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
In light of the disparate microfinance landscape, 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 by industry experts, in close consultation with the microfinance sector in Europe and also serves as a quality label.
Revision of the Code
The Code is currently undergoing an update, which will be completed before the end of 2019.
The purpose of the update is to fine-tune several clauses in order to better reflect the market realities and the diversity of the institutions in the microfinance sector. When updated, the Code will help to make microcredit more widely used in Europe while remaining a robust quality standard for the sector.
The new version of the Code will be adopted before the end of 2019 and circulated within the sector. It will officially be published by the European Commission on (or close to) 30 June 2020 and will enter definitively into force on 1 January 2021. Transitional measures will be foreseen in order not to negatively impact microcredit providers certified or close to be certified under the previous version of the Code.
Who benefits from the Code?
The Code aims to set high ethical lending standards through a unified set of best practice guidelines that will better enable microfinance institutions to face the challenges of accessing long-term finance, as well as encourage them to improve their internal processes and operations.
It targets primarily 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 assurances 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 Code is available in English, as well as in Bulgarian, Dutch, German, Greek, Finnish, French, Hungarian, Italian, Polish, Portuguese, Romanian, Slovakian, Spanish and Swedish. The Code is divided into 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 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 shall submit 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 with a certificate of compliance with 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 3 years.
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 reach the global marking. Here, the microfinance institution will have the possibility to 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 and endorsing institutions
- List of institutions, which have been awarded a certificate for compliance with the Code
- List of licensed banks and guarantee granting institutions, which have endorsed the Code
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. Once submitted, every question is processed by an expert team and a comprehensive answer is sent usually within one week from submission.
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.