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Gaining scale in microcredit – can banks make it happen?

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A report on two workshops organised by the European Commission’s Directorate-General for Enterprise and Industry.<br/><br/>For the European Commission, developing the supply of microcredit is important because it encourages new businesses, stimulates economic growth and can help counteract the effects of the financial and economic crisis.<br/><br/>Entrepreneurs often find it difficult to borrow small amounts because many banks see microcredit, in particular microloans to start-ups, as a high-risk, low-return activity where overhead costs are high in relation to the amount lent.

In order to further develop its policies, the European Commission sought the views of market participants and other experts on “The role of the banks for microcredit in Europe”. The following specific topics were initially identified:

  • The business case: Would microcredit clients get a loan and how would the loan product look? Is there enough on offer and what could banks do to improve this?
  • The level playing field: What is the role of the non-banking sector in relation to the banking sector?
  • The trends: How will the situation change due to the economic and financial crisis? How will the future of microcredit provided by banks look: a business to develop, or one to avoid?

Banking and non-banking experts discussed these questions in two workshops in November 2008 and March 2009. This report outlines the conclusions from those discussions.

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Contact

Directorate-General for Enterprise and Industry, 'Financing Innovation and SMEs' Unit entr-financing-innovation-and-smes@ec.europa.eu

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