Special support instruments

JASMINE - European Code of Good Conduct for Microcredit Provision

Why a Code of Good Conduct for micro-credit providers in the EU?

The European microcredit(1) market is a young and growing sector which has considerable potential. However, this market is still quite heterogeneous due to the disparity of the legal and institutional frameworks in the Member States and the diversity of the microcredit providers.

As a consequence, lending practices in microcredit vary considerably depending on the type of institution providing micro loans, its legal setup, the environment in which it operates and its own ability to apply sound and efficient management procedures.

Under these circumstances, the design of a widely accepted voluntary "European Code of Good Conduct for Microcredit Provision" was identified by the Commission as an important element to promote best practice in the field of microcredit(2).

The European Code of Good Conduct was designed in the framework of JASMINE(3), a pilot project developed in the aftermath of a Communication on microcredit adopted by the Commission in November 2007 and also feeds on work carried out previously on the regulation of microcredit in Europe(4).

The objectives of the Code

The objective of the Code is to set out good practice guidelines that will better enable the sector to face the challenges of accessing long-term finance.

The aim is to provide a document benefiting funders, investors, customers, owners, regulators and partner organisations.

Core principles

 The Code is built on recognised best practice in the microfinance sector.
It has been developed in close consultation with many stakeholders of the microcredit sector in the EU.
Representatives of the banking and non-banking sector such as academics, funders, investors, customers, owners, regulators and partner organisations were involved in this project.
The development of the Code has been guided by the following principles:

• An emphasis on incorporating specific and measurable content on the basis of which microcredit provider managers and board can take action to enhance their organisations.

• An emphasis on developing a Code that is adjusted to the diversity of microcredit providers in the EU in terms of market conditions, institutional forms and legal frameworks.

• An emphasis on raising standards by balancing the need to introduce best practice with realistic operational expectations of the providers.

A guide organised in a practical way

The Code is divided into five indexed sections comprising several clauses:

1. Customer and investor relations: This section covers obligations of microcredit providers towards customers and investors, and rights of customers and investors;
2. Governance: This section covers standards for both management and the board of microcredit providers;
3. Common reporting standards: This section details which indicators microcredit providers must collect, report and disclose;
4. Management Information Systems:This section details common standards for management information systems;
5. Risk management: This section details common approaches and procedures for managing risk.

A sixth section on Social performance, coveringethical and social aspects, will be added to the document in 2012.

Using symbols

Each clause is typified by 3 symbols highlighting the following:

1. Priority clause :
   A priority clause indicates its high importance;

2. Level of difficulty :
   Three levels of difficulty to implement a specific clause are defined (Low, Medium, High);

3. Large providers only :
   Indicates a clause applying only to large microcredit providers (i.e. having more than 7000 active borrowers and more than 70 employees).

A Code aimed at a large audience

The Code of Good Conduct is primarily addressed to non-bank microcredit providers which make available to micro-entrepreneurs or self-employed people loans of up to €25,000.

It is intended for microcredit provider managers, directors, customers, investors, funders, owners, regulators and partner organisations.

For customers, it is a tool to ensure that they are treated in a fair and ethical way.

For investors and funders, it ensures that the sector operates with transparent and pan-EU reporting standards.

For regulators, it gives reassurance that the sector operates according to sound business practices and principles and that it is well governed.

For the Commission, it provides a way to harmonise best practices in the European Union and promote common measures in the sector.

Endorsement

It was made clear from the beginning that in the absence of common regulatory frameworks, this European Code of Conduct for Microcredit Provision would not be mandatory but would rather undergo voluntary endorsement by the microcredit providers.

The Code will be complemented by JASMINE Online, a web application primarily intended to facilitate the implementation of the Code for those who have endorsed it. It will also serve as a tool to help potential micro-credit recipients identify local and regional microcredit providers and also allow potential investors liaise with the microcredit providers showing in the JASMINE Online database.

Microcredit providers demonstrating that they have implemented the Code in an appropriate manner may be awarded a Quality Label (under preparation).

Useful links

European Code of Good Conduct for Microcredit Provision:
http://ec.europa.eu/regional_policy/thefunds/instruments/jasmine_cgc_en.cfm

JASMINE:
http://ec.europa.eu/regional_policy/thefunds/instruments/jasmine_en.cfm
http://www.eif.org/what_we_do/microfinance/JASMINE/index.htm?lang=-en

JASMINE Helpdesk: http://ec.europa.eu/regional_policy/thefunds/instruments/jasmine_helpdesk_en.cfm

"A European initiative for the development of micro-credit in support of Growth and Employment"– COM (2007) 0708:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2007:0708:FIN:en:PDF Regulation on microcredit: http://ec.europa.eu/enterprise/newsroom/cf/itemshortdetail.cfm?item_id=714

European Small Business Portal (Access to finance):
http://www.access2finance.eu/ http://ec.europa.eu/small-business/funding-partners-public/finance/index_en.htm