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Loans on trust for project proposals:
"LEADERFIDI" for “rural start-ups”

 

Created by the Anglona-Monte Acuto LAG, the “LEADERFIDI” cooperative guarantee fund encourages the creation and development of local small businesses by helping them obtain loans in a region where interest rates are high and the loan applicants are not very solvent.

The economic fabric of the Anglona-Monte Acuto LEADER area is characterised by the presence of a multitude of small productive units and by a rather high death rate for new businesses.

One of the major difficulties business owners face is the banking system in Sardinia which acts like a monopoly: 70% of savings are channelled by a single financial group, the Banca di Sardegna. All the financial institutions on the island also charge interest on loans that is 2% to 4% higher than on the mainland while at the same time requiring guarantees that few entrepreneurs - mostly young people - are able to provide. The banks claim that the reason for this is the high level of investment risk in Sardinia.

The LEADER group decided to tackle the problem and in November 1996 commissioned a specialised company to do a feasibility study on the creation of a guarantee fund enabling local small entrepreneurs to be granted loans on trust. The study concluded that the project was workable.

Intense coordinating work began. Meetings were organised in the 25 towns of the LEADER area, which led to the creation of a financial cooperative responsible for managing a guarantee fund. All the municipalities joined the project and became founding members, contributing in proportion to the population of their respective municipality (about 1 euro per inhabitant). Other public structures also helped set up the fund: thus the Chamber of Commerce of Sassari contributed some 15 000 euros to the fund.

The limited liability cooperative, “LEADERFIDI”, was officially set up in August 1998. It had 29 founding members, public and private, all located in the rural parts of the Anglona-Monte Acuto area.

In the first quarter of 1999, when the cooperative was approved by the Italian board responsible for overseeing financial institutions (UIC), LEADERFIDI already had 100 members. The long process of consultation launched by the LAG brought in new partners, including several insurance companies and a number of local businesses. Membership was open to all interested persons or organisations at an initial fee of EUR 50.

On 13 May 1999, an agreement was signed between the Banca di Sardegna and LEADERFIDI. A collective guarantee fund was created to cover the risk of the loans on trust granted. If the money lent is not paid back, 50% of the debt is covered by LEADERFIDI and 50% by the bank. In addition, the setting-up of an “interest fund” enables LEADERFIDI to pay the interest of all the loans granted.

The total amount of financing to be granted cannot exceed the equivalent of 4 times the sum deposited by LEADERFIDI, about EUR 2 400 000. The amount lent is limited to 25 822 euros per company. However, up to 51 645 euros can be lent in the case of projects of special interest. The loans are repayable over a period of five years. Interest is automatically debited from the “interest fund” account opened by the LAG with the bank. A lending committee of 3 members appointed respectively by LEADERFIDI, the Anglona-Monte Acuto LAG and the Banca di Sardegna is responsible for deciding whether to grant the loan. Several criteria are used to decide whether to grant the loan, the most important ones being the innovative nature of the project to be funded, how this project can serve as a demonstration and its potential impact in terms of job creation, particularly for young people and women.

The Anglona-Monte Acuto LAG invested EUR 609 419 of its LEADER budget in this action, dividing it equally between the guarantee fund and the interest fund. Moreover, 35 000 euros were used to do the feasibility study and develop the mechanism.

In May 2000, 30 entrepreneurs, mostly young people, were benefiting from a LEADERFIDI loan. For some of the project holders, the mechanism is complementary to the LEADER programme, particularly in the non-food sector, because it can be used to finance the part of the investments in equipment which is not covered by public funds.

An absolute innovation in the area, the LEADERFIDI cooperative should continue its activities beyond LEADER II. The cooperative’s by-laws already stipulate that LEADERFIDI can, after 2001, continue to facilitate access to loans and provide technical and financial assistance to its members. But it does not necessarily have to cover the interest, because the interest fund will probably be depleted by that time. LEADERFIDI will then at least become a permanent structure lending support and advice to the companies and economic activities of Anglona-Monte Acuto.

 

source: LEADER Magazine nr.24 - Autumn 2000


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