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Development of micro-credit in Europe - guide

19 November 2007
by eub2 -- last modified 19 November 2007

EU Regional Policy Commissioner Danuta Hübner on 19 November 2007 presented an initiative which seeks to improve access to finance for small businesses and for socially excluded people, also ethnic minorities, who want to become self-employed. This initiative, in line with the Lisbon Strategy for growth and jobs, aims to make small loans, or micro-credit, more widely available in Europe to satisfy unmet demand.


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Main aspects of initiative:

The Commission's micro-credit initiative invites EU Member States to adapt their national institutional, legal and commercial frameworks needed to promote a more favourable environment for the development of micro-credit. This should include making changes to their National Reform Programmes under the Lisbon strategy for jobs and growth, in order to set themselves meaningful targets in this field.

It also recommends setting up a new European-level facility with staff to provide expertise and support for the development of non-bank micro-finance institutions in Member States. This would equip micro-financers to offer not just a loan, but a service mentoring the borrower to help develop and ensure the success of their business. This kind of accompaniment is the key to the success of micro-credit operations.

To find more capital for micro-credit providers, this initiative proposes setting up a micro-fund in the new facility. This would help finance the loan activities of micro-finance institutions which can also expect to draw in contributions from a range of investors and donors. The EIB and the EIF have expressed interest in running this facility.

Background

Promoting development of micro-credit: Offering repayable assistance combines both economic and social benefits. The Commission is willing to help Member States by compiling an inventory of good regulatory practices and offering other support to consolidate and develop work already being done in this field.

New facility: This would conduct market analysis, establish guidelines, promote training courses, especially to develop mentoring capacity, essential for good micro-credit operations. Financial support would come from the existing technical assistance budget of the Structural Funds (European Regional Development Fund - ERDF) which the European Commission manages. The new facility would be managed within the European Investment Fund (EIF), which is already a partner of the Commission in the field of micro-credit through JEREMIE, Joint European Resources for Micro and Medium Enterprises, active since 2005. The new initiative would concentrate on developing the huge potential of the micro-credit side of JEREMIE activities.

About potential demand: Micro-credit in the EU means loans under EUR 25,000, but typically, the average is EUR 10,000 for EU15 and EUR 3,800 for EU12. It is tailored for micro-enterprises, employing less than 10 people (91% of all European enterprises), and unemployed or inactive people who want to go into self-employment but do not have access to traditional banking services. This initiative focuses on this "non-bankable" segment of the market. Micro-credit is developing both in new and old Member States. According to estimates based on Eurostat data, potential demand for micro-credit in the EU could amount to over 700,000 new loans, worth approximately EUR 6.1 billion in the short term.

Source: European Commission