Local financing in rural areas
[ Summary ]
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
- 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)” , 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
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
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
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
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”  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.
 Les Plates-Formes d’Initiative Locale,
14 rue Delambre, F-75014 Paris.
Tél: +33 1 41 66 66 61.
 Op. cit. see note 6.