Supporting micro-credit providers with JASMINE - November 2010
Regional Policy Commissioner Danuta Hübner presented on the 17th of November 2007 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.
"People want to work, and many want to run their own small business or become self-employed. Micro-credit is a highly effective way to develop new businesses or to help the unemployed back into the mainstream economy through self-employment or micro-enterprise development," Commissioner Hübner said.
Micro-credit has been used very successfully in less developed countries, and there has already been some action in this field in the EU, both at Community and at national level. In the EU, demand for this type of finance – typically, loans averaging around €7,700 – is overwhelmingly from people setting up small companies in the service sector. Be it services to businesses, individuals or households, they range from personal computer wizards to window cleaners, gardeners, or carers for people or pets – micro-credit can help make a business of an individual's skills and abilities.
All indications point to high potential demand from people who, for various reasons, are unable to obtain loans in the traditional banking sector. "This initiative is intended to set out a framework to coordinate our efforts at EU level by improving the legal and institutional environment in which micro-credit providers operate, and increasing the availability of capital. With micro-credit, we could have € 6.1 billion more invested in Europe," the Commissioner added.
These are the main aspects of the initiative:
First, it invites 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.
Secondly, it 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.
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 €25,000, but typically, the average is € 10,000 for EU15 and € 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 € 6.1 billion in the short term.