The European microfinance sector has been consistently growing over the past decade. It is composed of a variety of players and business models, with diverging legal and institutional frameworks across Europe. As a consequence, lending practices in microfinance vary considerably depending on:
- the type of institution providing microloans
- its legal setup
- the environment in which it operates
- and its own ability to apply sound and efficient management procedures
Given the diversity of the microfinance sector, the implementation of a voluntary European Code of Good Conduct for Microcredit Provision is an important element to promote best practices within the sector. The Code is a self-regulation instrument developed in close consultation with key stakeholders. It serves as a quality label, upholding high ethical and responsible lending practices in the European microfinance sector.
Signing up to or endorsing the Code is a pre-condition for accessing EU funding under the EaSI financial instruments.
Update of the Code
The Code has recently been updated. The purpose was to refine several clauses in order to reflect the changing market realities and capture the wide diversity of the institutions in the microfinance sector. The updated Code will help to make microcredit more widely used in Europe while remaining a robust quality standard for the sector.
The Code update is the result of a consultation in 2019 with key stakeholders, including practitioners, the European microfinance networks (EMN, MFC), banks, EU institutions and experts, drawing on lessons learned from a pilot phase that ran between 2013 and 2017. The Code Steering Group, led by the European Commission, formally adopted the updated Code in October 2019.
The update will enter fully into force on 1 January 2021. However, Microfinance institutions that submit a Code evaluation request from its date of publication (30 June 2020) onwards will be evaluated on the basis of the updated Code, even if they have signed up to the previous version of the Code.
Microfinance institutions that have already submitted a Code evaluation request, but have not yet been evaluated, may choose to be evaluated either on the basis of the updated or the previous Code.
Previously awarded certificates of compliance with the Code for microfinance institutions remain valid as indicated at the time of the award until their expiry.
Who benefits from the Code?
The Code aims to set high ethical lending standards through a unified set of best practice guidelines that will enable microfinance institutions to better face the challenges of accessing long-term finance, as well as encourage them to improve their internal processes and operations.
It is aimed mainly at non-bank microfinance institutions, which provide loans of up to €25,000 to micro-entrepreneurs or self-employed people.
- For final recipients, it is a quality label providing the assurance that the microfinance institutions conduct themselves in a fair and ethical manner
- For investors and funders, it ensures that the sector operates with transparent and pan-EU reporting standards
- For regulators, it is a reassurance that the sector operates according to sound business practices and principles and that it is well governed
- For policy makers, it provides a way to harmonise best practices in the European Union and promote common ethical finance principles within the sector
What is in the Code?
The updated Code is so far available only in English (translations underway to other languages). You can find the different language versions of the previous version of the Code here.
The Code has five sections, each comprising different clauses:
Section I: Customer and Investor Relations - presents the obligations of microfinance institutions towards their customers and investors, as well as the rights of customers and investors
Section II: Governance - covers standards for both management and the board of microfinance institutions
Section III: Risk Management - details common approaches and procedures for managing risk in the organisation
Section IV: Reporting Standards - details which indicators microfinance institutions must collect, report on and disclose
Section V: Management Information Systems - details common standards for management information systems
Step 1 - Sign-up
The first stage of the process is for a microfinance institution to submit a sign-up form to the European Commission, declaring their commitment to apply the Code standards in their operations. The complete electronic form should be sent to the Commission via email.
Step 2 - Self-assessment
After this initial phase, the microfinance institution should take the initiative and drive the process of its implementation. The next step is to fill out a self-assessment tool (2021 update - view previous version of the self-assessment tool) in order to estimate the degree of its compliance with the clauses of the Code at the start of the implementation process. On this basis, the institution may request Technical Assistance to support them with the implementation of all clauses of the Code and ensure a successful evaluation procedure.
In addition to the self-assessment, the microfinance institution is also expected to register and share data on the EaSI-MicPro platform. To share all necessary data, the institution should register and log in.
Step 3 - Implementation
The microfinance institution commits to implement the Code within 18 months of signing up, based on the results of the self-assessment and the gaps in compliance identified (36 months in the case of greenfield microfinance institutions, which have been operating for less than three years).
Step 4 - Evaluation process
Once the implementation period is over, the microfinance institution may decide to go for the step evaluation. If so, it submits the self-assessment and progress report to MFR, which performs a Code evaluation, aimed at evaluating how well the institution complies with all relevant clauses of the Code. Please contact our service provider MFR for the external evaluation.
Step 5 - Decision on award
The final step of a “certification” is in the hands of the Code Steering Group. The Code Steering Group is chaired by the European Commission and is composed of voting members who represent the European Commission and the industry, as well as non-voting members, who represent the service providers involved in the programme.
Based on the Code Evaluation and Technical Assistance reports (if applicable), the Steering Group decides which institutions are awarded a certificate of compliance with the Code.
Institutions that comply with at least 80% of the weighted total of the clauses (the global marking) and with all priority clauses will in principle be certified as Code Compliant for 4 years (3 years when the certification was based on the old version of the Code).
Both the microfinance institution, as well as the European Investment Fund are subsequently informed of the award.
If compliance is not achieved, the microfinance institution may decide to make the required adjustments in order to improve its level of compliance and achieve the global marking. Here, the microfinance institution can contact the Service Providers to receive Technical Assistance in the form of Code trainings. The Service Providers may offer training and coaching in order to support the institution with improvements.
Once ready, the microfinance institution will submit evidence of the changes for review by the evaluator, who in turn will inform the Code Steering Group whether or not the changes are sufficient to achieve compliance with the Code.
List of awarded institutions
Microfinance institutions in Europe
Micro-enterprises are organisations employing fewer than 10 people, which have an annual turnover or annual balance sheet total of maximum €2 million. They represent over 90% of European enterprises and are thus decisive for boosting jobs, growth and investment in Europe. Lack of access to finance is one of the main obstacles micro-enterprises face. Microfinance, which includes guarantees, microcredit, equity and quasi-equity, along with accompanying non-financial support, extended to persons and micro-enterprises that experience difficulties accessing credit, can help overcome it. A microcredit is a loan of up to €25 000.
Based on a 2016-2017 microfinance survey, conducted by the European Microfinance Network (EMN) and the Microfinance Centre (MFC), there are at least 450 institutions offering or facilitating the disbursement of microloans in Europe. One third of them (156) replied to the EMN-MFC survey. These institutions reached an outstanding gross microloan portfolio of €3.2 billion in 2017 and are serving almost 1 million active borrowers. In addition, 443,825 clients were reached with non-financial services in 2017. For more information about the individual institutions, visit the financial intermediaries page.
The Helpdesk is a free service developed by the European Commission and accessible at all times via the EaSI MicPro platform. The tool provides information on microfinance and social enterprise finance in Europe.
Through the Helpdesk, users – e.g. microfinance institutions, investors, microcredit clients – may ask questions in all EU languages concerning the EaSI financial instruments, EaSI Technical Assistance, European Code of Good Conduct for Microcredit Provision and other EU microfinance related topics.
To submit a question, users should fill out the Helpdesk form available on the EaSI MicPro platform. Every question is processed by an expert team and answered usually within one week.
Frequently asked questions
Here you will find a list of answers to the most frequently asked questions with regard to the EaSI Technical Assistance services, the related eligibility criteria and application process, the European Code of Good Conduct for Microcredit Provision, and the EaSI Financial Instruments and grants. Should you not find an answer to your question, please contact the Helpdesk.