IMPORTANT LEGAL NOTICE: The information on this site is subject to a disclaimer and a copyright notice.

Local financing in rural areas

[ Summary ]


Chapter 2:
Current funding provision


2.2 Facilitation and mediation systems


Faced with the developments currently taking place in banking, it is becoming increasingly necessary to find solutions for bridging the gap between the bank provision and local credit needs. Such solutions play a “mediation” role in order to facilitate access to existing financial institutions.

The local level plays a primary role in this type of structure, because it is in the local area that links can be forged between financing needs and funding provision. This is why most facilitation structures are set up at local or regional level.

The public administration and private collective organizations play an important role in this sector. In countries like Italy and France, for instance, the national administration and some regional administrations have played a dominant role in supporting measures to facilitate access to credit.

Access to financial services can be facilitated at different levels and in different ways:

  • preliminary analysis of funding applications and support for projects;
  • granting start-up loans and loans on trust to act as a lever for securing bank loans later;
  • creation of guarantee funds.

These are the main possibilities for linking funding supply with demand, as presented in Chapter 1.

a) Prior analysis of funding applications and support for projects

    Banks may refuse to deal with small-scale project promoters not only because of their lack of guarantees, but also because they have made no financial analysis or because of the cost involved in following up the project to ascertain its viability and preclude the risk of non-reimbursement.

    Facilitation structures have therefore addressed this problem by organizing customized technical support, in addition to other ways of facilitating access to credit.

    This is the case with France’s “Local Initiative Platforms (PFIL)” [7], which benefit from the support of the public authorities and whose intervention takes place at three levels:

    • Provision of funds, in the form of start-up loans, to finance business creation or development. A portion of these funds comes from public subsidies and a portion from equity participations by business firms, financial institutions and private individuals.

    • Sponsorship of new business creators: the special feature of such sponsorship is to allow a new business creator to benefit from the moral backing and experience of a company manager. Business creators use the support and reputation of their sponsor to gain faster access to their markets.

    • Support for new business creation: in addition to sponsorship, each PFIL provides the new business creator with guaranteed technical follow-up, either on a volunteer basis by salaried or retired employees, or on a contributory basis, by public accountants, technical experts and business-creation support structures.

    As non-profit-making associations, the PFILs generally turn to existing institutions for support, which also provide them with premises, such as chambers of commerce. The Platform’s Board of Directors appoints an Accreditation Committee, which is responsible for examining the applications of new business creators and deciding on the type of support to be provided. In 2000, this support will total EUR 50 million.

    The 180 PFILs all come under the national network, “France Initiative Réseau (FIR)”. Supported by several ministries, FIR mobilizes or brings together all of the partners of both the company and the economy.

    The first PFILs were created in 1981. By the end of 2000 they will number 250. Their success relies on the 5,600 voluntary workers who support and encourage new business creators. By providing a combination of advice, sponsorship and loans on trust, the Platforms really multiply the new business creators’ chances of success. Advice from professionals makes for a sound approach; sponsorship provides valuable support in the event of problems; and loans on trust, with no interest or personal guarantee, increase the personal contribution of the new business creator and exert an undeniable leverage effect on other sources of financing.

b) Granting start-up loans and loans on trust to act as a lever for accessing bank loans

    A common reason for banks refusing credit is insufficient equity capital.

    To meet this requirement, structures have been created to provide project promoters with equity capital in the form of a loan on trust (loan with no interest and no guarantees) or a start-up loan.

    This applies especially to new business creators starting up with no financial resources.

    The Italian government has created a structure of this type entitled “Imprenditoria Giovanile” (Young Entrepreneurs) in order to support start-ups in areas with the greatest need.

    Imprenditoria Giovanile (IG) is the name of the public/private agency that helps to promote new businesses, local development and support for existing SMEs. IG operates two schemes to support business creation: one to help young entrepreneurs, by means of technical and financial support measures, and the other to promote self-employment among unemployed people of every age, by means of training, technical assistance and loan provision. The success of these two schemes has led the Italian government to delegate further tasks to this agency, including support for women entrepreneurs and the management of European funds.

    The beneficiaries of the agency’s scheme to promote self-employment are people aged over 18 who have been unemployed for at least six months. The projects supported must lead to business creation in areas where there is a serious imbalance between job supply and demand and the projects may not be transferred to another other area for five years following the granting of the loan. Between 1986 (year of its creation) and the end of 1998, IG received 6,000 business creation proposals, of which 1,000 were approved. The scheme to support self-employment (which started up in 1996) has led to 41,000 applications, of which 17,000 were evaluated. Some 3,100 project promoters have participated in training courses and 790 new ideas have been selected for a total investment of EUR 18 million.

c) Cooperatives or mutual guarantee funds

    Another reason why banks are reluctant to grant loans to small projects is the lack of sufficient guarantees from loan applicants. By setting up guarantee funds it is possible to overcome this problem.

    A whole host of regional and local structures exist for this purpose. They include guarantee consortia created at the initiative of the trade and craft associations of northern Italy. The regional administrations helped to constitute their corporate capital.

    In order to meet their financing needs, which the banks had failed to meet, and on the initiative of their trade organizations (“associazioni di categoria”), Italian craft businesses set up a collective guarantee mechanism by creating the “Confidi”, collective guarantee consortia. The Confidi take the form of either a consortium or a non-profit-making cooperative. The primary aim of the Confidi is to provide a collective bank guarantee to their members and to negotiate preferential rates from the banks.

    In the absence of a law to define their status, the Bank of Italy lists the Confidi as “non-banking financial institutions”. A capital of EUR 25,000 and a minimum of 50 members are required in order to set up a collective guarantee consortium.

    The financial participation of the regional or provincial authorities in the capital of the Confidi or their regional organizations varies in scale, depending on the particular policies of each region. For instance, the participation of the Lombardy authorities in “Artigiancredit”, which groups together the local Confidi of the Lombardy region, is in the order of 40% but reaches 80% in Emilia-Romagna. Furthermore, Emilia-Romagna and Tuscany were the first two Italian regions to adopt laws endorsing the existence of these regional groupings, which are second-degree guarantee consortia, whilst at the same time granting them extensive financing for providing guarantees to the first-degree cooperatives belonging to the regional consortia. By contrast, in Lombardy, no regional law governed the creation of Artigiancredit, which was an initiative of guarantee consortia, but was immediately recognized by the public authorities as Confidi’s representative.

d) Importance and impact of facilitation structures

    Structures to facilitate access to financial banking services play a very important role for small-scale project promoters.

    By way of illustration, a study conducted in Germany - called “Benchmarking in Micro Lending” [8] shows that around 95% of Germany’s one-person businesses have recourse to outside finance at one time or another. At the same time, it is the sector of one-person businesses that generally creates the largest number of new jobs.

    In spite of the employment potential that the sector represents, loans have been granted in only 21% of cases. In 69% of these cases, the existence of public sector guarantees was a prerequisite for obtaining the loan. This finding once again highlights the importance of the sector, as well as that of public funds, as a “lever” or “support” for facilitating the access of small-business people to bank loans.


    [7] Les Plates-Formes d’Initiative Locale,
    14 rue Delambre, F-75014 Paris.
    Tél: +33 1 41 66 66 61.

    [8] Op. cit. see note 6.

European Flag