective is to improvetives. When undertaking any joint activ- social policy (combating the exclusion programme (2000-2008). Although such create the legal framework took about two and a half years. access to credit for co-operative members, in order to allowity it is therefore important to recognise of disadvantaged persons from financial projects tend to be quite diverse and do The social economy was also put on the internet and gath- them to buy equity in their businesses. It targets social co-op-that these exist, but also to identify areas and non-financial services relevant to job not always have lasting effects, they can ered opinions of all interested citizens. It is now planned to eratives as these create employment, especially for disadvan-of common ground where joint working creation); economic policy (boosting the form the cornerstone for a shared vision set up a Special Fund for Social Enterprises. taged people.can add benefits. It is also imperative that number of target group members, such about inclusive entrepreneurship. The scheme is in line with Italian reform policy since the 1990sinclusive entrepreneurship is not seen as as women, who create businesses or in- to favour cooperatives that provide social services. National law L. 381/1991 (as amended) provides the legislative frame- work for the cooperative system and, in particular, for social cooperatives that deal with disadvantaged people. Coopera- tives are supervised at regional level, and the region created the register for social cooperatives in 1998.20 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 21
  • 12. In the Netherlands, a common vision for microfinance was cre- In other regions such as Flanders large-scale consultations andated through the establishment of a steering group, the Coun- integration between structural funds and domestic govern-cil for Microfinance. ment resources have ensured stability beyond the political cy- cle. This is the case in the examples below. The Dutch Council of Microfinance In Flanders, the Ministry of Education, the Ministry of In Lithuania the need to expand financial services to In the Netherlands, until recently activities and public- Netherlands who has also been UN Special Advocate for In- Labour, the Ministry of Economy and SYNTRA Flan- SMEs and improve access to concessional loans and ity concerning microfinance focused on Dutch involve- clusive Finance since 2009. ders (the Flemish agency for entrepreneurial training) microcredits, venture capital funds and forms of loanment in developing countries without taking note of some ma- The Council was set up to make policy recommendations to collaborate in shaping policies and practices on inclusive entre- insurance has been included in most strategic documents, suchjor government programmes in the Netherlands that could be government through the Minister of Economic Affairs and to preneurship. A Steering Committee for Entrepreneurial Edu- as the Long-term strategy for Lithuania’s economic develop-categorised as microfinance programmes. A growing number formulate solutions to improve access to microfinance in the cation was set up. It consists of representatives from the private ment until 2015 (including the Small and Medium Businessof private foundations and other non-governmental organisa- Netherlands. Since early 2008 a special Support Bureau for Mi- offices of the ministers of Economy, Education and Labour, Development Strategy) developed by the Ministry of Economytions started microfinance projects in the Netherlands, often crofinance Initiatives has become operational within the Min- from the departments of Economy, Education and Labour and in 2002 in the course of the EU accession. It is based on a SWOTsupported by EU co-financing (mainly ESF, EQUAL) and with istry of Economic Affairs and funds have been made available from Syntra Flanders. External stakeholders (i.e. employers) (strengths, weaknesses, opportunities and threats) analysis oflocal funding (public and sometimes private). In 2007 McKin- to create a central facility to support local initiatives. The gov- are consulted on some topics, but they have not been included the country’s economy.sey carried out a market study to understand the feasibility of ernment has adopted the Council’s advice and has developed in the steering committee. In 2009 the economic crisis resulted in substantially highera microfinance project and the Ministry of Economic Affairs a comprehensive programme including coaching, mentoring Moreover, in the framework of PACT 2020 a large-scale consul- unemployment and a large number of small business failures.established the Dutch Council for Microfinance to promote and a guarantee scheme. This has enabled the establishment tation between government, social partners and civil society This unprecedented situation stimulated a search for new andmicrofinance inside the country. The Council consists of high- of the nationwide microcredit organisation Qredits. In 2011 the was held in 2009. PACT 2020 is a joint commitment to attain 20 sustainable ways to tackle these problems. Therefore, the Min-ranking individuals from the government and the private sec- Committee for Entrepreneurship and Finance was established objectives and meet concrete targets. Part of the strategy is an istry of Social Security and Labour (MOSL) and the Ministrytor including microfinance experts. Amongst its most promi- as successor of the Council for Microfinance. action plan for the promotion of entrepreneurship. Following of Finance (MoF) started to develop the Entrepreneurship Pro-nent members is Her Royal Highness Princess Máxima of the the consultation, the document was signed in 2009 by a large motion Fund in 2009. The aim of the programme is to promote number of stakeholders: the Flemish government, the employ- self-employment and entrepreneurship as a sustainable way ers’ organisations, the unions and the United Associations, an to keep people active in the business and labour market and umbrella organisation that represents hundreds of associations create more jobs. It focuses on disadvantaged target groups from civil society. (unemployed, disabled, young people under 29 and people over 50). The long-term target is to encourage a culture of self- employment and entrepreneurship in Lithuania.22 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 23
  • 13. 2.3. Conducting an ex-ante evaluation for the microloan scheme Another step in the decision process of In 2009 the German Ministry of Labour and Social Af- setting up a microfinance scheme as part fairs commissioned a study to assess the supply and of an inclusive entrepreneurship policy is demand by SMEs for loans and mezzanine capital up ex ante evaluation. Conducting an assess- to €20,000. This study was commissioned from the German ment of the market and client situation socio-economic research organisation FAST. It triggered the helps detect market failure, suboptimal establishment of the federal Mikrokreditfonds Deutschland investment situations and investment (Microcredit Fund Germany) scheme in January 2010. The needs. Such ex ante evaluation can be study first looked at the history of business start-ups by dis- done in house or carried out by contract- advantaged people and related support programmes, includ- ing external evaluators. Launching a call ing those funded by the ESF. It then presented the results of a for an external evaluation might be rela- demand assessment that built upon existing studies and sup- tively costly; however it guarantees an plemented them with new data. independent external view and provides The study came to the conclusion that despite existing busi- recommendations that overcome politi- ness support programmes access to small business loans in cal partiality. Germany was limited, especially for start-ups. Moreover, the authors stated that this trend was worsening owing to the economic and financial crisis, while at the same time more un- employed persons would wish to start a business. The study therefore recommended a decisive increase in the supply of microcredit as well as the creation of a source of mezzanine finance for this target group. It proposed a product framework for a potential supply of microcredit and mezzanine loans as well as a business model for its implementation (http://www. pdf?__blob=publicationFile)24 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 25
  • 14. In 2010 the Lithuanian Ministry of Economy contract- ship. In contrast, the microfinance programme is directed to a Where a similar programme has already microfinance mandates (http://www. ed the study Evaluation of the relevance of the Lithu- wider group of beneficiaries to reach all the people interested been run in the former programming anian legal and financial framework for the establish- in entrepreneurship. period, its results can be used as indi- Working_Paper_2012_13.htm). Moreo-ment and implementation of financial engineering measures for SME The region evaluated the potential social impact and economic cators to design the new programme. ver, the EIF commissioned eight countrydevelopment funded from the EU Structural Funds. It was carried and growth effects of using financial instruments or tools like This is a less precise, but also less costly studies on microfinance demand andout by three firms: PricewaterhouseCoopers, ESTEP and the microloans. These results were taken up to design the micro- method and seems rational if the new supply by banks and non-banks in thelaw firm Tark Grunte Sutkiene. The study concludes that most loan programme. The main goals are: to discourage the brain programme builds upon the former framework of the JEREMIE and JAS-of the financial engineering instruments, credit guarantees and drain and support entrepreneurship despite the financial crisis one. This was the case in Latvia, where MINE programmes in 2008 and 2009loans are available for small and medium businesses in the ear- and to encourage and favour start-ups and new investment an ESF-cofinanced loan programme run (Bulgaria, Czech Republic, France, Ger-ly stages of their activities. However, because the risk is greater, programmes for people with difficult access to credit, such as by LMBL that was closed in March 2008 many, Romania, Spain, the Netherlandsit is more difficult for them to obtain funding than it is for busi- the unemployed, handicapped people, ex-prisoners and inva- highlighted the high demand by start- and the UK). The studies revealed a di-nesses with a longer operating history and larger businesses. lids. ups for loans, grants and training. versity of approaches, methodologies, Additionally, when designing a microfi- instruments and institutions engaged The Basilicata region in Italy set up its microloan In Calabria (Italy), an empirical verification of ini- nance programme, it is useful to consult in providing as well as facilitating ac- programme in the framework of the 2007-2013 ESF tiatives to promote microcredit was carried out, in or- existing studies on microfinance that cess to financial services to underserved Basilicata OP after an analysis of the economic situa- der to acquire knowledge about the architecture and have been carried out on an EU-wide entrepreneurs, microenterprises andtion in Basilicata. This analysis showed that the economic and performance of operational and financial programmes. In the level. For instance, the European Micro- individuals. They show concern aboutfinancial problems of local enterprises are due to difficulties in course of this empirical testing as well as through meetings, finance Network (EMN) carries out its the fast-growing consumer-lending mar-accessing credit and subsequent undercapitalisation of micro- a business model was developed to optimise the microcredit Survey about the Microcredit Sector in ket. Moreover, they highlight the lack ofenterprises. Moreover, the region is characterised by net out- supply chain and reduce inefficiencies. In the preparation of the EU every two years (http://www. statistical data about microcredit on themigration, above all of graduates resulting in a loss of intel- the model, special attention was given to the identification of national level, especially from banks.lectual capital (“brain drain”). Although instruments for the the tasks and responsibilities of each person involved in the torielles_en.php). The European Invest- (http://www.european-microfinance.setting-up of enterprises already existed, such as the provision chain, including ministry, fund manager and financial interme- ment Fund (EIF) drafts Working Papers org/etudes-sectorielles_en.php)of a grant to new enterprises financed by Invitalia (the national diaries, in order to avoid overlapping functions and duplicated about microfinance in Europe such as theagency for inward investment and enterprise development), activities, thus minimising costs. January 2012 paper that gives an over-they were only partially directed to inclusive entrepreneur- view of the market and presents EIF’s26 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 27
  • 15. 2.4 Formulating an integrated strategy for inclusive entrepre neurship/access to European Progress Microfinance Facil- 2.4.1 Microfinance under ESF ity. These programmes have experienced To complement these broad initiatives long learning in Europe, in line with the finance for all significant take-up in the Member States. aimed at serving market needs, more revised Lisbon Strategy and the Integrat- The results of such studies lay the basis For instance financial intermediaries use targeted regional and national support ed Guidelines for Growth and Jobs. for designing an appropriate national or the CIP microcredit guarantee window in can be made available through the use As part of the political decision-making regional microfinance scheme. For this Austria, Belgium, Bulgaria, Ireland and of financial engineering instruments un- process for the Structural Funds, Manag- purpose, EU funding can be used. In the Spain (see: http://www.access2finance. der the EU Structural Funds (ESF and ing Authorities are asked to hand in, in Europe 2020 strategy entrepreneurship is eu/). JEREMIE funds for microfinance ERDF), through a direct contribution or April of each year, their National Reform seen as a key element in achieving smart, were set up in Greece, Malta and two by using the JEREMIE initiative.9 While Programmes (NRPs), the National Stra- sustainable and inclusive growth. The EC French regions. And Progress Microfi- ERDF resources are primarily used for tegic Reference Frameworks (NSRFs) therefore encourages Member States to nance is already used by 12 intermediar- support to enterprises (mainly SMEs), ur- and the related operational programmes put measures in place that promote en- ies in nine European countries ban development and regeneration, en- (OPs). In these documents, the Member trepreneurship and self-employment and ( ergy efficiency and the use of renewable States explain how they plan to translate foster access to finance. At the European crofinance/progress/Progress_interme- energy in buildings, ESF is used to sup- the targets and policy priorities estab- level, various programmes exist to fill diaries.htm). In the new funding period port self-employment, business start-ups lished at European level into their own the gap and support access to finance for 2014-2020 these different microfinance and micro-enterprises. More generally, national policies. The National Reform small business. These programmes are programmes will be streamlined under the ESF aims at increasing employment, Programmes (NRPs) are an important aimed at banks or MFIs that can disburse Progress Microfinance to avoid overlap- fostering entrepreneurship, enhancing instrument in the implementation of the loans themselves: the CIP Microcredit ping, in the framework of the EU Pro- inclusion and ensuring mobility and life- Europe 2020 strategy. Guarantee Window, the JASMINE pro- gramme for Social Change and Innova- grammes, the EPPA8 programme and the tion (PSCI). 8 JEREMIE (Joint European Resources for Micro to Medium Enterprises); JASMINE (Joint Action to Support Microfinance Institutions in Europe); EPPA (European Parliament Preparatory Action) 9 Under JEREMIE, the Member States and regions have the possibility to place part of their EU-allocated structural funds in a dedicated Holding Fund (HF) which acts as “fund of funds” or “umbrella fund”. The HF is governed by an Investment Board and may be managed directly by the EIF or by national institutions selected through public procurement. This is formalised through a “Funding Agreement” between the managing authority and the selected HF.28 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 29
  • 16. In several EU countries and regions,Managing Authorities have already im-plemented microcredit schemes in linewith the respective ESF operational pro-grammes. In Latvia the Support to Self-employment and Business In the Italian region of Sardinia, the Fondo Micro- Instruments co-financed by European loan processing and the actors involved. set the strategy for the fund and ensure Start-ups programme is implemented under the ESF credito was set up on 4 Dec 2009 with a sum of €30m Structural Funds fall under the responsi- In order to implement and run a success- that its objectives are met (see also 2.10 Human resources and employment OP, 3rd priority from ESF Priority Axis 3, later topped up by another bility of the relevant Managing Author- ful microfinance scheme the government – Monitoring and evaluation arrange-Promotion of Employment and Health at Work. Under the €20m. The programme objective is to improve access to the ity (MA). MAs operate on a national or needs to bring together comprehensive ments, performance and results indica-Employment measure the aim is to enhance the competitive- labour market, create jobs and support SMEs and self-employ- regional level e.g. a national ministry of expertise from the political, technical, tors).ness of people of economically active age on the labour market, ment. The scheme was established because economic analysis employment or a regional governmental regulatory and risk-related areas.through the promotion of self-employment and business start- showed that unemployment was high, especially among wom- body. When a microfinance scheme is set To align all actors with the objective of anups. The programme provides start-up loans of up to €76,830 en, and credit availability was more limited than elsewhere in up, however, different ministries beside initiative and bundle existing competen-for investment and working capital, with a duration of up to Italy. Moreover, several pilot projects had proven that there the Managing Authority need to collabo- cies together, most countries have decid-eight years. These loans can be coupled with grants. Along was a demand for microcredit. The programme makes loans rate. The ministries each have clear and ed to set up a taskforce or steering com-with them, training is provided to the entrepreneurs. to enterprises (not to individuals) of up to €25,000 in a number different responsibilities and perform mittee to prepare the setting up of the of priority areas, such as retail, manufacturing, social and per- their tasks under different political per- fund. Such a committee binds stakehold- sonal services, tourism and ICT. spectives (and sometimes different regu- ers at government level (in one ministry lations). It is therefore necessary to bind or stretching over several ministries), as together the unique competencies of dif- well as the other actors involved. This ferent government entities and to merge has proven to be an effective way of their different habits and attitudes. More- streamlining different views, bundling over, microfinance is embedded in sepa- skills and thus bringing forward policy rate national legal frameworks for credit implementation. services, consumer protection, tax, etc. After the setting up of the microfinance Legal regulation and restrictions have fund, a steering or monitoring commit- a fundamental impact on the design of tee is formed that meets regularly to30 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 31
  • 17. In Greece the ministries involved in the setting up of In Lombardy, several actors are involved in the JER- In Lithuania, three institutions, namely the Ministry of In Sardinia, the Managing Authority of the Fondo Mi- the loan fund for social enterprises are the Ministry of EMIE microfinance fund aimed at strengthening the Finance, the Ministry of Social Security and Labour crocredito set up in December 2009 is the regional La- Labour and Social Security and the Ministry of Econ- cooperative sector. Beside the ESF Managing Au- and the state-owned guarantee institution INVEGA bour Ministry. In cooperation with its Support Officeomy in close collaboration with the Employment DG of the thority, these are: Finlombarda (the in-house financial com- were involved in setting up the Entrepreneurship Promotion it coordinates the Fund’s actions, approves the most importantEuropean Commission. The Ministry of Labour is in charge of pany charged with managing the fund), other regional DGs Fund. During the design phase there were a lot of discussions documents for the implementation of the Fund, approves or re-the registration of social economy enterprises and the funding that have competencies in the field of the cooperative system with social partners (Ministry of Economy, financial institu- jects proposals and nominates the members of the Investmentof the Social Economy Fund (through the ESF) and the Minis- (DG Family Integration and Social Solidarity and DG Indus- tions and NGOs). A steering group consisted of delegates from Committee and Technical Office; it also verifies compliancetry of Economy is overseeing one of the candidate bodies for try, Craft, Building and Cooperation), financial intermediaries the Ministry of Finance, the Ministry of Social Security and La- with Art 60 of Reg (CE) no. 1083/2006, detailing the functionsadministration of the Social Economy Fund. The Ministry of and cooperatives and the Ministry of Welfare (as cofinancing bour and the guarantee institution INVEGA. of the Managing Authority of the Structural Funds.Labour has set up a task force for Social Inclusion and Social body). All these organisations (except the ministry) were in- In the fund, the Ministry of Finance is the Managing AuthorityEconomy which is running the project. volved in informal meetings and in the monitoring commit- and responsible for all financial issues; it supervises the select- tee, in order to verify the technical, economic and procedural ed fund holder, INVEGA, and a related ERDF-financed guar- sustainability of the intervention. After the setting-up phase, a antee scheme for SMEs. In contrast, the Ministry of Social Se- steering committee was established, charged with ensuring the curity and Labour (Implementing Authority) is responsible for correct and effective management of the initiative. The coordi- the practical implementation of services. Loans are provided nation has been fruitful: for instance, at the beginning, the pri- through LCCU, the federal organisation of Lithuanian Credit vate banks were reluctant to deal with disadvantaged people, Unions, which were selected as microfinance intermediaries. but after the coordination meetings, they fell into line.32 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 33
  • 18. 2.4.2 Time period for fund implementation Once the decision about the setting up of 1. Description of situation Submission of the business plan is fol- the fund has been taken and the involve- 2. Goals and targets lowed by information and negotiation ment of the main actors settled, a busi- 3. Tasks necessary to reach the targets between national/regional MAs and re- ness plan needs to be prepared including 4. Activities to complete the tasks sponsible EU authorities. Several factors the financial framework (EU funding / 4.1. Separation of accounting blocks influence the length of this process. As national or regional cofunding), stake- 4.2. Identification of human the Latvian experience below shows, the holders, tasks and processes, quality and resources existence of previous pilot projects, and quantity targets and indicators of the mi- 4.3. Structure of support department thus of knowledge of actors that could be croloan fund concerning loan disburse- 4.4. Chart of project management involved and their roles, facilitates and ment, beneficiaries (e.g. ESF priority and decision-taking process speeds up the process of setting up the groups), loan conditions, processing and 5. Loan products fund. exit strategies. 6. Loan conditions In Latvia, the business plan for the mi- 7. Criteria for receiving the loan croloan fund included the following in- 8. Lending process and formation: decision-making process 9. Risk management 10. Marketing activities 11. Loan fund operations 12. Indicators 13. Forecast cash flow34 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 35
  • 19. On 31 March 2009 the Latvian government approved In Lombardy the process from the development to the 2.5 How to select a fund operator regulations regarding the Support to Self-employment launching of the programme took longer as besides and Business Start-ups programme. It aims to provide the fund manager, financial intermediaries had to be Financial engineering instruments must be set out in a funding agreement, to be lic procurement law or through a direct business start-ups and newly established companies with selected. This was done by way of a call for expressions of in- be regarded as vehicles for the delivery concluded between the duly mandated contribution. comprehensive support – advice, training and financing in the terest. of repayable investments which contrib- representative of the financial engineer- shape of loans and grants. The regulations lay down the pro- ute to the achievement of the goals set ing instrument and the Member State or In general, the Managing Authority ar- End 2007: approval of the regional OP, including the cedure for use of the funds of the European Social Fund (ESF), out under specific priority axes of the the Managing Authority. ranges a public tendering procedure activation of a financial engineering instrument the state and the Land and Mortgage Bank of Latvia (LMBL) – re- operational programme. Financial engi- to appoint fund operators. However, if s sources totalling €32.7 million. July 2008: establishment of the fund neering instruments receiving financing As part of the decision-making process regional or national bodies like develop- The programme conditions and national regulations were de- s from Structural Fund programmes must the Member State or the Managing Au- ment banks (in-house providers) exist veloped by the Ministry of Economics as the responsible in- End 2008: agreement between Lombardy Region and Finlom- be set up either as independent legal en- thority must assess whether they want that already have sufficient experience of stitution. The programme is implemented by LMBL, but the barda (according to a pre-existing framework agreement) tities, governed by agreements between to implement the financial engineering managing a (holding) fund, they can be monitoring and auditing are done by LIDA (Latvian Invest- s the cofinancing partners or shareholders, operation through a holding fund or designated as fund operators without March 2009: approval of the investment strategy ment and Development Agency). The programme develop- or as separate blocks of finance within through a direct contribution from the tendering. In this case, a national/region- s ment was based on the experience of a pilot carried out in 2004- April-July 2009: selection of financial intermediaries (first call) a financial institution. Once they have operational programme to a financial en- al published law, regulation or admin- 2006. Setting up the programme from its development to its s been set up, the financial engineering gineering instrument. istrative provision compatible with the coming into effect took eight months: October 2009: agreement between Finlombarda and the instruments in either form are governed The (Holding) Fund holder or operator EC Treaty needs to be adopted that at- selected banks by specific rules, usually reflected in the manages the funds made available by ESF tributes to the national/regional body the January 2009: development started s applicable bylaws and other documents and ERDF. It can be a regional, national or exclusive right to manage the fund for op- s September 2010-May 2011: selection of financial March 2009: national regulations approved applicable to the financial engineering European public financial intermediary. erations during the 2007-2013 program- intermediaries (second call) s s instruments concerned, and operating Potentially all public financial intermedi- ming period (see Directive 2004/18/EC, Business Plan for Microloan Fund submitted to the National August-September 2011: agreement between Finlombarda on the basis of the business plan or other aries can become fund operators, includ- art. 18). Authorities and the selected banks appropriate document agreed with the ing those that already manage ERDF or s August 2009: Agreement between LMBL and LIDA signed managing authority or the holding fund ESF instruments. As part of the decision-(stipulating that the programme will be operational until June (COCOF_10-0014-04-EN). making process the Member State or the 2015 having provided advice and training to 1,200 start-ups, Managing Authority must assess whether and loans to 800 start-ups) The terms and conditions for contribu- they want to implement the financial en- s tions from operational programmes to gineering operation through the award of August 2009: Programme in force financial engineering instruments shall a public contract in accordance with pub-36 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 37
  • 20. Granting a direct contribution to an ex- No public tendering – Latvia and Sardinia The region of Sardinia selected the regionally owned A Member State or Managing Authority may perienced in-house provider has several Latvia decided to implement its microcredit pro- financial institution SFIRS SpA as fund manager. No also decide to implement the operation through advantages: gramme through a direct contribution to a financial public tendering procedure was carried out. The in- the award of a contract directly to the EIB or - efficiency: the cost of controls in the se- instrument. It applied a closed selection procedure for house provider was chosen for several reasons: the EIF owing to their special status as Com- lection phase and in the management the fund manager after approving the national legal basis. The - SFIRS has 45 years of experience in the development and munity bodies established under the Treaty. of the operation and administrative Mortgage and Land Bank of Latvia, a state-owned joint-stock support of Sardinian enterprises; There is also a possibility to have institutions burdens are lower; company, was selected as it has already gained expertise dur- - SFIRS’s balance sheets prove the experience it has acquired collaborating as co-fund operators, such as na- - reliability: a regional/national com- ing the implementation of a similar programme in the previous in similar operations in Sardinia and the availability of high- tional or regional financial institution working pany ensures consistency with the ob- EU funding period and has branches all over the country. The ly-skilled professionals; with the EIF, subject to a tender process. (http:// jectives of regional/national planning, business plan and application forms submitted were thoroughly - There is coherence with in-house providing principles: the transparent information flows and im- analysed, and their conformity with regulations checked. Sardinian region has a similar level of control as that, which htm#What%20is%20the%20role%20of%20a%20 mediate control. The bank has a specific structural unit, ALTUM, which provides it exercises over its own departments and an essential part of Fund%20Holder). loans and support of other types to entrepreneurs under national its activities are carried out with the controlling authorities. Once selected, the Member State or Managing If a regional or national entity is selected and European Union programmes. ALTUM was established in SFIRS has allocated 26 employees to the implementation and Authority needs to conclude a funding agree- as fund holder it should have: order to separate state support functions from traditional bank- management of the fund. ment with the fund operator. Such funding agree- - experience in managing financial op- ing services, according to the EU Commission requirements. ments must ensure the correct implementation erations (cofinanced by EU funds) and In-house provision was also chosen by the Calabria region for Separation of support functions and employees into a separate of the strategy – including goals to be achieved, knowledge of rules and procedures; the Microcredit Guarantee Fund. The financial company of the structural unit ensures that state support is not used to finance target sectors and beneficiaries/final recipients - the objective of supporting regional region, Fincalabra, manages the fund. the commercial activities of the bank. ALTUM employs highly- to be supported, as set out in the operational pro- development goals; qualified specialists, who have experience in handling promo- Public tendering procedure – Germany gramme – through a coherent investment strat- - a results orientation. tional programmes at the Mortgage Bank as well as public man- The German MA launched two public tenders. The first egy, range of products, likely project types and As already mentioned above, if a finan- agement institutions. ALTUM has 26 people working with the concerned the management of the fund assets (which targets to be achieved through the financial en- cial institutions such as a national finan- microcredit programme in the general office (including project according to German law had to be a regional or na- gineering instruments. The funding agreements cial body is selected as fund operator, the managers, risk department, credit department, etc.). There are tional public bank). The regional public bank of Lower Saxony should include a system of remuneration of fund fund should be located in a separate enti- also 12 consultants working in 10 branches and serving clients in – N-Bank – was chosen to administer the assets of Mikrokredit- managers that is linked to performance. Moreo- ty inside the institution, in order to strict- 29 cities as by travelling around the cities. The bank is currently fonds Deutschland. The second public tender concerned the ver the funding agreements must also contain a ly separate its public and private banking undergoing structural changes in order to increase the quality practical implementation of the loan fund activities such as the corpus of rules, obligations and procedures, to activities. This is for instance the case in and utilisation of the programme, and plans to almost double selection of intermediaries and establishment of MFIs, contract be observed by the parties concerned, regarding Latvia (see example alongside). the number of consultants and analysts working on it. management with MFIs, loan processing, IT, public campaigns the financial contributions made by the opera- to reach beneficiaries and the like. tional programme (COCOF_10-0014-04-EN).38 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 39
  • 21. 2.6 How to select a fund operatorIn the context of ESF support for self- sen directly by the fund operator. The Moreover, while some Member States Working with established financial institutions (banks oremployment a financial intermediary fund operator selects and signs funding contract established financial institu- promotional banks)is an institution that acts as an “agent” agreements with the national/regional tions, while others have set up a new PRO: Established financial institutions are alreadyand service and/or microloan provider financial intermediaries and then makes structure of microcredit organisations. used to working with IT information systems and havebetween those who want to implement a contribution of resources to them (item Accordingly, in Lithuania, it was decided qualified loan officers.a business support and/or microlending fees, lump sums, bonuses). The criteria to work with the existing credit unions, CONTRA: When working in a microfinance pro-scheme (e.g. government, programme that have to be considered by ESF au- which are able to serve clients through an gramme, a shift is required from simply selling a spe-authorities at EU, national and regional thorities when selecting a financial inter- extensive network of branches (e.g. the 57 cific financial product to adjusting both products andlevel) and those who need a loan for mediary depend on the legal and policy regional credit unions in Lithuania with services (based on solid experience of or research intobusiness purposes (e.g. business starters, framework and the specific requirements 154 points of sale, and cooperate with the the target groups) so that they genuinely help to in-self-employed people, microenterprises, of the microlending scheme e.g. the range labour exchange office, NGOs and com- crease income flows and the ability to repay the enterprises). A financial interme- and quality of services. Some schemes, munities) and are already used to credit Such a shift away from standard ways of proximity-diary or microcredit provider can be a like the German one, use linkage models procedures. Another option is to work driven credit provision might prove difficult for com-licensed public or private bank, credit un- between organisations from the business with promotional banks. This is the case mercial financial institutions. Moreover, commercialion, finance company, non-bank financial development sector and the banking sec- in Latvia where the Mortgage and Land institutions are likely to draw back from microfinanceinstitution like a microfinance institution tor to bring together different competen- Bank is in charge of loan distribution or in again once the programme stops.(MFI) or the like. cies or to fulfil statutory requirements, if Belgium where the Fonds de Participation/ When the decision is taken to work with a promotionalFinancial intermediaries can be selected banking law prohibits loan providing by Participatiefonds provided the Solidarity bank, it is important to take into account that such in-following a tendering procedure or cho- a non-bank MFI. Loan until December 2011. stitutions tend to be far away from the clients. It is rec- ommended to work in close relation¬ship with local partners or apply a linkage model; however the credit procedures should remain as simple as possible.40 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 41
  • 22. Credit unions Specialised institutions Linkage model In Lithuania non-banks are allowed to disburse con- Where a network of established financial organisations does In the United Kingdom the Community Develop- In Germany, only financial institutions are allowed to sumer loans, but not loans for business purposes. At not yet exist the alternative is to establish new structures like ment Finance Institutions – CDFIs (which are regulat- provide loans. Germany therefore applies a “linkage the end of March 2010 the fund manager INVEGA a nationwide network of microfinance institutions to ensure ed by the Financial Services Authority) have the right model” in the implementation of the federal guaranteelaunched an open international public procurement tender for broad access to microloans for self-employed starters and mi- to lend money to businesses, social enterprises and individuals fund Mikrokreditfonds Deutschland. The practical implementationthe selection of a financial intermediary. The financial inter- croenterprises. This option was chosen in Germany and in the who struggle to get finance from high street banks and loan of the fund is assigned to a private co-operative bank (GLS Bank).mediary LCCU in cooperation with 57 credit unions (with 154 UK (Community Development Finance Institutions – see be- companies. Although some of these institutions have existed The bank has the task of establishing a nationwide network ofpoints of sale), was selected at the end of July 2010 on the basis low). since the 1960s, the sector developed considerably when a pub- microfinance institutions to distribute the microloans to busi-of the criteria set for financial contribution rate, risk and profit lic fund, the Phoenix Fund, was set up, providing €42 million ness starters and small enterprises. These can be NGOs, businessmargin, accessibility of rural areas etc. The agreement between Establishing a new structure – pro and contra between 2000 and 2006 to support existing and emerging or- support centres, financial service providers etc. The scheme thusINVEGA and LCCU was signed on 30 July 2010. PRO: Working with new organisations that specialised ganisations. The Fund was formally terminated in 2008. involves local support organisations as key actors in the loan pro-The strengths of both LCCU and credit unions explain why in microfinance creates a specific dynamic; the opera- CDFIs provide loans and support to micro-, small and medium cess through a cooperation model with a private bank, in orderthey were chosen as partner in the Entrepreneurship Promo- tions of such institutions/organisations can be particu- enterprises, social businesses, community organisations, chari- to better reach out to the self-employed starters and microenter-tion Facility. The credit unions are already well equipped with larly well adapted to the aims of the scheme. ties and individuals. CDFIs can serve one or several of these prises, but also to fulfil the requirements of the Credit Servicesloan processing IT systems and have qualified loan officers for CONTRA: The process of establishing a new structure markets, but often they specialise in just one. Most lending Act. To become a financial intermediary under the fund, applyingloan decisions and ongoing services for maintaining and en- takes longer than basing a scheme on existing (com- by CDFIs is to microenterprises and social enterprises. Since organisations/institutions have to be accredited by the Deutschessuring loan repayments. mercial) financial institutions; it will also be more cost- 2002 the majority of CDFIs have joined the trade association Mikrofinanz Institut – DMI (see 1.10 How to ensure quality in mi- ly as the funders need to invest in institution-building. CDFA (Community Development Finance Association) which crofinance operations). During the implementation of the programme ways of now has 70 members. CDFIs who wish to become part of CDFA This model of practical implementation is based on previous becoming sustainable should be prepared with the or- must adopt the CDFA Code of Practice (see 1.10 How to ensure experience with the microfinance fund that was run from 2006 ganisations. quality in microfinance operation). to 2009, initiated with the support of GLS Bank, BMAS, BMWi and the federal promotional bank KfW-Bankengruppe. In this pe- riod, a support structure was established with the help of the EU EQUAL initiative. It comprises a country-wide network of local MFIs, with DMI as their umbrella organisation. During the first year of the scheme, the microfinance organisa- tions received a flat-rate fee of €800 per loan disbursed to cover the cost of the credit operations, advice and follow-up as well as their institution-building. Moreover, to minimise risk, they have to deposit an amount for risk coverage of at least €30,000 (see 2.9).42 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 43
  • 23. 2.7 Organising the professional management of a microfinance system – key intervention parametersA quality standard such as adhesion to 2.7.1 Complementing The interest rate should be adapted tothe European Commission Code of Good microfinance by interest rebates the repayment capacities of the clients; itConduct could become a pre-condition Microfinance providers have to apply should not be set too low, because, oncefor microfinance providers to be part of relatively high interest rates to cover the interest rebate disappears, the clientpublic microfinance schemes (see 1.10, their costs, because the effort of provid- will feel an enormous difference in theHow to ensure quality in microfinance ing small loans to high-risk groups is cost of the loan. In fact, statements fromoperation). elevated. The European Social Fund of- MFI practitioners in the EU such as Adie fers the possibility to apply an interest in France stress that a low interest rate is rebate so that the individual beneficiary not the most important factor for vulner- can receive the loan at market rates or able groups. Instead, what they focus on even below. This is highly important for is the need to access finance rapidly and entrepreneurs from disadvantaged target without complicated procedures, and groups with limited financial capacities. for the microfinance provider to show When applying an interest rate rebate it confidence in them, and do not consider should however be ensured that such a the cost of the credit as crucial. measure does not distort the market.44 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 45
  • 24. The Calabrian microcredit guarantee fund uses the 2.7.2 Combining loans and grants The Lombardy scheme which helps people to buy Latvia: To help businesses to achieve a sustainable cash ESF to provide an interest rebate. The fund was set up Besides interest rate rebate, grants are a shares and thus increases the equity capital of coop- flow during their first year of operation, the Latvian in 2010 to give financial support to start-ups and chose way of supporting entrepreneurs from eratives provides a different type of rebate. The pro- ESF-funded “Support to Self-employment and Busi-Fincalabra, a holding company 100% owned by Calabria Region, disadvantaged groups. For many years gramme does not use interest rate rebates, and accordingly the ness Start-up” programme offers financial resources in form ofas the fund manager. By January 2012, the programme had re- European Union Member States have fund selected, on purpose, financial intermediaries that pro- grants in addition to the loans. There are two different types ofceived over 900 applications and approved over 200 loans (loans used the Structural Funds to set up pro- pose low interest rates. However, the €4,000 microloans are di- grants:are of up to €25,000 over 5 years). The scheme consists of a €20m grammes that provide grants to busi- vided into two different components. Half of the loan (€2,000) - Grant for sustaining economic activities: this is available toguarantee fund (which guarantees 80% of the loan portfolio). The ness starters. However, recently there is an amortising component: a 5-year, monthly repayable loan businesses wishing to start or having already started eco-loans are given out by private banks involved in the programme has been a shift in emphasis from grants at a fixed rate. The other half (€2,000) is a bullet component: a nomic activities within the last year. These grants are dis-that obtain the money for the loans from the money markets. to repayable loans. The challenge is to zero-rate 5-year loan with a single repayment at the end. On bursed within one year after signing the loan agreement.There is also €4.5m for interest rebates, so that the final benefi- combine the existing grant and loan pro- condition that the borrower stays in the co-operative for five The grant is up to 35% of the amount of the loan, with a ceil-ciary receives a loan at 0% interest. Fincalabra repays the interest grammes into an effective system of fi- years and reimburses the amortising component, the bullet ing of €5,120. For the next 12 months the client has access to(at a fixed rate) plus a transaction fee to the banks. Finally, Fin- nance provision to small, starting entre- component can be converted into a grant. The amortising com- 1/12 of the grant each month.calabra receives a €2.5m fee to provide borrowers with ‘tutoring’ preneurs. Interesting ways of combining ponent is repaid to the participating bank, at a fixed interest - Grant for repayment of the loan: this is only given upon success-support for 24 months after start-up. loans and grants are used in Latvia and rate. ful implementation of the project and if the loan was used in Germany. compliance with the stated purpose. The maximum grant is The Lithuanian scheme uses ERDF to provide an interest €2,840, with a ceiling of 20% of the amount of the loan in the rebate. The Ministry of Economy is responsible for the case of businesses wishing to start or having already startedimplementation of the ERDF measure “Partial financing of loan economic activities within last year, and a ceiling of 10% ofinterest”. The borrower has to pay 3 months VILIBOR + 0.1% – the loan in the case of businesses that started the economicbut not less than 2% and not more than 6% – of annual interest, activities more than a year equity of the credit union (unchanging part of interest) which The take-up of grants is in line with expectations: an amounthas not to be more than 3.49 %. The borrower has a possibility to of €1.56 million in “grants for sustaining economic activities”get a 50% reimbursement of loan interest paid. At the moment the was issued along with €31,500 in “grants for repayment of theMinistry of Finance and the Ministry of Economy are working on loan”. Given these results, the Latvian authorities are aiming tothe legal acts needed to reimburse 95% of interest paid from the secure even more money for grants in the future.ERDF measure “Partial financing of loan interest”.46 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 47
  • 25. In Germany, microcredits can be combined with the 2.7.3 How to share the cost of mi- Germany (microloans only): In Germany, if an MFI Thus the following rules hold: Gründungszuschuss, the public start-up grant scheme crofinance between stakeholders wants to access the federal guarantee fund (Mik- - MFIs with loan losses of less than 10% receive a bonus for unemployed people. The start-up grant is avail- Financial institutions have to cover sev- rokreditfonds Deutschland) it first has to pay approx. of 10% of the loan amortisation from the fund, minus the able to people who are entitled to wage replacement benefits in eral cost centres: €6,000-8,000 for an accreditation/auditing process. Addition- amount of the loan losses. Accounts are settled annually. accordance with Book Three of the German Social Code (SGB - operational cost ally the MFI needs to finance its staff (loan officers), invest- - MFIs with loan losses higher than 10% pay up to 20% of III) or were employed in a job creation measure. When taking - refinancing cost ments (e.g. IT equipment), working capital (office, application their loan portfolio to compensate for the loss of loans. up self-employment, the founders must be entitled to at least - cost of provisions forms, marketing material, training, networking) and deposit It should be noted that here, too, a 10% bonus on the an- 150 more days of unemployment benefit. Since December 2011, In the case of microfinance, financial ad- capital for 20% risk sharing (min. €30,000). nual amortisation is allocated. unemployed persons are no longer automatically entitled to vice and loan follow-up (including crisis However, Mikrokreditfonds Deutschland also supports MFIs the start-up grant, but must prove that they have the necessary intervention) for the target clients make with two incentives (revenues coming from the investment of To cover this liability the microfinance institution must deposit knowledge and abilities to be self-employed first. In case of up another important cost centre. Busi- the fund assets): in a fund account a sum equal to 20% of the estimated yearly reasonable doubt as to the applicant’s knowledge or abilities, ness development services such as train- • item fees for processing and administering the loans (anal- total loan portfolio as a form of insurance (minimum €30,000). the Employment Agency can demand or offer participation in ing and coaching are an additional service ogous to the flat service fee which banks receive for the ad- Some MFIs get additional financing from their regional pro- aptitude tests or in measures to prepare the applicant to found to be financed. The whole amount of this ministration of public business loan programmes); the item motional banks (public-private partnerships) or have partner- a business. An expert authority must examine the start-up pro- cost can hardly be covered by the interest fees will diminish as the expected rate of loan disburse- ships with enterprises (corporate social responsibility) to cover ject and certify its viability. Expert authorities are chambers of only. In particular, loan-follow up and ad- ments rises (2011 = €800; 01/2012 = 650; 07/2012 = €500; financial gaps. industry and commerce, chambers of crafts, professional or- ditional business development services 2014 = €300; 2015 = € 200). To pay for bonuses and item fees, the bank partner in the fund, ganisations, expert associations and financial institutions. need to be supported by public funds. • bonus for successful loan repayments (fund) / risk shar- GLS Bank, pays a commission of 5% of the guarantee to the Gründungszuschuss is granted in two phases. In the first phase When designing a microloan scheme, ing for loan losses (MFI): the MFIs are liable in terms of fund from the interest received (8.9% effective interest). The of six months, the amount equals the unemployment benefit positive and negative incentives to the “first loss” for all loans recommended by them. This liabil- remaining approx. 3.5% are used by the bank to pay its own last received plus €300 for social security. The €300 compo- fund manager and the financial inter- ity is limited to 20% of the total yearly loan portfolio. For refinancing cost and cover the cost of account management. nent can be continued for a further nine months if intensive mediaries should be provided so that losses exceeding this margin the fund is liable with its prop- business operations and full-time business activities can be they fulfil or even exceed their mission erty. The fund’s risks are managed so that prior to possible proved. It is not possible to apply for a repeat grant for a pe- in terms of volume of activity, risk indi- loan losses beyond 20% loan provision can be suspended, riod of two years. cators and target groups reached. Such with the consequence that the MFI generally bears the full incentives can be given through the pro- costs on its own. In turn the fund will grant the MFI a bonus Content/Leistungen/Foerderung-der-Aufnahme-einer-selbst- vision of guarantees, spreading the risk of 10% of the loan amortisation. stae-EN.html and cost of the operations, as well as bo- nuses and fees.48 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 49
  • 26. Lithuania (microloans and training): The Entrepre- fund). There is no additional cost for loan disbursement, except neurship Promotion Fund provides €12.16m from a low fee (about €10) for the examination of applications, while the ESF, match-funded with €1.35m (10%) from the management fees covered by the managing body (staff costs,credit unions (LCCU). INVEGA’s administration costs (man- subcontracting, etc.) and related to the implementation of theagement fee up to 2% of €14.5m) and LCCU/regional credit initiative are charged to the fund.union costs (administration and training/consultancy fee upto 3% of €14.5m) are covered by fund capital. The borrowers In Calabria the fund operator Fincalabra receives aboutpay from 5.49% to 9.49% interest to the regional credit union. 2% of the fund to cover its operating costs. FincalabraLCCU takes the whole risk of lending and pays interest on for manages the guarantee fund which covers 80% of thethe money received to the manager of the Entrepreneurship loans made to microenterprises/SMEs by commercial banks.Promotion Fund (INVEGA). If there is no ERDF guarantee, the Although they have to cover 20% of the risk themselves, theborrower has to provide a 100% guarantee. This guarantee can scheme is attractive for banks as Fincalabra immediately ad-be through a pledge on equipment, a mortgage or a guarantee vances them 80% of the amount when they disburse a loan toby another member of a credit union. a final beneficiary. However, there is a procedural problem: al- though Fincalabra examines applications quickly, it then passes Lombardy (microloans only): The cost of the whole them to the bank which has to approve them separately as it initiative is funded equally by private and public re- bears 20% of the default risk. Banks are very slow to do thissources: 50% of the cost is borne by the financial intermediar- – they can take six months. Fincalabra gets a 10% bonus if theies (amortising component of the loan), while the remaining businesses it supports are successful. Moreover, a €2.5m fee for50% is charged to the fund (bullet component and guarantee tutoring for 24 months after start-up is provided to Fincalabra.50 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 51
  • 27. 2.8 Establishing synergies between financial and non-financialsupport schemes (at all levels) for business startersNon-financial services are key to microfi- support needs to be targeted at the types organisations in 21 European countries, Integrated Microfinance and BDS Programmes (Multiservice microenterprises: the service includes financial advice, but nonance provision in Europe, especially for of entrepreneurs (solo, micro, small, me- 81% provide some form of BDS). Often, Provision): Some countries like Belgium (Microcredit Busi- business coaching or training. In contrast, the federal BDS pro-organisations and programmes that work dium etc.), the types of businesses and a mix between group training and indi- ness Line), Lithuania (Entrepreneurship Promotion Fund) and gramme Gründercoaching Deutschland (Federal Ministry forwith disadvantaged people. Non-finan- the phase of enterprise development (see vidualised support (coaching) is offered. Latvia (Support to Self-employment and Business Start-up) Economy and Technology) offers exclusively business supportcial services comprise the financial advice chart in appendix e). While 20% deliver BDS to their clients on combine BDS and microloans within their programmes. Peo- for starters and companies (for five years after start-up – but nothat is directly linked to the microcredit, Disadvantaged groups and people liv- an obligatory basis, another 20% require ple who intend to start a business and have no business plan pre-start coaching). Consumer protection legislation does notas well as pre- and post-loan business ad- ing in disadvantaged areas tend to rely their clients to take up BDS in some cases or business records can participate in an advice and training allow (lease add: MFI or BDS) to offer the combination of thesevice. As financial advice and follow-up on a circuit made up of different public only and 14% provide BDS only if the cli- programme first, before they are allowed to submit a loan ap- separated programmes (prohibition of bundle contracting).can be considered part of the microcredit and semi-public agencies working at the ent asks for it. Finally, 27% do not provide plication. In this spirit the loan is an integral element of a pub-operations themselves, this chapter focus- boundaries between social security, em- BDS themselves but do refer clients to lic support programme for personal asset building/capacity Various Structures (Microenterprise Lending / Microlend-es on business support. ployment and enterprise policy. Here, one other providers (EMN, 2010). building for (disadvantaged) starters. ing / BDS / Multiservice-Provider): In some countries like theAlthough there is still no comprehensive often finds inappropriate and overlapping A well-established linkage between finan- United Kingdom and France a broad range of suppliers of pureresearch on the effectiveness of business sources of business support for small en- cial support and BDS is of benefit for all Separation between Microenterprise Lending and BDS Pro- microfinance exists, but there are also multi-service providerssupport, it is a commonly accepted view terprises; they rarely form a genuine sys- – the beneficiaries, the MFIs and the BDS grammes: In other countries, the public support programmes offering both finance and BDS, as well as community networksthat low-income starters are in particular tem capable of effectively accompanying providers. Broadly three different types of for microloans and BDS are separated. For instance, in Ger- combining solidarity loans with business support by localneed of Business Development Services disadvantaged groups along an itinerary combining microfinance and BDS can be many the federal microloan programme Mikrokreditfonds volunteers. In many cases microfinance institutions and BDS(BDS) such as training (for instance group towards independent income generating distinguished: Deutschland (Federal Ministry for Labour and Social Affairs) providers need to draw up complex contracts and put a lot oftraining) as well as coaching and men- activities (Wikipreneurship). offers exclusively microloans to self-employment starters and effort into administration to combine the fragmented funding.toring (carried out on a one-on-one basiswith an entrepreneur) before, during and 2.8.1 Types of linkagesafter the business start-up, in addition to In its biannual Survey of the Microcredit Sec-the financial support. This enhances the tor, the European Microfinance Networksurvival and growth chances of their en- shows that the great majority of microfi-terprise and also minimises credit default nance providers in Europe do offer sup-risk where a business loan was taken out. port services to their clients in additionBut, just like the financing, the business to the financing (out of 170 microcredit52 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 53
  • 28. Good practice Which form of linkage between financ- improvement. The tool looks at pre- All in one – A structured business support pathway for which orchestrates the inputs of grassroots youth organisa- ing and BDS is used depends very much start-up support, post-start-up support, young people tions, mainstream business advisers and financial institutions on the local context. Effectively coordi- access to finance, infrastructure, quality In order to support young people facing the confusing maze into a tailor-made package of support for young people. Dur- nating the business support services that and business start-up regulations. More of complicated procedures and support agencies, the Verbund ing each phase of the support pathway, the partnership pulls are provided by various organisations information on the COPIE tool can be Enterprise EQUAL partnership developed a structured busi- in different specialist and mainstream providers to provide and ensuring their quality is a major found here: ness support pathway made up of four clearly defined stages: specific services. challenge. To set up a good support sys- node/87. profiling (lasting about four weeks), planning (3-12 months), However, one of the problems encountered with a multi-stake- tem for inclusive entrepreneurship the A holistic approach to combined busi- start-up (approximately six months), and consolidation and holder system like this is how to ensure quality along the en- local business support structure needs ness support for young people was de- growth (3-5 years). tire pathway. In order to do this, Verbund Enterprise started to be deeply analysed and well under- veloped by Verbund Enterprise as part Each stage involves the provision of a variable menu of servic- to design an Enterprise Quality Management Structure (EQS) stood, the main actors for cooperation of the ESF EQUAL programme. Another es (counselling, training and qualification, mentoring and ac- which covers all four stages of the support system. Finally, one identified, and an intensive exchange interesting programme cofinanced by cess to microcredit) which help the entrepreneur to acquire the of the most distinctive features of Verbund Enterprise’s work process carried out. The COPIE Euro- the ESF is implemented in Flanders by personal competences, skills and resources that are necessary has been to create an enterprise passport that provides a clear pean tool can be used to analyse the local UNIZO and the public employment for success. One innovative feature of this programme is the and transparent road map of the progress made by the entre- and regional environment for inclusive agency VDAB. It leads people from un- change from the concept of ‘one-stop-shop’ (one organisation preneur at each stage. ( entrepreneurship and identify areas for employment to self-employment. trying to do everything under one roof) to that of a partnership cial/equal/data/document/etg2-suc-verbundentrep.pdf)54 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 55
  • 29. Integrated Microfinance and BDS Programmes Latvia: In the Support to Self-employment and Business Lithuania: The financial intermediary LCCU, the na-Ondernemen Werkt / Enterpreneurship Works Integrating financing and business sup- Start-up programme, the consultations on drafting the tional network of credit unions, works with 11 sub-This Flemish coaching programme is a partnership between port seems to be a good option to ensure business plan and implementation of the project are contractors who specialise in providing training andUNIZO, the Union of Self-Employed and SMEs, VDAB, the that entrepreneurs can access adapted provided in the branches of the bank. Additionally, a public consultancy. Support is provided in the pre-start, start andPublic Employment Service, and Syntra, the Entrepreneurial financial and non-financial support at tender was issued to select high-quality private consultancy growth phases of self-employment, new micro- and small busi-Training Network, with the financial support of the ESF and the stages of development of their enter- firms to provide training. Applicants who lack theoretical and ness (not older than one year and social) and social enterprises.the Flemish community. The target group of the programme is prise when they need it. It can be done practical knowledge on business operations are offered the fol- There are two types of training: 1) general training “Basics ofjobseekers who want to start up their own business. through sub-contracting BDS provision lowing training modules: entrepreneurship“ and 2) entrepreneurship training: “Crea-The programme consists of several steps: to specialised training and consultancy - business basics (80 hours) tion of a business plan”, “Accounting and tax basics”, “Busi-1. The first meeting takes place at the VDAB with an ‘Entre providers. This has been shown to be - management basics (20 hours) ness and labour law basics”, “Business management basics”, Mirror’, a self-assessment questionnaire that establishes the an effective way of ensuring that benefi- - regulatory framework of business (20 hours) “Marketing basics” and “Human resources in business”. Gen- entrepreneurial competences of the applicant. ciaries receive high-quality services. - financial management of company (20 hours) eral training is obligatory for all participants and entrepreneur-2. The second step is the exploratory phase of maximum six - accounting and taxes (20 hours) ship training can be chosen according to an assessment of the months, where the applicant is coached to develop a Per- - fundamentals of marketing (20 hours) skills and needs of a start-up. The sessions are free, optional sonal Development Plan and an Action Plan. No more than two modules of training are allowed. This sys- and based on the ‘first come first served’ principle. Clients are3. The third step is the preparatory phase, also of maximum tem works well, as both financial and non-financial organisa- free to take all modules if they wish or only choose some. Ac- six months, where the entrepreneur is coached to apply for tions are specialised in the support they offer. cessibility to training and consultancy in different regions of an appropriate loan and to start up his activity. For the loan Lithuania is ensured as training is organised in 15 towns in all application UNIZO works together with the Participation counties of Lithuania. Moreover, co-operation was started with Fund/Hefboom/Crédal in order to provide a microloan. non-governmental organisations, the labour exchange office4. The last step is the actual start-up of the business. and communities to better reach out to ESF priority groups. So far, the number of training sessions attended is in line with the objectives (3,343 by 31 December 2011). LCCU has accepted the challenge of managing this project, which includes not only distributing the loans but also organ- ising the training and consultancy. The reason for this is that LCCU is interested in high-quality work with participants, but also in the growing potential client base for the credit unions participating in the project.56 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 57
  • 30. Separation between Microenterprise Lending andBDS Programmes Germany: Through the ESF-funded business support combination is possible. Moreover, the Gründercoaching can- Besides sub-contracting, working with France: The French microcredit provider Adie has disbursed more than programme Gründercoaching starters and entrepre- not be used for the development of the business plan. This volunteers can be a (cost-)effective way 93,000 microcredits since its establishment in 1989. Alongside the financing neurs who have already set up their business, but less means that the entrepreneur has to go to another organisation of providing training and coaching. In the organisation itself provides extensive complementary business supportthan five years ago, can receive coaching for 12 months. The that offers either paid advice in this regard or has a subsidised fact, many microfinance organisations in services for microentrepreneurs before, during and after the loan has been taken out.coaching can concern financial advice, the development of a (e.g. ESF-funded) counselling project. It is also problematic that Europe have chosen to work with volun- This includes group training, coaching, a telephone hotline and online advice. Adiemarketing strategy or conducting a market study. The pro- the maximum duration of the coaching is only 12 months and teer coaches (the coaching is done as a works with more than 1,000 volunteers who dedicate several hours or even days ofgramme is managed by the German federal bank KfW. The en- once started no interruption is allowed. This means the bor- volunteer activity in parallel with an in- their time each week to this task. Adie’s dedicated business support staff providetrepreneur receives a grant to partially pay the fees for a coach. rower cannot receive any more coaching if he/she has a prob- come-generating activity (job) or a pen- clients with an introduction to Adie’s services as well as training. Before workingThe amount covered is 75% in Eastern Germany and 50% in lem with the business after 12 months has elapsed. sion), mostly owing to limited financial alone, a new volunteer works together with another more experienced volunteer forWestern Germany, of a maximum of €6,000 of fees. For starters resources for BDS. several months.who are unemployed 90% of a maximum of €4,000 of coachingfees is covered. Applications for the grant need to be handed United Kingdom: The Prince’s Scottish Youth Business Trust (PSYBT) helpsin at one of the regional partners of KfW such as Chambers of young people aged between 18 and 25 in Scotland to become successful en-Commerce or start-up and business support organisations. trepreneurs, by providing financing and additional support. Since its incep-For microcredit institutions, combining a microloan with tion, PSYBT has helped over 12,000 individuals start over 10,000 businesses, 81% ofGründercoaching is difficult. Microcredit organisations that which continue to trade after their first year in business and 60% of which are stilloperate under Mikrokreditfonds Deutschland must not make trading after three years. It works with a volunteer network of 750 individuals. Everyparticipation in Gründercoaching they provide themselves a two years PSYBT organises a conference for volunteers. In 2011 over 200 volunteersprerequisite for receiving a loan. This is prohibited under Ger- from throughout Scotland attended to share best practice and new ideas and discussman consumer protection legislation. In principal however a hot topics such as social media, sales, marketing and aftercare.58 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 59
  • 31. Regarding the quality of working with volunteers, there are In Germany, once approved for Gründercoaching, the mixed results. In her study Volunteer versus Paid Coaches within entrepreneur can search for a coach in the KfW on- Microfinance Initiatives (2011), Margot Lobbezoo from the Dutch line database that includes more than 13,000 coaches. INHolland University of Applied Science Research group on The search can be done regarding the specific theme or area Microfinance and Small Enterprise Development concludes of coaching that is needed, the phase of development of the that there is no evidence that a particular coaching model (with enterprise, the region where the enterprise is located and the volunteers or with paid coaches) is more effective. However, business sector. The database also provides a feedback func- she advocates that political or financial reasons for choosing tion which allows the entrepreneur to rate the coach once the one model or the other should be made transparent. Moreover, services have been received. according to the study, it is not clear what impact supplanting dex.php?ac=consultant_search an existing coaching industry with volunteers has for the sus- tainability of the BDS market in the country. There is a risk of Netherlands: Qredits is the only microfinance institu- crowding out markets. tion operating nationwide in the Netherlands. It uses To effectively link entrepreneurs and coaches the internet is sophisticated IT support in several parts of the process more and more widely used as a tool for business support. in order to create a sustainable approach. Beside microcredit, Through the web basic information and support such as busi- clients also receive coaching for at least the first year. The mi- ness and financial plan templates and good examples of busi- crofinance organisation is currently developing its digital da- ness plans can be provided. For instance, in the Netherlands tabase whereby clients can select their own volunteer coach the microfinance organisation Qredits triggers the interest of online, the Coaching Pool ( Moreover, potential entrepreneurs by using its homepage to ask simple through this system, Qredits loan agents can access the reports questions to make them think about their business. A financial written by the coaches about enterprises financed by Qredits in module translates their answers into the necessary financial an online logbook. figures. The web can also be used to link entrepreneurs and coaches. In Germany entrepreneurs can choose their coaches through an online database, and a similar system is currently being set up in the Netherlands.60 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 61
  • 32. 2.8.2 Quality management 2.9 Ensuring schemes are reaching out and meetingThe COPIE sub-group on Quality Man- with potential entrepreneurs. It provides study concludes that: “Using indica- the needs of specific target groupsagement (QM) has carried out work to its standards to government-funded de- tors for comparison will only work afteridentify quality standards for business partments, agencies and bodies and to agreeing which indicators are needed Serving socially excluded people is one well as providing appropriate non-finan- the Irish system people get income sup-support. It has developed a curriculum major small business support organisa- most and deciding on what method to of the raisons d’être of microfinance in cial services. Of course, this needs to go port on a decreasing scale over a periodfor a business advisor training course tions (banks, trade associations, major use to gather the information. It would Europe. Individuals from disadvantaged along with a favourable environment for of two years, and there are no barriers orbased on eight training modules as well training providers and educational insti- be a step forward if, in the Netherlands population groups face a higher risk of making the transition from unemploy- penalties if the person wants to returnas a “Business Advisor Passport” (Bera- tutions). SFEDI standards can be down- but also the other countries, agreement financial exclusion and they encounter ment to self-employment. to the benefit system if their enterpriseterInnen Pass), an individual planning, loaded here: could be reached concerning two or particular difficulties in accessing suit- should fail. This transition period allowscontrol and documentation instrument standards-setting-body/standards/ three indicators that should be used for able financial services. The reasons for 2.9.1 Welfare bridge – transition people to test the income-earning capac-for business start-up advisors. More in- downloads. measuring improvements achieved, at this are varied: little personal capital, from unemployment to self-em- ity of their enterprise. (FACET BV, nef,formation about the Quality Manage- To make sure that the services match entrepreneurial level, in each project, lack of collateral or guarantees, little or ployment EVERS & JUNG, 2004)ment toolbox developed by COPIE can the clients’ needs it is also important to with guidelines on how and what to no credit history, lack of skills; further- Microfinance schemes can only reach out Moreover, establishing a favourablebe found here: carry out regular evaluations of the sup- measure.” (INHolland, 2011) more they tend to ask for relatively small to disadvantaged people if the environ- context for self-employment and micro-copie-tools-quality-management. port measures. The INHolland study loan amounts, which banks perceive as ment for starting a business or becoming enterprises also means decreasing theThe work of the QM subgroup draws mentioned above highlights the fact too risky. self-employed is safe enough for them administrative barriers and charges thaton the standards established by SFEDI, that the business support should be ana- Microcredit is not intended as a substi- to risk the undertaking. Unemploy- microenterprises face. A good examplethe Small Firms Enterprise Development lysed separating the different modes of tute for bank credit. Rather, it helps ex- ment schemes need to be designed so as of this is the French auto-entrepreneurInitiative, founded in 1996. SFEDI, a provision (training, coaching, mentor- cluded people to integrate later into the to build a bridge and not penalise self- system. Under this system, no socialnot-for-profit organisation led by exist- ing etc.) and the different points in time banking system. Microfinance providers employed people and entrepreneurs. charges or taxes need to be paid un-ing entrepreneurs and business owners, when they are provided (pre-, during or therefore need to implement methodolo- This means that unemployment benefits til the new business starts to generateis recognised by the UK government as post-start up), in order to detect which gies to ensure that their products reach and social security contributions should sales, and small businesses are chargedthe national standards-setting body for service has the most impact and to know the excluded clientèle and provide them still be paid out in the first months of a a percentage of their actual turnover inbusiness support for microenterprises how these services best support each with a link to the mainstream financial business’s life. Moreover, if the entrepre- social charges and income tax. Also, anand solo entrepreneurs. SFEDI has de- other. However, European-wide indi- system. Methods range from design- neur has to close the business down, he improvement in the business registra-veloped standards for entrepreneurs, cators evaluating business support do ing suitable products to special forms or she should be entitled to unemploy- tion process results in less paperwork forbusiness advisors and staff working not yet exist. Therefore, the INHolland of communication and partnerships, as ment benefits again. As an example, in small businesses.62 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 63
  • 33. 2.9.3 Product design 2.9.2 Cooperation and partner- Lithuania: In the Entrepreneurship Promotion Fund, Germany: A key element in reaching the desired tar- In order to serve excluded people, mi- ships the credit union umbrella organisation LCCU has to get groups and quantities was the establishment of crofinance organisations provide loans Microfinance is based on proxim- ensure that persons from priority groups can access broad coverage in all German federal states through with characteristics such as small loan ity. Therefore, access to the programme and take part in training, and that they receive a pre-set tar- local microfinance institutions – MFIs (NGOs, business sup- amounts, alternative guarantee options, should be ensured through as many get of loans made: 30% priority group participation in training, port centres, financial institutions, etc.) that are responsible for transparent pricing and flexible repay- contact points as possible. Moreover, to 15% of loans. LCCU provides more and longer consultations client acquisition, credit analysis, ongoing client monitoring ment rates. Methodologies such as step make a microfinance programme known for persons from priority groups and gives more attention to etc. The NGOs and firms (MFIs) target different geographi- or group lending are suited to under- it is useful to work in collaboration with assessing their needs. To reaching priority groups LCCU also cal areas (local, regional, national) and different target groups represented entrepreneurial groups, too. partners such as local or national NGOs, collaborates with NGOs, local labour offices, business centres (self-employment starters, micro¬enterprises, ESF target Moreover, microfinance organisations community organisations, professional and various state institutions. So far 3,343 clients have taken groups). They are often themselves closely connected with for- that work with staff from the same com- organisations, banks, social welfare cen- part in training (objective by 3 December 2015: 5,000) and 160 mal and informal networks related to their areas of operation munity, area or social background as the tres and employment offices, depending loans have been disbursed (target: 1,200). Prioritised target and target groups (women’s networks, associations and coop- entrepreneurs themselves have proven on the focus of the programme and its groups10 are over-represented when it comes to training: 1,912 eratives, migrant communities, social entrepreneurship com- to be especially successful in reaching target. Working with such organisations (127% of the target), but under-represented when it comes to munities etc.); this seems to be a key for informal marketing. out to underrepresented groups. and institutions helps to spreading the credits disbursed: 80 (44% of the target). The success of the The MFIs can also work with distribution partners/resellers.   word about the programme and attract training courses in the Lithuanian case clearly shows the need In this case however the fund requires a written agreement be- new clients. and demand for training by entrepreneurs from target groups. tween the two parties based on cooperation standards that ex- clude any additional fees or bundle sales. Ensuring that qual- ity standards are applied by distribution partners is a critical point for the MFIs. The German Microfinance Institute, the umbrella organisation of all German MFIs, is therefore cur- rently working intensively to ensure that strict cooperation standards are applied by all MFIs/resellers. 10 The target groups in the Lithuanian scheme are: business start-ups (in- dividuals), micro- and small enterprises (new enterprises or existing en- terprises not older than one year) and social enterprises; moreover some priority groups are defined: unemployed, disabled, young people and people over 50 years of age64 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 65
  • 34. Good practice France: In developing countries, many microfinance training in the field and regional coordinators manage the field organisations use group lending as primary micro- workers. As of June 2011, the project is working with 220 po- credit methodology, taking advantage of the mutual tential clients, 19 groups have been formed in 60 settlements inaid and solidarity in the groups and the social pressure of Eastern Hungary and Budapest; the number of active clientsgroup members to repay the loans. In contrast, group lending is 85; and 49 loans have been made totalling 31 million HUFis very uncommon in the individualised European societies – (approx. €97,800).nearly exclusively individual loans are given out. However, The programme has provided important insights. This in-the French Adie has developed a successful group lending cludes the need to select clients and build groups very care-programme. It targets people from immigrant communities fully. Moreover, one of the most serious barriers for Roma(especially from Mali and Senegal) who have conserved their integration through entrepreneurship is the lack of a ‘welfareorganisational modes based on collective solidarity. Loans are bridge’. Start-up entrepreneurs have to pay social securitygiven to groups of maximum four persons. At the same time contributions based on the minimum wage of some €300 perAdie supports them in formalising their activities. In 2011 Adie month – yet the welfare benefit most Roma are entitled to isprovided 34 such group loans in the Parisian suburb of Mon- only around €100 per month. Qualifications are another factortreuil (Adie press release, 11/12/2011). of exclusion: even selling vegetables from a barrow in the street requires a diploma requiring 70 hours of study. (Wikipreneur- Hungary: The Kiútprogram pilot project aims to pro- ship and Kiútprogram Interim Report, 06/2010-06/2011) mote the integration of Roma in Hungary through self-employment and microcredit. It was launched Germany: The German Mikrokreditfonds Deutschlandwith private funding and, since 2009, also has ERDF support. uses step lending to keep risk low and ensure that theIt uses the group lending model, and makes loans to groups financing is adapted to the reimbursement capacity ofof around five people. Loan amounts go up to a million forints vulnerable groups. The first loan for a business starter can go(€3,500) and the interest rate is 20%. For regulatory reasons up to €10,000. The second loan has a maximum of €15,000 andthe organisation works with the Raiffeisen bank to do the lend- the third €20,000 and can be used to finance tight liquidity po-ing. Field workers continuously receive dedicated practical sitions or to pre-finance contracts.66 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 67
  • 35. 2.9.4 Communication and mar- keting The best form of communication depends Sardinia: In order to inform all stakeholders, a com- Moreover, the internet and especially so- In Germany, an internet campaign for the microcredit very much on the national or local con- munication and information campaign was carried cial media (Facebook, Twitter, LinkedIn fund was launched in January 2012: Mein Mikrokredit text, the aims and capacities of the mi- out in the three months preceding the launch of the etc.) can be used as powerful tools to ( The aim is to inform the crofinance programme and its financial first call of the programme. The Department of Labour set up a reach out to (new) clients. In Europe, public about the programme and streamline the communica- intermediaries. Amongst possible com- head office and seven permanently staffed branches for micro- the best-known microcredit organisa- tion material. The webpage displays information about the munication tools are local/regional news- credit. Information was officially circulated to the presidents of tions such as Adie in France, PSYBT in fund and credit conditions, a search engine to find out about papers, information leaflets, TV and web- the eight districts of Sardinia and to the mayors of the 25 most Scotland and Qredits in the Netherlands microcredit providers as well as short videos of microentrepre- sites. Large communication campaigns important cities, and meetings were held in all major towns. make extensive use of social media. neurs. Moreover, all MFIs operating under the fund can use should be used with caution as microfi- All in all meetings were held with about 3,500 people in all Costs are low and specific groups can be the advertising material such as banners, posters and flyers nance providers risk being overrun by in- Sardinian regions. The scheme was also publicised through the easily targeted. Examples of using social through an internet platform where they have some scope to quiries, most of which might not be in line newspapers, a TV talk show and the internet site of the regions media for specific goals are the announc- individualise them (for instance by adding their logo and ad- with the objectives or requirements of the of Sardinia, the Fund Manager, the regional Ministries of La- ing of conferences and workshops, or the dress). The MFIs have to pay for this service. It is still too early programme. Targeted communication – bour and all Employment Offices on the island. marketing of new loan products. Moreo- to assess the impact of the campaign. for instance through displaying flyers and The results are convincing: after the first call, applications ver, social media can be used by the en- information in labour offices, banks or the came in from 290 of the island’s 377 municipalities. Fifty-two trepreneurs to be part of a professional offices of other private or public organisa- percent of approved loans went to women. This is the best network. However, the time needed to tions, the organisation of local/regional female participation rate in a microcredit programme in Eu- use social media well should not be un- seminars and meetings as well as word- rope known so far, besides Lombardy, where the female rate derestimated. of-mouth advertising – has proven to be is equally high. In contrast, the female participation rate in mi- effective for microcredit. Another way of croloan programmes is for instance 36% in Calabria, 35% in promoting a microcredit/microenterprise Germany and only 25% across the EU. programme is through organising entre- preneurs’ competitions. This method is used in Latvia where a special competi- tion for young people called “Jump into Business” – is organised. A similar com- petition for seniors is planned.68 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 69
  • 36. 2.9.5 Processing time applications and being equipped with 2.9.6 Appropriate non-financial UK – Association of Community-Based Business 2.9.7 Gathering data on lendingFor people who need a microcredit to an efficient management information services Advice (ACBBA): Community-based business sup- to target groupsstart their business, it is important to system are important tools to speed up It is particularly true of people from un- port (CBBS) is an innovative approach to delivering In order to be able to track data aboutreceive the money without any com- the process. Moreover, if there is a credit derrepresented groups that they do not business support to groups that mainstream agencies find dif- lending to specific target groups, firstplex procedures – and rapidly. For many committee to decide on loan provision, it only rely on financial support, but also ficult to reach. It was developed and operationalised in London there needs to be a precise determina-people, asking for a microcredit is the needs to meet regularly – here again in- on additional help in the form of pre- through two EQUAL projects (REFLEX – Regenerating Enter- tion of the target group (starters, self-last resort in a long chain of attempts ternal communication through an MIS or and post-loan training and coaching, fi- prise through Facilitating Local Economic Exchange, 2001-2005 employment starters, (micro)enterprises,to obtain credit from banks and other the internet can be an advantage. In case nancial education and advice. However, – and SIED – Supporting Inclusion though Enterprise Devel- specific target groups or business sec-financial institutions. If the process of of linkage provision in cooperation with the business support needs are often opment, 2005-2007). The model involves embedding business tors) as well as clear definitions, forreceiving the microcredit takes too long, a bank, it should be envisaged to leave specific to some groups, for instance mi- support within existing community organisations that address, instance of “immigrants/ethnic mi-they risk becoming discouraged – and the decision on a loan to the support or- grants and ethnic minorities. As for the for instance, religious or welfare needs. Based on this experi- norities”, “young people” or “disabled”giving up. Microfinance schemes there- ganisation. This is the case in Germany, loans, it has proven successful for busi- ence, in 2004 the Association of Community-Based Business persons. This needs to go hand in handfore need to ensure that the processing where the private cooperative bank GLS ness support services to work with staff Advice (ACBBA) was founded as an umbrella organisation with increased data collection on socialtime from the loan application to the Bank automatically approves all loan who have a similar origin or socio-eco- connecting advisers from a variety of communities. ACBBA performance indicators so as to ensuredisbursement of the credit is as short as proposals handed in by the MFIs. The nomic background as the entrepreneurs, works in cooperation with SFEDI, and most ACBBA business that microfinance providers reach out topossible. Therefore efficient procedures design of the microfinance scheme en- or who are specifically trained in how to advisers have achieved SFEDI accreditation. Moreover, ACB- excluded target groups in line with theirneed to be put in place, for the loan ap- sures that the MFIs have enough (posi- help disadvantaged groups. BA has published its own toolbox: How to Be a Brilliant Com- mission (see 2.10: Monitoring and per-plication and screening, the loan deci- tive and negative incentives) to only munity Based Business Adviser formance Indicators) .sion and the actual disbursement of the accept loan applications that they have ( Using the internet to receive loan screened thoroughly. business-advisers). The CBBS model is not the only approach to reach out to hard- to reach groups; but it has proven to be a successful model where mainstream programmes often fail. Community devel- opment finance institutions that work in deprived areas, such as Greater London Enterprise, cooperate with ACBBA.70 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 71
  • 37. 2.10 How to ensure quality 2.10.1 Risk management Lithuania: In the Entrepreneurship Promotion Fund, in microfinance operations In the ESF-funded programmes, risk credit unions have the means and access to verify the management/monitoring systems have credit history and to estimate and monitor risk. Each The European microcredit market is a been set up so as to control the quality of client is requested to open a bank account with the credit union young and growing sector which has operations. In this regard, in the case of so that the balance of the account can be seized in case of de- considerable potential. However, this linkage models of microcredit provision fault. If there is a problem with the repayment of the loan, the market is still quite heterogeneous owing (NGOs/support centres working in co- credit union will talk to the client to find a solution. If the loan to the disparity of the legal and institu- operation with a bank), it is particularly is not repaid, the client will be put on the block list. Whether tional frameworks in the Member States important that financial intermediaries the credit union goes to court to enforce repayment and seize and the diversity of the microcredit pro- have immediate access to reliable data the collateral depends on the amount of the loan. Normally viders. As a consequence, lending prac- on repayments (and thus loan defaults) credit unions face a portfolio at risk (over 30 days) of 3 to 4% tices in microcredit vary considerably from the bank in order to be able to mon- and a write-off rate of 0.2%. For the microcredits a write-off depending on the type of institution pro- itor effectively and follow-up on repay- rate of 1% is predicted. viding microloans, its legal set-up, the ments with clients in a timely manner. Regarding business support, INVEGA organises half-yearly environment in which it operates and its meetings and training sessions for the specialists of all credit own ability to apply sound and efficient unions participating in the project. This training is financed management procedures. Thus, ensur- from priority 1 “Quality employment and social inclusion” ing quality in microfinance operations of the Human Resources Operational Programme measure is a crucial preoccupation, especially in “Development of human resources in enterprises”. The imple- times when microfinance is receiving menting period of this training project is from April 2009 till harsh criticism in many developing and March 2012. LCCU aims to train 200 people. transition countries where the unprec- edented growth of microfinance coupled with unethical lending practices has led to high levels of over-indebtedness of cli- ents. Several mechanisms to ensure the quality of microfinance operations have been developed.72 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 73
  • 38. Under the German Mikrokreditfonds Deutschland The second feature – based on the data of the loan contracts 2.10.2 Codes of Conduct ards for both the management and of the code for those who have endorsed scheme, the national federal organisation Deutsches – delivers an overview of the performance of each MFI (for in- Besides supervision and risk manage- the board of microcredit providers; it. It will help potential borrowers to Mikrofinanz Institut e.V. (DMI) plays a significant role stance the number of loans disbursed, loan sizes, statistics on ment, codes of conduct for microcredit or- 3. Common reporting standards: This sec- identify local and regional microcreditin ensuring the quality of operations using the microfinance gender, share of migrants) and can be used to produce various ganisations have been developed, above tion details which indicators micro- providers and will also allow potentialfund. DMI was set up after the finalisation of several microfi- statistics. The main purpose of this feature is to enable monthly all the European Commission’s Code of credit providers must collect, report investors to liaise with the microcreditnance pilot projects and during the funding period of EQUAL. risk reports to be compiled at the 15th of each month. This is Good Conduct for Microfinance Provi- and disclose; providers listed in the JASMINE OnlineIt supports capacity building for MFIs, carefully prepares po- an important control and steering tool for the cooperating GLS sion. It primarily addresses non-bank 4. Management information systems: This database.tential MFIs via an accreditation/auditing process and enables Bank and Mikrokreditfonds Deutschland. MFIs going above microcredit providers: http://ec.europa. section details common standards for The European Microfinance NetworkMFIs to take part in a process-driven know-how exchange and the limits of certain performance indicators – determined as eu/regional_policy/thefunds/instru- management information systems; (EMN), the major microfinance networkmethodology development. The DMI accreditation process is “risk classes 1-3” by the Portfolio of Risk (PAR) – have to work ments/jasmine_cgc_en.cfm. The Code 5. Risk management: This section details in Europe, has also developed a (less ex-made up of 12 steps that lead the organisations through all out an action plan on how to overcome problems, otherwise was published in October 2011. It sets common approaches and procedures tensive) Code of Conduct to ensure thetopics they will face during their microfinance activity. The GLS Bank is allowed to reject their loan recommendation. An out good practice guidelines and identi- for managing risk. quality of services provided by its mem-support for accredited MFIs also includes networking and ex- action plan can for instance prescribe changes in microlending fies expectations and common principles A sixth section on Social performance, cov- bers. It features a list of Client Protectionchange with other practitioners as well as the provision of an methodologies or new methods of client acquisition. to support the microcredit sector in fac- ering ethical and social aspects, will be and Organisational Principles that areIT management information system called Inthepro. The system Furthermore, DMI organises regular transfer workshops to ing the challenges of accessing long-term added to the document in 2012. binding for the EMN and its member or-imports account balances once per day; the complete lending boost networking and the exchange of experiences and consoli- finance, maintaining and raising the ganisations:data are imported three times per month. One of the system’s dated findings among MFI practitioners. Additionally a project quality of services and moving towards The existing code will be field-tested http://www.european-microfinance.features is monthly client monitoring by email (on the 10th of funded by the Federal Ministry of Labour and Social Affairs sustainability. The code is divided into over 12 months in 2012. It will influence org/data/file/section_qui_sommes_each month). The client answers three questions and marks them sponsors transnational know-how exchange with MFI practi- five indexed sections comprising several experienced MFIs, and it also contains nous/approved-emn-code-of-conduct-from +3 to -3: the state of well-being, the state of business, and tioners from France, Italy, UK, Spain and Poland. DMI is also clauses: relevant information for stakeholders oga-2010-final.pdf.the capacity to pay (there is also space for personal remarks). involved in the pilot implementation of the EC Code of Good 1. Customer and investor relations: This wishing to establish a microfinance sec- In the United Kingdom, the nationalThe answers (reported using a traffic light system depending on Conduct for Microcredit Provision in Germany and intends to section covers the obligations of mi- tor. In the course of the year 2012 the umbrella organisation of microfinancethe marks the client has given) can be stored and give an over- integrate the code into its accreditation process. crocredit providers to customers and code will be complemented by JASMINE providers CDFA has designed a Code ofview of the development of a microenterprise over time. investors, and their rights; Online, a web application primarily in- Practice for its members. 2. Governance: This section covers stand- tended to facilitate the implementation74 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 75
  • 39. 2.10.3 Training and capacity building 2.11 Monitoring and evaluation The European Microfinance Network (EMN) offers a num- arrangements, performance and United Kingdom: All community development fi- ber of services, such as training, study visits and technical results indicators nance institutions (CDFIs) are required to work in assistance, to assist microfinance organisations in developing compliance with a code of practice developed by the high-quality services. Training concerns, among other things: One key element of programme governance is the continu-CDFIs’ trade body, the CDFA, with mentoring from the Finan- operational issues (such as delinquency management, risk, ous assessment of policy impact. Only if goals exist can thecial Services Authority (FSA). New members are given a copy marketing and performance measurement), advocacy for MFIs, effectiveness of the policy and its components be determined.of the code with their application form and, upon entry, have a outreach to target groups (women and migrants) and financial Side-effects must also be discovered and reckoned with. Theyear to meet its conditions. Existing members have one year to education ( output of such evaluation processes may be no change, minorcomply with the code or risk termination of membership. The formation_en.php). Peer-to-peer visits enable EMN members modification, overhaul or even (but rarely) termination of thecode of practice is tied to CDFA’s Change Matters Performance to visit each other, exchange experience and learn (http:// policy. The feedback provided by evaluation is injected backFramework, a financial, organisational and impact monitoring Techni- into the agenda-setting stage, thus closing the loop of the cycle.and assessment tool which examines CDFIs in three key areas: cal assistance is provided in the form of on-demand consulting The European Commission recommends that the fundingimpact, financial activity and business activity. for MFIs through coaching, training and long-term assistance agreements of ESF-funded schemes at all levels establish a ( structure for the remuneration of fund managers linked to technique_en.php). Moreover, the European Commission performance, namely through formulae which take into ac- provides technical assistance for non-bank MFIs under the Jas- count benchmarks for effective investments in financial engi- mine Technical Assistance programme, managed by the Euro- neering instruments and from these to repayable investments pean Investment Fund effectively paid to final recipients. It is also recommended ( that performance-based remuneration should be linked to the index.htm). quality of investments effectively made, namely measured Under the banner of Jasmine Microfinance Development Services through their contribution to the achievement of the strategic it also organises workshops on important themes related to mi- objectives of the operational programme, as well as the value crofinance and provides an online Helpdesk: of the resources returned to the operation from investments undertaken by the funds, in line with the specific objectives asminhelp&lang=en and investment strategy of the financial engineering instru- Moreover, the ESF can be used to pay for the capacity building ment. of financial intermediaries and business support organisations.76 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 77
  • 40. Lombardy: The financial intermediaries track mainly In Latvia, the Ministry of Economics regularly moni- The Ministry of Finance is responsible for reporting to the Eu- To track MFIs’ financial and social performance, the the financial performance of the initiative, through tors the implementation of the programme and the ropean Commission. It drafts an annual report and provides European Microfinance Network has developed a periodic reporting. The data provided, concerning the Ministry of Finance as Managing Authority performs relevant information by filling in the form according to the list based on the international standards used by MIXtargets reached, the investments and the progress of the refund additional supervising activities. The Ministry of Economics COCOF Guidance Note on Financial Engineering Instruments un- Market (financial) and the Social Performance Taskprocess, give the Managing Authority all elements it needs to evaluates the results of the programme according to the follow- der Article 44 of Council Regulation (EC) No. 1083/2006. Force (social). It has adapted these international indi-evaluate the performance and the success of the operation. ing indicators, which are submitted to them using quarterly cators to the European context. EMN asks EuropeanBased on the periodic monitoring data and reports a steering reports or meetings: In Germany Mikrokreditfonds Deutschland has a microfinance organisations to provide this informa-committee provides orientations for the scheme. - applications received Board of Management that meets regularly. It decides tion regularly in its bi-annual sector survey (see ap-The Managing Authority analyses data and assesses the opera- - persons receiving consultations on general strategies and the product framework (co- pendix f).tion with regard to: - persons trained operation contract with MFIs, loan size, interest, item fees and The European Commission has also included the- efficiency of financial intermediaries (time to evaluate ap- - business plans submitted bonuses for MFIs, marketing campaign). It is composed of the main financial and social performance reporting indi- plications, time to disburse) - loans issued Managing and Funding Authorities: the Ministry of Labour cators and disclosure standards for microfinance pro-- effectiveness (loans disbursed, cooperatives reached, disad- - grants issued and Social Affairs and the Ministry of Economics and Technol- viders in its European Code of Good Conduct (Chapter vantaged people involved) Besides quarterly progress reports, at least once a quarter a ogy. 4 – Reporting standards). The list is provided in ap-The results of this analysis are reported in the annual report steering group is organised at which LMBL, LIDA, the Min- The German ESF MA submits an annual report to the Euro- pendix f. More in-depth social performance reportingand are available to meet any other requests of the European istry of Economics and the Ministry of Finance are present to pean Commission with all information and makes additional standards are currently being developed.Commission (i.e. audit). Moreover an independent evaluator discuss the progress of the programme both quantitatively and reports during the year on numbers of loans disbursed and Microfinance performance evaluation frameworksassesses the progress and the outcomes of the operation. So far qualitatively and to resolve any problems. total loan portfolio. that are shared and filled by all actors have also beenthe evaluation has concerned: The Ministry of Economics as responsible authority also makes developed on the national level in France (Valentin- the relevance of the instrument semi-annual and annual reports regarding all activities to the et al. – CNIS, 2011), the UK (Change Matters Perfor-- the effectiveness of the initiative in terms of targets reached, Ministry of Finance as managing authority. mance Framework) and Germany. While this report- effects on the cooperative system, utilisation of the loans ing is being piloted in France by the public statistical- the efficiency of the financial intermediaries In Lithuania, a committee for the supervision of the office and reported to the Banque de France, in the UK fund observes the implementation of the investment the umbrella organisation of microcredit organisa- strategy and plan, the results achieved and actions tak- tions (CDFIs) gathers this data annually and drafts en to meet the Human Resources Development Programme’s a report targeted mainly at investors. In Germany, goals. The committee has 10 permanent members and meets benchmarking is done through the common manage- every six months. ment information system Inthepro provided by the umbrella organisation DMI.78 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 79
  • 41. Germany: The Portfolio at Risk at 15 days is automati- In the UK, the Change Matters Performance Frame- cally calculated for all MFIs in the Inthepro MIS. The work has been developed by the CDFA, the national PAR is used to carry out benchmarking by a monthly umbrella organisation of Community Development comparison of performance indicators of all MFIs in one list, so Finance Institutions. It is very much investor-focused. It meas- that every MFI is able to classify its own performance. Moreo- ures key non-financial and financial performance indicators to ver, important social indicators collected through the MIS are provide key essentials about CDFIs to investors: Input w Process w Outputs w Outcomes w Impacts for instance gender, German or migrant background, educa- tional achievements and trainee places. Table: Logic Model Input Process Outputs Outcomes Impacts In France, in order to get a more precise picture of EXAMPLE microcredit, the French statistics office CNIS set up Jobs created and a working group on microcredit and public statistics Outreach/Marketing Number of loans safeguarded Unique according to each that has analysed microcredit activity as well as the microenter- Loan applications Loan value Financial literacy CDFI’s mission and activity to prise and self-employment sectors in France. It has developed Reduced barriers to Finance: Earned support that mission, but Social: by gender, lending (e.g. standard definitions of business and “personal”11 microcredit Revenue Financial might include getting the ethnicity, disability establishment of loan in France. The microloan definition is based on four criteria: Services Earned unemployed into jobs, how Loan disbursal etc repayment history) the nature of the operation (with or without interest), the tar- Revenue Other long they remain in them and Economic by get public/projects financed, the amount and the non-financial Revenue from how their quality of life is employment status services (mandatory or not). As regards business microcredit, External Sources Staff improved or improving Environmental: loans microcredit organisations have to collect three pre-defined sets Premises household welfare and to green business Social empowerment, of data: on the borrower’s/business characteristics, the non-fi- Arreas management etc confidence broader effects on the nancial services and the guarantee organisations (if any). These community or lacal economy. Advice services data have to be sent to the Banque de France on a four-monthly Other services basis. Source: CDFA 2011 – Change Matters Stakeholder Report 11 There is a “personal” microloan fund run by the state – personal microloans for employment purposes.80 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 81
  • 42. 3 Conclusions and Recommendations Projects such as the Community of Prac- tice on Inclusive Entrepreneurship are im- Fund (ESF). The aim is to ease access to finance for entrepreneurs from vulnera- - The legal and regulatory framework as well as social policy should be portant opportunities to exchange expe- ble groups as part of a more global policy adapted to suit microentrepreneurs rience among European countries and for inclusive entrepreneurship. Through- and self-employed persons (from vul- regions with the aim of building up an out the manual practical examples have nerable groups) to ensure that they inclusive entrepreneurial society. Self- been given to demonstrate what has al- have enough incentives to become en- employment, entrepreneurship and mi- ready been done in some Member States trepreneurs. crofinance have become priorities for the to implement microfinance, and what - Microfinance schemes can have a European Union in the framework of its can replicated in other countries (or what complex set-up as they can involve Europe 2020 Strategy for smart, inclusive should not be replicated). From these ex- several actors, such as a public or pro- and sustainable growth. With unprec- amples the following main factors can be motional bank, other banks, a guaran- edentedly high levels of unemployment highlighted: tee fund as well as local organisations and exclusion and undergoing one of the - Responsibility for microfinance providing the support and advice to most severe economic crises for several stretches over several ministries and the final beneficiaries. Ways should be decades, the European Union cannot no government departments (econom- found of reducing complexity so as to longer afford to waste any of its innova- ics, industry and trade, social affairs, speed up the loan disbursement pro- tive and creative potential. Promoting regional/community development). cess. entrepreneurship and self-employment In order to implement an inclusive - Combining loans with support ser- effectively, while continuing to ensure entrepreneurship policy and an effec- vices is a crucial factor for the success social security and protection, will help tive microfinance scheme, all bodies of the programme. Effective linkages to unleash this enormous potential – in a involved need to work together with need to be put in place between the European way. a dedicated strategy and budget in loans and the support providers, both This manual has described the main a special unit or taskforce to bundle in schemes where support services policy steps to be taken in order to im- knowledge and mainstream commu- are integrated in one programme and plement a microfinance scheme with nication and implementation of the in schemes that focus solely on credit support from the European Structural policy. provision. Funds, above all the European Social82 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 83
  • 43. - Evaluations are of the greatest impor- At the same time it is clear that for mi- tance. For microfinance operations, crofinance providers that reach out to financial and social performance indi- the most disadvantaged people such as cators exist and can be applied. Sev- the long-term unemployed, financial eral countries have already developed sustainability is an illusion. The time joint performance reporting frame- needed to support them before and after works that are shared by all micro- the loan disbursal (crisis intervention) is credit actors. just too substantial. Public subsidies areThe design of a microfinance scheme, and will continue to be needed for thecomprising all the steps of the policy cy- credit-related advice and loan follow-upcle that have been described throughout of such client groups. Business supportthe manual, is crucial for its success. In such as training and coaching will alsothe future, one of the main challenges need to be subsidised. The ESF can befor microfinance programmes that have further used in this regard.  been set up will be to eventually becomeindependent of public aid. ESF-fundedschemes provide the opportunity tobuild up the capacities of the financial in-termediaries and to test, adapt and pro-fessionalise the credit procedures so as toenable them to become more financiallyindependent in the future.84 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 85
  • 44. BibliographyAdie, Communiqué de Presse, “Premier sites/default/files/TG_Access_to_Fi- European Investment Fund/European Lobbezoo, Margot, Volunteer versus file/Librairy/microcredit-report-final-opérateur de microcrédit en France, nance_baseline_study_finance_2009.pdf Commission, Handbook on JEREMIE Paid Coaches within Microfinance Ini- draft.docl’Adie vient de financer son 100 000ème Holding Fund Operational Procedures, tiatives 2011, INHOLLAND University The Cabinet Office, A guide to Socialmicrocrédit, l’occasion pour l’association EMN, Microfinance and Business Devel- of Applied Science Research group on Return on Investment, 2009, http://de revenir sur un dispositif qui fait ses opment Services in Europe – What can archive/funds/2007/jjj/doc/pdf/jer- Microfinance and Small Enterprise de- dans la lutte contre le chômage”, we learn from the South?, by S Lämmer- emie/handbook_jeremie.pdf velopment social-return-investment11/ 12/2011 mann and G Ribbink, June 2011, http:// FACET BV, nef, Evers & Jung, Policy nef (new economics foundation), Meas- Valentin, P., Mosquera-Yon, T.Masson,Adie, Rapport Annuel 2010 file/Librairy/af-bds-handbook-lowres2. measures to promote the use of micro- uring Real Value – A DIY guide to So- C. (Conseil national de l’informationCDFA, Change Matters Stakeholder Re- pdf credit in Europe for social inclusion, cial Return on Investment, 2008, http:// statistique – CNIS). Le Microcrédit, Rap-port, 2011 2004, port d’un groupe de travail du Cnis, Jayo et al, EMN Overview of the Mi- downloads/Policy_measures_summary. proach_to_SROINEF.pdf N° 125, September 2011, http://www.COM (2007) 708 final, A European initia- crocredit Sector in the European Union pdf for the development of micro-credit 2008-2009, 2010 Kiútprogram, pilot project “Pan-Euro- Fichiers/publications/rapports/2011/in support of growth and employment, FAST, Mikrofinanzierung und Mezza- pean Coordination of Roma Integration RAP_2011_125_microcredit.PDF2007, http://www.european-microfi- Enterprise Research, WEETU: A Social nine-Kapital für Gründungen und KMU Methods – Roma inclusion”, interim re- Return on Investment Analysis, 2005, – Studie für das Bundesministerium für port from 06/2010 to 06/2011 – Projectnance_europe/ue_microfinance/com- Arbeit und Soziales, 27.5.2009, Berlin, title: Kiútprogram self-employment andmuncation-microcredit-english.pdf content/WEETU%20SROI%20final_ microcredit programme nef%20logo%202005.pdf Downloads/DE/studie-mikrokredit.EIF, Microfinance in Europe – A market pdf?__blob=publicationFile PSYBT Annual Report 2011overview, Luxembourg, 2009, http:// European Commission, DG Policy, Guidance Note on Financial Engi- ISBE, Community-based business ad- Sciences Po, CDC, The development ofEIF_WP_2009_001_Microfinance.pdf neering Instruments under Article 44 of vice: evidence, practice and sustain- professional microcredit in developed Council Regulation (EC) No 1083/2006, ability, Prof. Robert Blackburn, Kingston countries – evaluation tools and systems:EMN, COPIE 2 Access to Finance Base- Final version 21/02/2011 COCOF_10- University, UK, 2008 best models and best practices, http://line Study, 2009, 0014-04-EN Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 87
  • 45. Appendix a. Definitions or other urban projects included in (Guidance Note on Financial Engi- • Inclusive entrepreneurship: “Inclu- integrated plans for sustainable ur- neering Instruments under Article sive entrepreneurship is about a set ban development, and funds or other 44 of Council Regulation (EC) No of attitudes, competences and skills incentive schemes for energy effi- 1083/2006, Final version 21/02/2011 which allow people to turn their ciency and use of renewable energy COCOF_10-0014-04-EN) dreams into concrete projects or “en- in buildings, including in existing • Target entrepreneurs, these are entre- terprises”. It is about more than start- housing.’.[…] Repayable investments preneurs from the ESF priority groups ing an individual business. Inclusive are distinguished from non-repayable • Target groups, as defined in ‘Wiki- entrepreneur¬ship can be applied to assistance or grants, defined for the preneurship, 2010’: disabled people, self-employment, starting or grow- purpose of this note as ‘a direct fi- older people, ex-offenders, women, ing micro- or small enterprises and nancial contribution by way of dona- migrants, young people, Black and to social enterprise using business- tion’.” (Guidance Note on Financial minority ethnic (BME), Roma based approaches driven by a social Engineering Instruments under Arti- • Microcredit in the EU means loans mission. Indeed the personal qualities cle 44 of Council Regulation (EC) No of under €25,000. It is tailored to required for entrepreneurship are es- 1083/2006, Final version 21/02/2011 microenterprises, employing fewer sential for success in the knowledge COCOF_10-0014-04-EN) than 10 people (91% of all European economy – whether this be in the • Holding Fund: Article 44 of Regula- businesses), and unemployed or inac- private or public sectors.” (http:// tion (EC) No 1083/2006 defines hold- tive people who want to go into self- ing funds as “funds set up to invest in employment but do not have access php5?title=Inclusive_entrepreneur- several venture capital funds, guaran- to traditional banking services. (EIF, ship) tee funds, loan funds, urban develop- Microfinance in Europe – A market • Financial engineering: “Financial en- ment funds, funds or other incentive overview, Luxembourg, 2009) gineering instruments have the form schemes providing loans, guarantees - Good or Best Practice, as defined in of ‘…actions which make repayable for repayable investments, or equiva- COPIE 2 Proposal for Learning Net- investments or provide guarantees lent instruments for energy efficiency works, Annex D2: Detailed work pro- for repayable investments” in enter- and use of renewable energy in build- gramme, p.11: In simple terms a best prises, public-private partnerships ings, including in existing housing”. practice can be defined as a technique88 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 89
  • 46. or methodology that, through experi- b. Community of Practice to learn from successful policy strategies b.2 The COPIE working groups Entrepreneurship Education role ESF could play in shaping and rein- ence and research, has proven to reli- on Inclusive Entre- and measures is one of the aims of the The following thematic groups were Entrepreneurship is one of the eight key forcing the entrepreneurship education ably lead to a desired result. A more preneurship (COPIE) COPIE European learning network. founded to promote learning and good competences for lifelong learning and agenda in 2014-2020. detailed definition is the following: COPIE, the Community of Practice on practice exchange between partners. represents a valuable set of knowledge, h t t p : / / w w w. c o p - i e . e u / t h e m a t i c - “Best Practices are those documented, b.1 The COPIE Learning Network Inclusive Entrepreneurship, focuses on skills and attitudes that enable people groups-entrepreneurship-education accessible, effective, appropriate, and and Resource Centre on Inclusive the development of favourable condi- Strategy and Action Planning to transform ideas into actions. The role Entrepreneurship Education Expert: widely accepted strategies, plans, Entrepreneurship tions for the growth of self-employment The main objective of this thematic of education in the development of this Ivan Diego: tactics, processes, methodologies, ac- In the last ten years a number of Europe- and micro-enterprises – especially for group is to help policy-makers and ESF competence should not be underesti- tivities, and approaches developed an policies and programmes have been ESF priority groups. The work of COPIE Managing Authorities to plan cohesive mated. The Europe 2020 strategy thus Quality Management by knowledgeable bodies and carried created to support self-employment and is to describe good practices and organ- activities that support entrepreneurship highlights the importance of entrepre- The main objective of this group is to out by adequately trained personnel microenterprises, and a wide range of ise their exchange among EU Member in their region alongside their key stake- neurship education in promoting a more identify good practices in quality man- which are in compliance with exist- policies exists in the EU member states. States, to facilitate mutual learning and holders. It helps partners to integrate competitive and entrepreneurial work- agement for business start-up support in ing laws and regulations and that These can be categorised as follows: the to transfer knowledge and experiences to EU-funded activity with locally-funded force. the context of a European exchange; and have been shown over time through creation of an environment that moti- other entrepreneurship support systems, activity, and it stimulates practical ac- Evidence suggests that making entrepre- to develop, apply and transfer them to research, evaluation, and practice to vates people to become self-employed, so as to close existing gaps or simply to tions of value to all COPIE partners. neurship education an integral part of other interested regions. Both high-qual- be effective at providing reasonable the existence of favourable tax laws and promote continuous improvement. The core members of this group are Flan- the curriculum leads to an increase in en- ity and inclusive policies, structures and assurance of desired outcomes, and social security schemes, measures to re- For the funding period from November ders, Germany, Wallonia, Asturias and trepreneurial intention and attitude but processes including inter alia accredita- which are continually reviewed and duce bureaucracy and administrative 2009 to March 2012 the COPIE partners the Czech Republic. Regular attendees also to greater prospects to get a job. Em- tion for individual advisors and training improved upon as circumstances dic- burdens, the provision of infrastructure, selected four objectives to work on: include Joeri Colson, Antonio Georgo- ployers have consistently complained schemes and review mechanisms will be tate.” To this rather demanding list the business development services, finance • support of entrepreneurial education palis, Bettina Reuter, Mechthild Jürgens, about the lack of skills such as self-ini- developed in close collaboration with notion of transferability or evidence and others. • securing high quality and inclusive Caroline Van Der Linden, Jenny Charlier, tiative, communication skills, ability for the partners. The core members of this of successful transfer is sometimes The initiation of co-operation, the pro- support systems for all entrepreneurs Didier Clarinval, Filip Kucera, Daniel teamwork. Better employability means group are Extremadura, Galicia, Anda- added as some practices turn out to be cesses of co-ordination and planning, • on-going development of integrated Darek, Petra Francova, Ana Maria Men- lower risk of social exclusion and, in our lusia and the Spanish nationwide Incyde harder to transfer than foreseen espe- the principles of careful decision-making business support dez and Iain Willox. opinion, this is the greatest asset of entre- foundation. cially across national boundaries. and the implementation of self-employ- • reinforced use of approaches of access h t t p : / / w w w. c o p - i e . e u / t h e m a t i c - preneurship education. Among other activities study visits have ment and microfinance programmes to finance for all groups-action-planning The entrepreneurship education group been conducted to analyse and assess re- demand great skill, knowledge and re- COPIE organised working groups on Action Planning Expert: Ian Willox: iain- led by the Spanish Ministry of Labour gional start-up support infrastructures, sources from responsible decision-mak- these topics, and created the appropriate and Social Affairs with Flanders being surveys for business advisors and entre- ers and stakeholders. To highlight and tools. an active partner seeks out to analyse the preneurs and the development of a Eu-90 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 91
  • 47. ropean Quality Management System for regional policies, taking advantage of is confirmed regarding the countries and c. COPIE tools 2006/2007 in the context of the European es of their respective enterprise supportbusiness advisors. Structural Funds for European regions. regions which are core partners of COP- Community Initiative EQUAL and com- systems.Partner regions: The group has established links to the IE (Flanders, Czech Republic, Germany, The COPIE partners have developed and bines a secondary analysis of the overall A new manual for the implementation• Andalucía (Spain): Ángeles Cruzado , two groups on “Quality Management Lithuania and Spain). tested a set of tools to analyse and im- start-up environment in the region with of the European Tool has now been fi- Maria José Cabanillas Cabanillas (Re- and Access to Finance”. The baseline study describes how gov- prove their support structure for inclu- a direct survey among policy-makers, nalised and is available for download: gional Ministry of Employment) h t t p : / / w w w. c o p - i e . e u / t h e m a t i c - ernments tend to give more priority to sive entrepreneurship. This should help start-up and business advisors, and en-• Extremadura (Spain): Virginia Jime- groups-integrated-business-support salaried employment and to small, medi- policy makers and regional and national trepreneurs. ropean-tool. nez (Regional Ministry of Employ- Integrated Business Support Expert: Ana um-sized and large enterprises and less ESF and ERDF Managing Authorities Its benefits include: ment) Ma Mendez: to self-employment or the development from across Europe to design and deliv- • an increased awareness of strengths Wikipreneurship• Galicia (Spain): Noemí Iglesias Rod- of micro-business. In addition to this it er successful inclusive entrepreneurship and weaknesses within the regional Wikipreneurship is the wiki knowledge ríguez (BIC Galicia), Jorge Barros (Re- Access to Finance became apparent that there is a lack of support. support infrastructure; centre on inclusive and social entrepre- gional Ministry of Employment), This working group is led by the Flan- information about what potential entre- • the opportunity for comparing per- neurship. It covers definitions, organi-• Aurelio Jimenez Romero (Incyde ders ESF Managing Authority with preneurs need in terms microfinance, the COPIE website ceptions of the needs of different sational profiles, project descriptions, Foundation) support from the Czech ESF Managing regulatory environment and the transi- COPIE’s web presence was completely stakeholder groups and clients, product downloads, event reports, news• IQ Netzwerk (Germany): Dr. Ralf Authority, and with the participation of tion from unemployment to self-employ- overhauled in 2011, and now offers de- • the provision of access to European and policy analysis. A key component Sänger (IQ Netzwerk), Nadine Förster Germany, Lithuania and Spain. Its focus ment. . The study comes to the conclusion scriptions of the various working groups good practice in specific fields of en- is the Compendium on Inclusive Entre- (IQ Netzwerk) is on the identification of good practice that microfinance and self-employment and work under way, profiles of people trepreneurship support and the op- preneurship that resulted from the EUh t t p : / / w w w. c o p - i e . e u / t h e m a t i c - for the implementation of microfinance need a higher level strategy at govern- active in the network, downloads of portunity for transnational collabora- EQUAL programme. Anyone can editgroups-quality-management systems. ment level as they lies at the intersection documents and tools and news stories tion through COPIE. Wikipreneurship, using the same fa-Quality Management Expert: Norbert Access to finance baseline study of social inclusion and economic growth on recent developments. Between 2007 and 2010, the European miliar software as Wikipedia. Since itsKunz (IQ Consult): kunz@iq-consult. In April 2009 a baseline study was car- and come under the responsibility of Tool was applied to 17 European regions launch in 2008, it has accumulated overcom ried out on “Access to finance for All” different stakeholder of the social and European Tool for Inclusive Entrepre- and cities. As a tool based on collabora- 1,000 articles indexed by user-defined to analyse the current use of the struc- economic areas. neurship tive action, it was adapted and revised tags. Most but not all of the content is inIntegrated Business Support tural funds (ESF and ERDF) for setting thematic-groups-access-to-finance The European Tool for inclusive entre- several times based on the experience English. It has received 1.7 million pageThe main objective of this group is to up microfinance schemes. The study Access to Finance Expert Marion Cahen preneurship is a standardised instru- gained through implementation. The views – and Access to Finance is thesupport the start-up process of business- showed that microfinance, microentre- (Hefboom): ment for assessing local or regional majority of COPIE partners have applied most popular topic. Try your hand at:es and their long-term sustainability by preneurship and self-employment have   business support infrastructures and the tool and have in fact chosen to par- www.wikipreneurship.euproviding services and actions according only rarely been integrated into national their inclusive approach towards en- ticipate in individual groups based on ato their needs and in line with existing NSRs or ESF and ERDF OPs. This trend trepreneurship. It was developed in diagnosis of the strengths and weakness-92 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 93
  • 48. Access to Finance Evaluation and As- Peer Review Methodology for the Ac- d. The place ofsessment Framework on ‘Good Prac- cess to Finance sector microfinance in the newtices’ The peer review is a method based on programming periodThis framework is designed to detect, the exchange of experiences between a 2014-2020 Chart: Overview of EU programmes that concern microfinancedescribe and analyse good practices of ‘host country’ who presents and wishes Level 5: European Commission (DG Employment / DG Enterprise / DG Regio / EIF) - Europe 2020 The importance of self-employment andsupport on access to finance in partner to gain feedback on an effective policy Self-employment occupies a prominent ESF PROGRESS / JASMINE ERDF EIF - CIP microfinance has been highlighted notcountries. It is inspired by the COPIE (and associated good practice), and ‘peer place in the Europe 2020 strategy with only in the ESF regulation but also in1 Framework and the IMPART Peer countries’ who are interested in: its three key priorities: smart, sustain- ä the complementary European Globali-Review Manual. The intent is not to • learning from the host example and able and inclusive growth. These invite Level 4: National Policies and Programmes sation Adjustment Fund (EGF) and the‘dictate’ one practice but to support a potentially transferring it into their Member States to remove measures that Regulations, Framework for Selfemployment and SME, NAP, OP European Programme for Social Changediverse range of approaches that work national setting; and discourage self-employment. Social Policy Economic Policy Selfemployment : Microbusiness Small and Mediumsized Enterprises and Innovation (PSCI) for the 2014-2020well within a specific context through a • sharing their own policy experiences period. The EGF supports the promotionshared framework of basic good practice with the host and other participating ä of entrepreneurship among people whoprinciples. The Evaluation and Assess- countries. Level 3: Capital / Technical Assistance for Sector Development have lost their jobs as a result of chang-ment Framework includes a description Hence, the process is very much based European or National Networks Risk Capital and Guarantee Funds ing global trade patterns or the globalof practices by the country or region con- on a two-way exchange. The peer review to support Capacity Building and economic crisis. The PCSI, whichcerned, a secondary analysis of the COP- takes place over the course of 1.5 days ä combines the three existing EuropeanIE lead expert and a 1.5-day peer review in the host country with representatives Level 2: Service Provider (Finance / Business Service or Both) programmes PROGRESS, EURES andworkshop. from up to 12 peer countries. Each coun- Microfinance Institutions Enterprise Lenders the European Progress Microfinance Fa-For the full description of this tool please try is represented by a national govern- Inclusion Lenders, Microlenders Banks, Public Banks, Specialised Banks cility, offers considerable scope for thesee here: ment official and an independent expert. Business Support development of microfinance systems.default/files/COPIE_Access_to_Fi- The peer-review related documentsnance-evaluation_and_assessment_ from the last COPIE Access to Finance ä Level 1: ESF Target Groupsframework.pdf peer review in Brussels in May 2011 can Selfemployed / Microbusiness Small and Mediumsized Enterprises be found here: Disadvantaged Persons node/236. Source: Entrepreneurship / Self-employment and Microfinance: Brigitte Maas  94 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 95
  • 49. Progress Microfinance and Social ment, consolidation and scaling of op- to contribute to building sustainable distribution to private owners or ments” has assumed an increasingly ing). The communication refers to solidEntrepreneurship (PSCI) erations. and professional capacities for social shareholders. important role in the EU budget and experience already gained through theOn 6 October 2011 the European Com- Why does action have to be taken by impact investments across the EU. The total proposed budget for the mi- the 2014-2020 Multiannual Financial management of financial instrumentsmission published the proposals and the EU? • If financial resources are pooled at crofinance and social entrepreneurship Framework (MFF). The term “new in- under the current MFF which were cre-the citizens’ summary for the new Pro- • Stepping up the availability of micro- European level, additional funding is axis is around €192 million for the pe- novative financial instruments” is used ated to respond to the current fundinggramme for Social Change and Innova- credit is best achieved at European more likely to be attracted from third- riod 2014-2020. Access to microfinance for interventions other than traditional challenges. Concerning microfinancetion (PSCI) with the following selected level. The Commission, in co-opera- party investors such as the European would receive €87 million that could pure grant funding, such as the blend- these are the Competitiveness and Inno-statements about microfinance: tion with the European Investment Investment Bank. result in €400–450 million of micro- ing of grants with loans from financial vation Framework Programme (CIP), theWhat is the issue? Fund, can now build on experience What exactly will change? loans. Institutional capacity building institutions. Furthermore those innova- CIP SME Guarantee Facility (SMEG), the• Poor access to finance and micro- with the current European Progress • Access to microcredit will be easier would receive almost €9 million and tive instruments were created to realise European Progress Microfinance Facility credit for social enterprises and un- Microfinance Facility. Microfinance for unemployed people, people at a €95.5 million would be dedicated to a multiplier effect by facilitating and at- (EPMF) and the Structural Funds (ESF employed people, people at a risk institutions in all Member States can risk of losing their jobs and people support to social enterprise develop- tracting other public and private financ- and ERDF), including JEREMIE. The of losing their jobs and people from now take advantage of this expertise from disadvantaged groups, for in- ment. ing for EU projects. Finally the Europe communication also refers to the estab- disadvantaged groups, for instance without their national, regional or stance young or older people or mi- 2020 strategy also aims to address the lishment of adequate funding structures. young or older people and migrants. local authorities needing to use their grants. Self-employment and business A framework for the next genera- present fragmentation of EU funding A specific chapter on financial instru-Who will benefit and how? resources to put similar systems in development will thus be boosted and tion of innovative financial instru- instruments. Partnerships among public ments is also included in the Financial• People who want to become self- place. will in turn be important sources of ments – the EU equity and debt and private institutions from regional, Regulation (FR), setting out the overall employed or set up or develop their • The new instrument facilitating ac- growth and job creation. platforms national and European levels are laying principles for the budgetary manage- own business and face difficulties in cess to finance for social enterprise Summing up, the new programme will: Regarding the first years of operation the essential groundwork for these debt ment of such instruments. The Financial securing a traditional bank loan, i.e. will have a multiplier effect as it will - extend the support given to micro- under the Europe 2020 strategy the EU and equity platforms. Regulation is under review in co-deci- unemployed people, people at a risk pave the way for enhanced public credit providers under the current Eu- Commission assumes that the after-ef- The European Commission has also pub- sion between the European Parliament of losing their jobs and people from and private action at national and re- ropean Progress Microfinance Facility fects of the economic and financial crisis lished a more detailed communication and Council. It is expected to enter into disadvantaged groups, for instance gional levels in the years to come. It (launched in 2010) will still be noticeable. The ongoing ef- called A framework for the next genera- force in early 2012. In parallel, the Com- young or older people or migrants. is expected that the EU level instru- - provide funding for capacity-build- fects are visible on the one hand by the tion of innovative financial instruments mission will work on the more detailed These people need better access to ment will stimulate the creation of ing of microfinance institutions reluctance of banks to grant credits and – the EU equity and debt platforms. rules and guidance in order to have this microcredit, i.e. loans of less than more social enterprises and facilitate - include investments for developing equity and on the other hand by a reduc- These platforms consist of common rules in place when the Financial Regulation €25,000. the exploitation of growth opportuni- and expanding social enterprises, i.e. tion in public sector funding. and guidance for innovative financial has been agreed by the co-legislator.• Social enterprises will benefit from ties for existing ones; facilitate mutual businesses whose primary purpose is To address this situation the applica- instruments which make use of equity easier access to funding for develop- learning across national borders, and social, rather than to maximise profit tion of “new innovative financial instru- or debt (loans, guarantees, risk shar-96 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 97
  • 50. e. Business supportTable: Overview of financing and BDS needs according to phase of business development Table: Support services according to type type size of business Table: Support services according to and and size of businessBusiness Financing needs Business service needs Support servicesdevelopment Information services Client development Entrepreneurship Business Developmentphase Services Development Services ServicesPre-start Seed capital Coaching/advice: market research, busi- Formal information Financial education Enterprise Education Management training ness idea assessment, business planning, Small by means of (at vocational training Business Advice enterprises brochures, leaflets and polytechnic level) Technical skills training business registration/administration Business Creation Supply chain / market programmes accessStart-up Venture capital or loans Training, e.g.: marketing, bookkeeping, Innovation programmes Investment capital loan management, networking, specific busi- Sector / market studies Working capital loan ness skills Business associations Loans for specific purposes Business development advice/coaching Health, safety and Microfinance Institution environmental advice Incubator Formal information Financial Literacy Enterprise Education General business skillsConsolidation/ Second/third (step) Loan Regular coaching: monitoring of busi- Micro Clients by means of programmes (at vocational training enterprises brochures, leaflets Health, safety and level)growth Investment capital ness development/business records environmental Working capital Specific training awareness programmes Liquidity assistance General information Financial Literacy Adjusted advice Self-employed / on lending programmes Informal trainingCrisis Liquidity assistance - Intensive business coaching / advice on hybrid conditions e.g. to cover order or cash losses development of solutions/crisis inter- entrepreneurs ventions General information Financial LiteracyOver-indebtedness Cancelling of loan contracts Credit counselling/debt consolidation: Income on lending programmes Liquidation of collateral / guarantees business bankruptcy Generating for conditions Survival Source:Source: Brigitte Maas, DMI Source: Molenaar, Opening Ceremony, EMN Annual Conference Amsterdam, June 2011Klaas Klaas Molenaar, Opening Ceremony, EMN Annual Conference Amsterdam, June 201198 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 99 6
  • 51. f. Performance monitoringTable: List of key indicators – EMN Table: List of social performance indicators – EMN Portfolio quality Gender Gender distribution of portfolio PAR 30 Portfolio at risk after 30 days Age Proportion of people under 25 Provision expense ratio Provision for future loan losses receiving services Refinancing ratio Volume of loans refinanced or Unemployed Proportion of unemployed restructured receiving services Write-off ratio Volume of loans written off Minorities and immigrants Proportion of minorities receiving services (Roma, migrants, refugees, etc.) Efficiency and productivity Outreach Proportion of people receiving Operating expense ratio Institutional cost of delivering services services in rural or semi-urban areas Cost per borrower Cost of maintaining an active borrower Jobs Number of jobs created Staff productivity Productivity of the institution’s staff Start-ups Number of new enterprises set up Loan officer productivity Productivity of the institution’s loan Financial inclusion Proportion of people gaining access officers to banking services Financial management Social inclusion Proportion of people out of welfare Cost of funds ratio Average cost of borrowed funds Debt/equity ratio Leverage of the institution Source: EMN – Restricted Call for Proposals: Overview of the microcredit sector in the European Union 2010-2011, November 2011 Profitability ROE Return on equity ROA Return on assets Portfolio yield Portfolio earnings in a given periodSource: EMN – Restricted Call for Proposals: Overview of the microcredit sector in the European Union2010-2011, November 2011100 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 101
  • 52. Table: List of reporting and disclosure standards – European Commission Chapter 4 Common financial reporting standards Common social reporting standards Common disclosure standards Microcredit providers will… Microcredit providers will … 4.3 Members of public will be able to access 4.1 Adhere to common way of measuring 4.2 Publicly disclose … information about individual microcredit and reporting: 4.2.1 Social mission providers through an online database4.1.1 Current loan portfolio 4.2.2 Average disbursed loan size 4.1.2 Gross loan portfolio 4.2.3 Median loan size as % of gross national income Microcredit providers will…4.1.3 Net loan portfolio if relevant for target market and mission… 4.4 Publicly disclose…4.1.4 Active borrowers 4.2.4 % of female customers 4.4.1 Number of active borrowers4.1.5 Financial revenue 4.2.5 % of rural 4.4.2 Number and value of loans issued and 4.1.6 Operating revenue 4.2.6 % of poor customers outstanding4.1.7 Personnel expense 4.2.7 % of customers graduating to mainstream finance 4.4.3 Value of current, gross and net portfolio4.1.8 Administrative expense 4.2.8 % of ethnic minority or indigenous customers 4.4.4 Portfolio at Risk4.1.9 Financial expense 4.2.9 % of start-up businesses funded 4.4.5 Total value of assets and liabilities4.1.10 Portfolio at Risk 4.2.10 % of customers on welfare benefits 4.4.6 Operational sustainability ratio4.1.11 Write-offs 4.4.7 Financial sustainability ratio4.1.12 Impairment loss allowance and provision expense 4.4.8 % of cost per loan subsidised4.1.13 Assets 4.4.9 Number of loan officers and (total) personnel4.1.14 Liabilities 4.5 Record complaints by applicants and past and 4.1.15 Operational sustainability ratio current customers4.1.16 Financial sustainability ratio 4.6 Publicly disclose data on complaints4.1.17 Adjustments to sustainability ratios taking into ac 4.6.1 Number of complaints by applicants and count subsidies past and current customers 4.6.2 Complaints as % of applicants and past and current customers (clauses marked in bold are priority clauses) Source: European Commission Code of Good Conduct102 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 103
  • 53. g. Microcredit programmes funded by ESFA table showing the main characteristics of the microcredit programmes in the EUis provided below. Moreover, charts illustrating the set-up of some of these pro-grammes are shown.Guarantee funds: Holding Fund Loan funds: Germany Calabria Sardinia Latvia Managing Managing Authority Mikrokreditfonds ESF Authority Ministry of Finance managed by NBank (Labour Dept.) Calabria region Bundesministerium Bundesministerium Fincalabria (€ 20 mn guarantee) für Arbeit und Soziales für Wirtschaft und Technologie € 5 mn to interest (capped) MA Support Office Responsible Authority € 2,5 mn tutoring (Labour Dept.) Ministry of Economics (Fund Manager) Commission credit security Investment and development Bank Bank Bank Bank Servizio attuazione delle politiche Servizio Politiche del lavoro e agency of Latvia GLS Bank sociali comunitarie, nazionali e per le pari opportunità (Labour regionali (Sanity Dept.) Dept.) nonpayment of credit bonus fee per Mortage and Land credit > 10% recommendation credit promotion Borrowers Investment Bank of Latvia Committee MFI credit repayment support disbursement Technical Secretariat enterprise104 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 105
  • 54. Microcredit programmes funded by the ESF in table formMicrocredit Business Line (Belgium) Mikrokreditfonds Deutschland Entrepreneurship Promotion Fund(until December 2011) (Germany) (Lithuania) Stakeholders: Meta-Level (political framework / funding / financial engineering):Institutional Framework: Capital resources of federal bank “Fonds de Federal Ministry of Labour and Social Affairs / €14.5m (90%) from ESF, matched with €1.35mLoan Fund – administrated by “Fonds de “Mikrokreditfonds Deutschland” was initi- “Entrepreneurship Promotion Fund” was Participation” (€217m) and bond issue of the Federal Ministry of Economics and Technology (10%) from credit unions.Participation”(since 1984, a federal financial ated in January 2010 by the Federal Ministry initiated by the Ministry of Social Security Starters Fund (€108m – guaranteed by Belgium (€40m), ESF (€60m)parastatal Institution) of Labour and Social Affairs (BMAS) and the and Labour (MoSL) as implementing au- government) INVEGA’s administration costs are covered by Federal Ministry of Economics and Technol- thority and Ministry of Finance (MoF) as the fund capital (management fee of €52,658). ogy (BMWi), with the aim to provide approx. managing authority. The aim is to provide Donation of Dexia Foundation (Foundation of Interest from fund assets (Fondsvermögen) 15,000 loans by 31 December 2015. 1,200 loans in total by December 31, 2015. Dexia Bank) to cover operational costs of con- and income from interest used by GLS Bank to LCCU / regional credit unions costs for admin- sultancy / coaching of clients; cover costs, e.g.: istration and training / consulting are coveredThe ‘microcredit business line’ of the Fonds de […on the basis of the previous experience (2006 After 9 months of preparation of agree- Item fee of “Fonds des Participation” for loan •item fees and yearly gratification for MFIs; by €421,265). Borrowers pay 5.49 to 9.49% in-Participation started in 2002, when they took – 2009) with Mikrofinanzfonds Deutschland ments on national and EU level for estab- processing. •web-based platform for loan disbursement terest fee to regional credit unions.over the ‘Prêt Solidaire’ (Solidarity loan) from initiated with the support of GLS Bank (private lishing the fund, the first training started and monitoring of loans;the King Baudouin Foundation. This was done cooperative bank), BMAS, BMWi and KfW Sept. 2010 and the first loan was disbursed •website:; All resources will have to be repaid neverthe-because the latter did not wish to become a (federal SME bank). Supporting structures in Nov. 2010. •selected development projects for MFIs to less the payments to the intermediary by thecredit institution. [The King Baudouin Foun- were established with the help of the EU’s launch new products for specific target debtors.dation ran the pilot project from 1997 to 2002.] EQUAL initiative.] groups or particular cases.The assets of ‘microcredit business line’ is held The fund assets of Mikrokreditfonds The fund assets are held by the State-owned Default risk of microloans is carried by the Three MFIs (in Bavaria, Baden-Württemberg,by the Fonds de Participation. Deutschland are held in trust by N-Bank (pub- federal guarantee institution INVEGA. IN- Fonds de Participation. The Fund has a guar- Thuringia) get additional support by their lic bank of the Lower Saxony Land). VEGA also provides funds for a guarantee antee from the European Investment Fund regional state banks for promotion activities scheme for SMEs (ERDF). through the Competitiveness and Innovation (funding) and risk covering (guarantees). Programme.The practical implementation of the ‘micro- The practical implementation of Mikrokredit- The practical implementation is assigned Default risk is covered by MFI (20% first loss)credit business line’ is hold by the Fonds de fonds Deutschland is assigned to GLS Bank – to the Lithuanian Central Credit Union and 80% by Mikrokreditfonds Deutschland.Participation – for the distribution of loans a with the main task to establish a nationwide (LCCU) and their regional credit unions (57collaboration with two organisations: Hef- network of microfinance institutions (MFIs) with 154 points of sale).boom for Flanders and Dutch-speaking Brus- for distributing microloans to business starterssels / Crédal for Wallonia and French speaking and small enterprises. These MFIs are joined to-Brussels. gether in the umbrella organsiation Deutsches Mikrofinanz Institut (DMI).The Solidarity Loan was distributed until 31December 2011.106 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 107
  • 55. Stakeholders: Macro-Level (governance / capacity building): Stakeholders: Micro-Level (serving the clients):“Solidarity Loan Programme” – administrated Mikrokreditfonds Deutschland – administra- Entrepreneurship Promotion Fund: Com- For the Solidarity Loan:by “FdP” tive board: mittee for supervision observes implemen- Hefboom: Microfinance Institutions Regional credit unions of LCCU: Funders and GLS Bank decide about general tation of the investment strategy, results Technical assistance for loan application in (57 MFIs for the 16 federal states) • direct contact to potential participants by strategies and product framework (co-oper- and actions to reach the Human Resources Flanders and Dutch speaking Brussels: • acquisition of clients; phone, internet and through points of ation contract with MFIs, loan size, interests, Development Programme goals; 10 perma- • acquisition of clients preparation / improve- • analysis of loan application and check of at- sales; item fees / bonus for MFIs). nent members; meets twice a year. ment of loan application (advice and coach- tachments e.g. identity papers and residence • advice centers / project consultants: ing of potential borrower) permission, information of General Credit support for start-ups (mandatory basic GLS Bank (ethical-ecological cooperative The Lithuanian Central Credit Union • first analysis of loan application Protection Agency about stock of debts / training, entrepreneurship training and bank): (LCCU) is responsible for coordination and • recommendation of loan application to credit bankruptcy, personal guarantees etc.; individual consultancy). administration of cooperation contracts with administration of the project, consultation committee • data processing for loan contract production • loan officers: help with filling in the loan MFIs / evaluation of item fees and yearly grati- of credit unions on the evaluation of busi- • after care service (coaching for 1,5 – 2 years: (GLS platform for loan disbursement); application, administration of applica- fication of MFIs; administration of risk capital ness plans and cooperation with social regularly discussion of business develop- • signing loan recommendation for GLS Bank; tions and necessary declarations, appeal deposit of MFI (20% of outstanding loan port- partners for dissemination of information. ment with a coach / additional service by • loan contract signing procedure and con- to INVEGA for a specific borrower on a folio); running web-based platform for loan LCCU provides training to employees, specialised providers, f.e. bookholding) sumer protection information with borrow- de minimis and help to complete appli- disbursement and loan monitoring. board members and credit unions. (LCCU er; cation for INVEGA guarantees; control has experience in 2 training projects sup- Crédal: • administration of personal guarantees / col- of repayments, consultancy of business ported by European Social Fund). technical assistance for loan applicants in laterals; development and implementation of Deutsches Mikrofinanz Institut (network / Wallonia and French speaking Brussels: • monthly client monitoring (email at 15th of business plan; service provider for German MFI)s: see Hefboom every months) – • credit union board: evaluation of busi- • accreditation of MFIs (approval of applica- in case of problems: loan restructuring (f.e. de- ness plans and decision for loan dis- tions coming from consulting firms, business Fonds de Participation: ferment of amortisation / extension of loan bursement; support providers, associations or founda- • back office for loan processing period); • supervision of financed businesses. tions, that want to establish an MFI with • issue of loan contract • in case of loan default: write-offs / liquida- access to risk capital of “Mikrokreditfonds • disbursement of loan after presentation of tion of collaterals. Deutschland”); invoices for investment (within 12 months • training for loan officers, (trans)national after approval) know how exchange, risk management, benchmarking. www.mikrofinanz.net108 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 109
  • 56. Stakeholders: Micro-Level (serving the clients): Target Group:Dexia Foundation: GLS Bank: Cooperation with business support / ad- Starters Loan:Organisation of a team of volunteers for the • production, signing and postage of loan con- vice centres: Unemployed persons who want to start up Business starters and small companies Micro-companies, businessmen/-womencoaching of the clients during 2 years tract (to MFI); • dissemination of information about new their own business and social enterprises • providing loan account for borrower / ad- financial resources/possibilities to localFor the Starters loan: ministration of repayments. businesses; Solidarity Loan:Partnership with mentoring structures for • provision of training and individual Financially excluded persons who do not have Serving clients with migrant background, Prioritised groups: unemployed, disabled,starters and with SME organisations for the consultations on business establishment access to a credit from a mainstream bank. women entrepreneurs and training companies young people and people over 50 years ofcoaching of target group / development, cooperation with credit is of special age (180 loans until December 31, 2015). unions. Cooperation with social partners Loan products: • labour exchange offices; Starters Loan: • Non-governmental organisations; purpose: entrepreneurial ac- purpose: entrepreneurial ac- purpose: start-ups (legal enti- • Local communities. tivities (investments, tivities (investments, ties / individuals < 1 working capital and working capital) year) who are partici- Dissemination of information to priority max. loan amount: the like) step lending up to pants of the training groups about micro-loans and non-finan- interest rate: €30,000 max. loan amount: 20.000 € first loan: programme cial services for business development. 4% (reduced interest in max. €10,000 max. loan amount: €25,000 (max 1 loan the first 2 years: 3%) interest rate: 8.9% (effective inter- per SME) adm. charges: no adm. charges: est rate) interest rate: 5.49 – 9.49% (depend- loan period: 5, 7 or 10 years loan period: no ing from rating) prepayment penalty: N/A up to 3 years for adm. charges: no grace period: 1 year annuity loans up to loan period: max. 5 years collateral: financial contribution 6 months for bullet prepayment penalty: no of 25% of loan amount loans grace period: individual, under the prepayment penalty: no conditions of lending grace period: no agreement collateral: no collateral: pledge, temporary payment of 10%loan to credit union capital110 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 111
  • 57. Loan products: Outreach: Credit approvals Starters Loan: More than 7,400 microloans disbursed since until Dec 2011: Solidarity Loan: 2008: 654 / 2009: 669 January 2010 3,343 clients in training (target 4,500 by 31 purpose: entrepreneurial activi- To limit risk, some MFIs are starting with pledge of min. 100% of loan, if no ERDF guar- December 2015) ties (investments, work- a first loan of max. 5.000 € and a personal antee will be accepted. Credit approvals Solidarity Loan: Number of accredited MFIs operating in the 160 loans disbursed to priority groups (tar- ing capital and the like) guarantee of 50% of loan amount. 2008: 22 / 2009: 26/ 2010: 26 / 2011: 22 frame of the fund increased from January 2010 get: 1,200 loans / 180 to priority groups) max. loan amount: €30,000 Ex post: control of clients with possible sanc- to December 2011 from 12 to 57 interest rate: 5% Within the product framework of the “Mik- tions. (In the former pilot project in 2009, 273 loans adm. charges: no rokreditfonds Deutschland” MFIs have de- had been disbursed by 12 MFIs.) loan period: 4 years veloped specific products and promotion prepayment penalty: N/A activities for farmers, women in the social grace period: 3 months and healthcare sector, restaurant sector, Methodologies to reach clients: collateral: no condition defined creative sector, for peer groups etc. Via Partners, from other professionals, Internet Via internet information of “Mikrokreditfonds Via partners e.g. regional credit unions and information. Deutschland” and “Deutsches Mikrofinanz social partners like labour exchange office,Processing Time: Institut” (DMI); MFI partners; other profes- non-governmental organisations and com-(Processing time excludes business plan devel- (Processing time excludes business plan de- Processing time includes business plan devel- sionals (banks, trade unions, accountants, munities.opment) velopment) opment) consultants); target group oriented promotion +/- 2 months material; television reports about local micro-Solidarity loan: Loan disbursement approx. within 2 – 4 lenders and their clients etc;Loan disbursement approx. within 6 weeks weeks from date of loan application sub- Business plan > Evaluation by credit union Client Monitoring:from date of loan application by client mission by client (at present: depends on (loan manager, loan committee, board) volume of work / raise in number of loan > loan contract and conditions (loan period, Coaching: E-mail Monitoring: Monitoring:Meeting of Credit Committee: every three applications). pledge, temporary payment of 10% of loan to After provision of loan a business support In most cases, MFIs commit borrowers to par- Loan manager starts debtor files and main-weeks (representatives of the “Fonds de Par- credit union capital, disbursement conditions, service is offered: ticipate in monthly client monitoring (e-mail tains loan repayment from the day of dis-ticipation” and Hefboom / Crédal). Loan will …) on 15th of every month with 3 questions and bursement – also consults the developmentbe disbursed by “Fonds de Participation” im- Simultaneous procedure: Starters Loan: space for personal comments and messages). and implementation of business plan.mediately after presentation of invoices and evaluation by LCCU /INVEGA for guarantee for 1.5 years by mentoring structures like In case of difficulties, MFI and borrower canthe like by client (within one year). UNIZO; negotiate contract changes and inform GLS >disbursement of loan according to documents Bank before the 23rd of the month. GLS Bank > follow-up (control and intervention) can approve and carry out modification before debit of next repayment on 30th of month.112 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 113
  • 58. Client Monitoring: Risk Management / Portfolio at Risk:Solidarity Loan: Checking payment receipts and return debit In case of green and red numbers, MFI con-for 2 years Hefboom/Crédal together with a notes: cerned has to present an “action plan” to GLSnetwork of volunteers from Dexia Founda- At the beginning of each month MFIs check the Bank and can apply for expert support by DMI.tion. Free of charge but compulsory. accounts of their clients. In case of return debit In case of red numbers, GLS Bank can define notes, the MFI contacts the client and pushes requirements and cessation of lending for thisThe progress of business development will be him for immediate payment. If client makes MFI.discussed regularly. payment by the 14th, loan will not be listed in the monthly portfolio at risk. Benchmarking (of MFIs): NA Monthly Benchmarking of MFIs by DMI:Risk Management / Portfolio at Risk: German MFIs agreed that every MFI will get a Every MFI gets a consolidated monthly reportNA Monthly Controlling “Portfolio at Risk” su- Monitoring done by regional credit un- consolidated monthly report with an overview by e-mail with an overview about the results pervised by DMI (Service network for MFIs) ions about the results of all MFIs – as an instrument of all MFIs. of mutual learning. It is subject of discussion of Actual risk • 10% of outstanding regular workshops. A SWOT analysis of this project was done by portfolio If there is INVEGA guarantee default risk LCCU. • 15% of outstanding will be covered by the regional credit un- portfolio ions (20%) and INVEGA (80% guarantee). Non-financial services: Change in repayment • 15% of outstanding portfolio Hefboom Flanders / Crédal Wallonia: Mandatory for all clients applying for a mi- • 25% of outstanding Coaching for business plan development Not included: The service of German MFI is croloan within the “Entrepreneurship Devel- portfolio and completion of loan application for limited to consultancy in the application proce- opment Fund” loans with problem all up • 25% of outstanding free. Business support service for 1.5 year dure and client monitoring after loan disburse- Before loan disbursement: portfolio in case of “Starter Loan” and 2 years in ment. General Training: Basics of Entrepreneurship • 50% of outstanding case of “Solidarity Loan”. Special services, In many cases MFIs recommend non-financial (8 hours); portfolio like book holding, are also available, if services (for free or to be paid for) by linked Entrepreneurship Training: Business Plan written off • 10% of outstanding necessary. institutions or partner organisations. (German Training (16 hours), Accountancy and tax ba- portfolio consumer protection law prohibits cross-sell- sics (16 hours), Business and labour law ba- • 15% of outstanding ing of financial and non-financial services.) sics (8 hours), Business management basics (8 portfolio hours), Marketing basics (8 hours), Staff man- agement in business (8 hours);114 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 115
  • 59. Fondo Microcredito (Sardinia, IT) Guarantee Fund for Microcredit Microcredit Fund (Lombardy, IT) (Calabria, IT)Non-financial services: Institutional Framework: Consultations: Individual on business plan. Key objective: to create access to the labour Key objectives: facilitating the transition into Key objectives: promoting access to credit After loan disbursement: control of repay- market, create jobs and support SMEs and self- work, promoting micro-credit operations as a to cooperatives’ shareholders that are ex- ment and business plan development by employment. tool for combating poverty and social inclu- cluded / at risk of exclusion; promoting loan officer; sion, encouraging the participation of disad- recapitalisation of cooperatives that pursue SFIRS SpA, financial institution in house pro- vantaged groups (focus on women and im- programmes of social inclusion finances in-Sustainability: vider of Sardinia Region, is the selected Fund migrants) in order to combat and significantly dividuals not enterprises. • uncertainty about the political context in “Mikrokreditfonds Deutschland” is planned “Entrepreneurship Promotion Fund” is manager. reduce usury in the Calabria Region. It is delivered through banks that were se- Belgium until 31st of December 2015. planned until 31st of December 2015. lected by tender on the basis of different el- • financial sustainability cannot be reached The Microcredit Fund amounts to € 20 mln, ements, including the interest rate. The ESF • “Fonds de Participation” decided not to • high public and political interest for micro- • high public and political interest in corresponding to approximately 1000 new half of the loan is interest-free. There are no further carry out the Solidarity Loan from credit in Germany; Lithuania; companies with an endowment of about 25,000 services delivered along with the loan. 2012 on • strongly raising number of MFIs and micro- • strong network of qualified regional €. • numerous loan applications loans; credit unions etc.; Besides the ESF Managing Authority, the • certain interest for microcredit in Belgium • strong network of MFIs under a federal roof The actors involved at regional level are: following actors are involved in JEREMIE • current technical support providers intent (DMI) • The Department of Work and training, pub- initiative: to create own credit products • very elaborated system of monitoring, risk lication notice; • Finlombarda (financial regional compa- • tax incentives for private sponsors for loan management and benchmarking; • Fincalabra SpA, Calabria Region’s financial- ny, charged with the management of the funds asset manager in-house; fund, through “in house providing”); • not clear yet how to deal with decreasing • high dependency on success; • Banks that have an agreement with the • other regional DGs (DG Family Integra- item fees for loan processing that MFIs re- • uncertainty of “profitability” of this Calabria Region; tion and Social Solidarity and DG Indus- ceive (charging the clients?) fund; • Institutional social-economic partnership try, Craft, Building & Cooperation, that • relatively high financial risks for MFIs (first • not sure about prioritisation of micro- POR Calabria FSE 2007/2013. have competencies in the field of coopera- loss of 20% of outstanding loan portfolio). credit instruments within 2014-2020 tive system); priorities of ESF programme; • financial intermediaries and cooperative systems; • the Ministry of Welfare (as co-financing body).116 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 117
  • 60. Fondo Microcredito Guarantee Fund for Microcredit Microcredit Fund Fondo Microcredito Guarantee Fund for Microcredit Microcredit FundStakeholders: Meta-Level (political framework / funding / financial engineering): Stakeholders: Micro-level (serving the clients):The Fondo Microcredito was set up on 4 Dec 09 • A €20m guarantee fund is managed by the The €20m of ESF funding was transferred Loans are made via the Banco di Sardegna, The banks receive the interest and get new cli- The financial intermediaries were selected bywith a sum of €30m from priority axis 3, and ‘holding fund’ Fincalabra and guarantees by the Managing Authority to Finlombar- which won the call for tenders. The tender ents as borrowers in the fund are requested to Finlombarda, according to the orientations of€20m was added later that month. In 2011 a 80% of loans made to small businesses by da; the financial intermediaries, selected was open for 42 days and the selection pro- open an account with the bank. the steering committee.further €8.6m was paid over. commercial banks. It serves to guarantee through a public procurement process, cess took 4 months. The first public tender was carried out in 2009 loans worth € 25,000. added to the Fund almost €20m further of and two private banks were selected (BancaDepartments (Labour Dept., Sanity Dept.) fi- • A budget of €4.5 m to Fincalabra to cov- private money. Popolare di Bergamo and Federazione Lom-nancially contribute to the Fund through re- er100% of the interest (which Fincalabra The first call distributed €10m to 2 banks barda BCC): 2 lots of €2.5m each were assignedsources of the OP activity Lines they’re respon- pays to the banks at a fixed rate) plus a fee and the second call in 2011 distributed to each bank. The second one was carried outsible for. for each transaction. €9m to 3 banks. in 2011 and three private banks were selected • A €2.5m fee paid to Fincalabra to provide (Banca Popolare di Bergamo, Banca Popolare borrowers with ‘tutoring’ support for 24 Etica and Banca Popolare di Sondrio): a lot of months after start-up. Fincalabra gets a 10% €3m was assigned to each. bonus if the businesses it supports are suc- Target group: cessful. The scheme makes loans (it does not give The target consists of the disadvantaged groups Target group are the cooperative shareholdersStakeholders: Macro-level (governance / capacity building): guarantees) and the loan ceiling is €25,000. in according with Regulation (EC) 800/2008. who belong to the following types of co-opera-The Managing Authority, in cooperation with The quality of operations is achieved through The quality of the operations is ensured by Loans are to enterprises and not to indi- tives (according to the Italian law 381/1991):its Support Office, coordinates the Fund’s ac- cooperation between the institutions involved, the steering committee that provides ori- viduals. • Type A social co-operatives (providingtion, approves the most important documents especially between Calabria Region and Fin- entations and asks for periodic monitoring The operational programme details certain health, social or educational services);for the implementation of the Fund and enacts calabra; constant monitoring, verification and data and reports related to the initiative. financial agreement provisions, defining • Type B social co-operatives (integrating dis-the approval/rejection of proposals and nomi- control procedures are in place. criteria for allocation of resources and also advantaged people into the labour market);nating members of Investment Committee and Finlombarda organised several meetings defining some preferential economic activi- • Worker co-operatives employing at leastTechnical Office. aimed at providing information and sup- ties to be financed. 30% of disadvantaged members; Lombardy port to the financial intermediaries in- Region has adopted a broader definition volved and to align them to the social goals Priority activities: retail, manufacturing, of ‘disadvantaged’ than the national social of the initiative. tourism, social and personal services, ICT, co-operative legislation, and for instance environmental protection, includes women over 40 years old, men over energy efficiency and renewable energies, 50 years old, migrants and the long-term cultural services, craft sector, business ser- unemployed. The loan may be taken out by vices (starting from 2nd call) non-employee co-operative members such as volunteers. So far 77% of loans have gone to employee members.118 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 119
  • 61. Fondo Microcredito Guarantee Fund for Microcredit Microcredit Fund Fondo Microcredito Guarantee Fund for Microcredit Microcredit FundLoan products: Outreach:Max loan amount: €25,000 Max. loan amount: €25,000 (each person, max. The structure of the loan has been designed In the first call in 2009, €41m was allocated; By December 2011 applications had been re- At the date of 30/04/2011 there have been 3,700Payback period: 5 years three people for the same project) with reference to the specific target and there were 2,400 applications (1,900 eligi- ceived: borrowers, 52% of whom are women, and 49%6 or 12 months’ grace period. Interest rate: 0% (for beneficiaries); (effective goals of the initiative: ble, 956 accepted; out of these: 54% start- • 36% women of whom are disadvantaged. Their average ageThe interest rate is zero if the loan is repaid on interest rate 7.5%) up enterprises). In the second call in 2011,• 81% individual enterprises (solo-entrepre- is 43. They come from 244 co-operatives, whichtime (direct debit). Admin charges: yes (do not exceed 2% of the • The microloan is assigned to the person €27m was allocated (2,000 applications). neurs) is about 15% of the co-ops in Lombardy.Prepayment penalty: N/A fund) (shareholder) who is obliged to sub- • 7% foreigners (out of which 40% from out-Grace period: N/A Loan period: five years (60 months) scribe capital of the cooperative. The ceiling of €25,000 effectively excludes side the EU)Collateral: N/A Prepayment penalty: no • The microloan (€4,000) is made of two many tourism projects which require high- • 40% in the services and 52% in the commer- Grace period: yes, 12 months (one year) components: er investment. Most borrowers are 1- or cial sector Collateral: no • amortising component (€2,000): 5-year 2-person businesses in services or manu- loan, fixed rate, monthly refundable; facturing. Over half of requests come from • bullet component (€2,000): 5-year loan, non-existent enterprises (i.e. start-ups). zero rate, single refund at the end. • If the beneficiary does not refund the Funds were allocated to the 8 sub-regions loan, it is covered by the guarantee fund according to unemployment rate and prior- (10%). ity trade sectors. This turned out to be a • The object of the investment is assessed ’blunder’ as demand was not as predicted by the financial intermediary but is flex- – for instance a high expected demand from ible. Olbio-Tempio which did not materialise) Women received 52% of loans, because theyProcessing time: submit better business plans, in part due toN/A N/A N/A the legacy of EQUAL. The average loan amount is around €20,000. 54% of successful applications are start-ups.120 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 121
  • 62. Fondo Microcredito Guarantee Fund for Microcredit Microcredit Fund Fondo Microcredito Guarantee Fund for Microcredit Microcredit FundMethodologies to reach clients: Risk management / Portfolio at risk:Marketing is through labour offices, news- Communications campaigns were conducted The first call addressed to final beneficiar- There is a 98% repayment rate so far, and The loan is structured through a soft loan at In the investment strategy Finlombarda esti-papers, a TV talk show, and by going out to in the press, on TV, internet and on the most ies was promoted through the national press, the fund does not know who would bear zero interests with the guarantee of Calabria mated a 20% chance of to people – they met about 3,500 peo- important social networks. while the second call was published in the the cost of a default. The regional govern- Region at 80% of the amount requested in case By the way, according to the Evaluation Reportple, of whom 2,000 were women. They are regional gazette; moreover an information ment has not yet decided whether to pass of beneficiary default. on the initiative, only 7 cooperatives (less thanproud that they have applications from 290 campaign was promoted through several ac- this risk to Equitalia. 6% and referring to different banks) reportedof the island’s 377 municipalities. tions, such as: advertisement in the main Ital- cases of beneficiaries who expressed or are ex-It was hard to convince people that this was ian newspapers, information leaflets, regional pressing their intention not to continue witha loan scheme and not a grant scheme. seminars for cooperatives and professional payments. Consequently, the risk of defaultAll applications are made by internet,with a unions. seems to be lower than assumed.signed copy to follow within 7 days. Benchmarking (of MFIs):Client monitoring: Evaluations and monitoring activities are The Managing Authority analyses data and as-The bank reports on the 15th of each month Fincalabra SpA that is Calabria Region’s Monitoring and evaluation tasks are carried carried out by Managing Authority and Fin- sesses the operation with regard to:and as the loan agreement is between the financial-asset manager of the fund out by the Managing Authority and Finlom- calabra SpA. • efficiency of financial intermediaries (time tofinal beneficiary and SFIRS, it is SFIRS that barda. Banks produce reports on the progess of the evaluate the applications, time to disburse); (Guarantee Fund Manager). Fincalabrachases late payers. Between 5 and 10 bor- The financial intermediaries are asked to pro- project every six months. Fincalabra SpA • effectiveness (loan disbursed, cooperativesrowers are late in any given month, and reports every six months through many duce periodic reports to Finlombarda on the analyses data and monitoring many indicators reached, disadvantaged people involved).receive a phone call. After 3 missed pay- graphs and tables. The bank reports eve- progress of the initiative. such us:ments, the lawyers are put to work to de- ry end of year (31th December) Finlombarda receives the periodic reports from Efficiency and quickly response of financial in-mand full repayment, with interest. This the financial intermediaries and report every 6 termediaries;has been done only once. There have so far months to the Managing Authority; Finlom- Effective loan disbursed, disadvantaged andbeen one death, one disappearance and ne barda is also asked to report every 3 months on very disadvantaged people involved;serious illness. the financial monitoring. Number of employed; Product sectors involved122 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 123
  • 63. Fondo Microcredito Guarantee Fund for Microcredit Microcredit Fund Support to Self-employment and Business Start-Ups (LTV)Non-financial services: Institutional Framework:none The good work done by local operators as re- Non-financial services are not provided. gards the stages of dissemination and outreach On 31 March 2009 the Latvian government approved regulations re- The financial resources for training, consultation and grants amounts for those candidates. Later they were activated garding the “Support to Self-employment and Business Start-ups” pro- in 6.4 million EUR, and for other eligible costs (including administra- Fincalabra’s tutors that accompany that acts as gramme. The regulations lay down the procedure for use of the funds tion and management of the programme) – €2.8 million. intermediaries between the consultants and the of the European Social Fund (ESF), State and Land and Mortgage bank beneficiaries of the credit system. Recall that of Latvia (LMBL) resources totalling of €32.7 million for the promotion Stakeholders: Macro-level (governance / capacity building): the service is scheduled for the 24 months fol- of start-ups. lowing the date of admission to the Microcredit LIDA is responsible for coordination, monitoring and auditing of the Fund. project. On 7 August 2009 LMBL and the Latvian Investment and Development Tutoring activity provided over 40 dedicated LMBL is responsible for implementation of project – loan issuing, con- Agency (LIDA) concluded an agreement about implementation condi- tutors for 24 months (start-up period); sultations on business plans, grant issuing. The loan officers of the tions and procedure of the programme. The agreement stipulates thatSustainability: the programme will be operational until June 2015 having provided LMBL will examine the submitted business plans and using pre-de- consultations/training to 1,200 start-ups, and 800 loans to start-ups. termined evaluation criteria (for example, assessment of knowledge ofN/A The Microcredit Fund is open or has a fixed The Fund has a fixed term but it is a revolving the business start-ups, business idea and market assessment, economic term but, it is a revolving fund that is intended fund that is intended to be self-sustaining over The programme is implemented by LMBL, but the monitoring and au- implementation feasibility of the idea, assessment of the planned cash to be self-sustaining over time as the benefi- time since the reimbursements return into the diting is done by LIDA. The programme provides the business start- flow indicators, etc.) select viable projects and issue loans and allocate ciaries in return rate (up to 60 months) and 0% Fund. ups and newly established companies with an all-embracing support grants for implementation of the projects. rate on their loan. – consultations, training and financing in the shape of loans and grants for starting the business. Micro-level (serving the clients): Stakeholders: LMBL: • Promotion of measure Total resources for programme is totalling of €32.7 million: • Advisory support for potential start-ups • ESF: €17.3 million (≈53%) • Entrepreneurship training (outsourced) and individual consultation • State budget: €3 million (≈9%) during the business plan writing process and project implementation • LMBL: €12.4 (≈38%) • Analysis/evaluation of business plan and loan application, decision on loan disbursement, contract signing Within the program a Loan Fund have been established for the pur- • Project implementation monitoring pose of loan issuing totalling of €23.5 million: • Implementation of loan default procedures (if necessary) • €11.1 million co-financed by public finance (46.96%) • €12.4 million co-financed by LMBL (53.04%)124 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 125
  • 64. Support to Self-employment and Business Start-Ups (LTV) Support to Self-employment and Business Start-Ups (LTV)Target group: Outreach:Population of giving age, including the unemployed, wishing to start- • grant for repayment of the loan: given only upon successful imple- Programme started in autumn 2009 (results on 20 September 2011): • Regular statistical data of numerical results of programme submittedup a business or self-employment, including newly established busi- mentation of the project; max. available amount: up to €2,840, but no • 1,938 agreements signed with applicants regarding the participation to Ministry of Economicsnesses, are eligible to receive support from this programme: more than 20% of the issued loan amount; given to entities wishing to in programme (applicants have received consultations) (target: 1,200 • Regular quarterly meetings organised with LMBL, LIDA and Minis-1) an entrepreneur having registered according to the law not earlier start or that have already started economic activities within last year, persons) try of Economics to discuss both qualitative and quantitative data of than 3 years before requesting support from the programme; and no more than 10% of the loan issued to entities that have started • Trained: 1,033 persons (target: 1,200 persons) programme, discuss potential problems and solutions2) companies with experience (including those companies registered the economic activities more than a year ago. • Signed: 537 loan agreements totalling €9.31 million (target: 800 en- more than 3 years ago) wishing to receive support for business start- trepreneurs) Benchmarking (of MFIs): up in another business field, including manufacturing of new prod- Processing Time • Average loan amount: €18,000 ucts or services. • Grants made for sustaining economic activities: €1.56 million N/A Processing time for applicants depends on each individual case. There • Grants made for repayment of loans: €31,500Loan products: are following steps to be fulfilled: • Participants in programme: women 45%, men 55% Non-financial services: • Project consultant provides consultancy and analysis on businessLoans: idea/business plan; Methodologies to reach clients: Consultations on drafting the business plan and implementation of theThe programme supports projects with a cost up to €85,400. For pro- • Project applicant develops business plan, receive additional consul- project are provided in the bank branches.jects where the required loan amount exceeds €7,110, the loan appli- tation/training if necessary, provides additional materials to LMBL • Webpage – Moreover, the applicants lacking theoretical and practical knowledge oncant has to provide 10% of co-financing (from own resources or exter- if needed; • Via branches of the LMBL business operations and drafting the business plan are offered the fol-nal financing not related to any business support funds). • Project application date – day when complete business plan is sub- • Via marketing activities: lowing training modules: business basic; management basics; regulatoryStart-up loans are made up to €76,830 for investments and working mitted to bank; o Competition for youngsters – “Jump in the business” framework of business; financial management of company; accountingcapital for a maturity up to 8 years. For the loans exceeding €24,900 • Business plan evaluation by bank experts and loan committee – up o Planned similar competition for seniors of the economic activities and taxes; fundamentals of marketing.the loan amount cannot exceed 135% of the value of collateral offered. to 1 month;Collateral value is the approximate price (excluding VAT) for a given • Loan contract and disbursement. Client Monitoring: No more than 2 modules of training are in a reasonably short period can be sold on the secondarymarket. Client monitoring is applied according with the internal procedures of Sustainability:Grants: the LMBL as a credit institution.• grant for sustaining of the economic activities: for entities wishing In the previous EU fund programing period (2004–2006) a similar to start or having already started economic activities within the last Risk Management / Portfolio at Risk: programme for business start-up training, consultancy and financial year; disbursed within one year after signing the loan agreement; promotional (co-financed by ESF) was implemented as well (from end amount up to 35% of the issued loan amount, but not more than • Regular quarter reports are submitted to LIDA and Ministry of Eco- 2006 until October 2008). Thus, there is a clear trend of need for such €5,120. For the next 12 months the client will have the access to 1/12 nomics if necessary a programme. It is crucial part of support and should be continued. of the grant each month. Brigitte Maas, Stefanie Lämmermann - Deutsches Mikrofinanz Institut e.V.126 Community of practice on inclusive entrepreneurship Designing microfinance operations in the EU 127
  • 65. Colophonauthors: Brigitte Maas, Stefanie Lämmermannfinal editing: Joeri Colsongraphic design: ideeweb.beprinting office: gewa.bepublication date: april 2012responsible editor: ESF Flanders - Caroline Meyers Gasthuisstraat 31 – B-1000 Brussel128 Community of practice on inclusive entrepreneurship