# EUR-Lex - 52014DC0639 - EN

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# 52014DC0639

**REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Implementation of the European Progress Microfinance Facility — 2013 /* COM/2014/0639 final */**

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TABLE OF CONTENTS

1........... INTRODUCTION....................................................................................................... 3

2........... IMPLEMENTATION THROUGH
MICROCREDIT PROVIDERS........................ 3

2.1........ Contracts concluded..................................................................................................... 4

2.2........ Actions funded............................................................................................................. 5

2.3........ Applications funded and rejected................................................................................ 8

3........... IMPLEMENTATION AT MICROBORROWER
LEVEL........................................ 9

3.1........ Microloan volume and number of
final recipients........................................................ 9

3.2........ Social and employment impact of
Progress Microfinance............................................ 9

3.2.1..... Outreach to disadvantaged groups............................................................................... 9

3.2.2..... Small amounts making a big impact........................................................................... 10

3.3........ Sector and regional distribution
of supported entrepreneurs and microenterprises.... 11

4........... COMPLEMENTARITY AND COORDINATION
WITH OTHER EUROPEAN UNION INSTRUMENTS........................................................................................................ 12

5........... CONCLUSIONS AND OUTLOOK........................................................................ 12

1. 
INTRODUCTION

In 2013, the European Progress Microfinance
Facility for employment and social inclusion (‘Progress Microfinance’) entered
into the second half of its investment period. Initiated in 2010 by the
European Commission (‘the Commission’), Progress Microfinance will continue to
offer its products to microcredit providers to allow for improved accessibility
and availability of microfinance in the European Union (EU) until April 2016 at
the latest.

Progress Microfinance was set up by
Decision No 283/2010/EU of the European Parliament and of the Council (‘the Decision’)
to support microfinance via a wide range of instruments, in particular, guarantees
and funded instruments. In addition to EU funding of EUR 105 million,
it also benefits from an additional EUR 100 million provided by the
European Investment Bank.[1]
Progress Microfinance consists of two parts: one provides microfinance
intermediaries (MFIs) with guarantees, and the other provides MFIs with funded
investments, such as loans and equity. Both parts are managed by the European
Investment Fund (EIF).

This report will look at activities and
developments in Progress Microfinance in 2013. Most of the data in this report
are given as of 30 September 2013, with more up to date data used when available.
As a result, most of the developments from 2013 refer to the period from 1
October 2012 to 30 September 2013. These are complemented by information from
the ‘study on imperfections in the area of microfinance and options how to
address them through an EU financial instrument’ (‘the Study’)[2] and an ongoing interim evaluation
of Progress Microfinance (‘the interim evaluation’)[3] produced for the Commission.

The report’s structure follows the
requirements set out in the Decision, starting with information on outreach to
intermediaries and final recipients. The report then looks at the social impact
of Progress Microfinance and its complementarity with other EU instruments. The
outlook for the future is outlined at the end of the report, including views on
the successor financial instrument under the Programme for Employment and Social
Innovation (EaSI),[4]
implementation of which will begin in the second semester of 2014.

2. 
IMPLEMENTATION THROUGH MICROCREDIT PROVIDERS

Microcredit providers (i.e. public and
private entities, including both banks and non-banks) play a crucial role in
reaching the Progress Microfinance’s goal of disbursing
EUR 500 million[5]
through 46 000 microloans to final recipients. The rise from 26
microcredit providers in 2012 to 40 providers[6]
in 2013 across 54 operations, and the increase in geographical coverage represent
an important milestone towards reaching this target.

2.1. 
Contracts concluded

Types of
intermediaries

As detailed below, the division of
microcredit providers is balanced, with 18 non-banks and 20 banks. In addition
there are two public institutions. Providers who have signed contracts since
the 2012 annual report are highlighted in bold:

18 non-banks:
Microstart, Crédal (BE), Jobs MFI, Mikrofond (BG), Vaekstfonden (DK),
Microfinance Ireland (IE), Créa-Sol, Adie, Initiative France (FR), SEFEA[7] (IT), Qredits (NL),
Inicjatywa Mikro (PL), FAER, Patria Credit (RO), SKB Leasing (SI), Fair
Finance, Ezbob, GLE (UK).

20 banks:
Societé Generale Expressbank (BG), Pancretan Cooperative Bank, Cooperative
Bank of Peloponnese (EL), Caja Rurales Unidas, Colonya Caixa
Pollenca, Laboral Kutxa (ES), BCC Mediocrati, BCC Emilbanca, Banca
Popolare di Milano, BCC Bellegra (IT), Cooperative Central Bank (CY),
Siauliu Bankas (LT), Erste Bank (AT), FM Bank (PL), Millenium BCP, Banco
Espírito Santo (PT), Banca Transilvania (RO), Sberbank banka, Banka Koper
(SI), OTP banka (SK).

2 public institutions: ICREF[8]
(ES), Finmolise (IT).

Microcredit provider activity in Member
States

In 2013, 25 new contracts were signed,
including 15 with microcredit providers who had not previously received Progress
Microfinance support. Five of these contracts were concluded with
intermediaries from Member States where Progress Microfinance support had not
been used before: Denmark, Slovakia and the United Kingdom (involving three
intermediaries). In addition, two contracts in countries that are currently not
covered by Progress Microfinance (Sweden and Croatia) are expected to be
completed in 2014, bringing total coverage to 20 Member States.

Geographical distribution of Progress
Microfinance on 31 March 2014

2.2. 
Actions funded

Guarantees

The programme to provide guarantees was
very successful in 2013, and continues to attract a lot of interest. The number
of intermediaries supported by a guarantee increased from 12 in 2012 to 27 at
the end of 2013. As more guarantee contracts are currently in the pipeline, it
is likely that the overall guarantee budget of EUR 23.8 million (less
the fees taken by the EIF) provided by the EU will be fully used by the end of 2014.

Funded instruments

A number of different funded instruments
are available[9],
but only senior loans were used in 2013. In total, nine senior loans were made
to existing or new intermediaries. This type of instrument is by far the most
popular among intermediaries, as it is less complex than other instruments.
Given the investment period required for equity investments, the EIF ceased to
offer this particular funded instrument from April 2014. However, the new EaSI
programme (see section 5) has a specific objective of building up the
institutional capacity of microcredit providers. Equity type investments under
this programme will play a significant role in achieving this goal.

Overview of Progress Microfinance
operations as of 31 December 2013

The table below shows that some
intermediaries receive both a guarantee and a loan. It should be noted, however,
that these two instruments always cover different portfolios, i.e. a Progress
Microfinance guarantee cannot be used to cover microloans financed from a
Progress Microfinance loan. The table also shows that some intermediaries have
been able to receive the same type of support multiple times. This could have
been because they managed to disburse a sufficient number of microloans to
enable them to apply for new support (e.g. Microstart) or because the same instrument
has been used to provide microloans to clients with different characteristics
and therefore the same instrument covers different portfolios (e.g. the second
and the third guarantees for FM Bank). Loan commitments to FAER and Inicjatywa
Mikro were increased as a result of successful Progress Microfinance
implementation. Adie also received a large loan, in addition to the guarantee
agreement it signed at the end of 2012.

Table 1: Progress Microfinance
operations as of 31 December 2013

(New operations are shown in bold)

Member State || Intermediary || Instrument || Support to intermediary (EUR)

BE || Microstart || Guarantee || 100 000

|| || Guarantee || 200 000

BE || Crédal Société Coopérative || Guarantee || 300 000

BG || JOBS MFI || Senior Loan || 6 000 000

|| || Guarantee || 200 000

BG || Mikrofond || Senior Loan || 3 000 000

BG || Société Generale Expressbank || Senior Loan || 8 500 000

DK || Vaekstfonden || Guarantee || 200 000

IE || Microfinance Ireland || Guarantee || 1 400 000

|| (First Step) || Guarantee || 100 000

EL || Pancretan Cooperative Bank || Guarantee || 900 000

EL || Cooperative Bank of Peloponnese || Senior Loan || 4 000 000

ES || ICREF || Senior Loan || 4 000 000

ES || Caja Rurales Unidas || Senior Loan || 8 000 000

ES || Colonya Caixa Pollenca || Guarantee || 300 000

ES || Laboral Kutxa || Guarantee || 800 000

FR || Créa-Sol || Senior Loan || 1 000 000

|| || Senior Loan || 1 000 000

FR || Adie || Guarantee || 2 300 000

|| || Senior Loan || 5 000 000

FR || Initiative France || Guarantee || 500 000

IT || SEFEA || Senior Loan || 2 000 000

IT || BCC Mediocrati || Senior Loan || 3 000 000

IT || BCC Emilbanca || Senior Loan || 2 000 000

IT || Banca Popolare di Milano || Risk-sharing Loan || 4 000 000

IT || BCC Bellegra || Senior Loan || 1 300 000

IT || Finmolise || Senior Loan || 1 000 000

CY || Cooperative Central Bank || Senior Loan || 4 000 000

LT || Siauliu Bankas || Senior Loan || 5 000 000

NL || Qredits || Guarantee || 1 300 000

|| || Guarantee || 1 700 000

AT || Erste Bank || Guarantee || 500 000

PL || Inicjatywa Mikro || Senior Loan || 3 900 000

|| || Senior Loan || 3 200 000

PL || FM Bank || Guarantee || 800 000

|| || Guarantee || 1 300 000

|| || Guarantee || 900 000

PT || Millenium bcp || Guarantee || 300 000

|| || Guarantee || 500 000

PT || Banco Espírito Santo || Senior Loan || 8 800 000

RO || FAER || Senior Loan || 1 000 000

|| || Senior Loan || 1 000 000

RO || Patria Credit || Guarantee || 1 000 000

|| || Senior Loan || 8 000 000

RO || Banca Transilvania || Senior Loan || 7 500 000

|| || Guarantee || 1 700 000

SI || Sberbank banka || Subordinated Loan || 8 800 000

SI || Banka Koper || Guarantee || 600 000

SI || SKB Leasing || Senior Loan || 9 000 000

SK || OTP banka || Guarantee || 1 300 000

UK || Fair Finance || Guarantee || 200 000

UK || EZBOB || Guarantee || 400 000

UK || GLE || Guarantee || 900 000

18 MS || 40 microcredit providers || 54 contracts || 134 700 000*

- For loan
contracts, the EIB contribution is included

Financial volumes

The total commitment to microcredit
providers amounts to EUR 134.7 million (including guarantees, where
the total cap amount is EUR 20.7 million), and the total disbursement
of funded instruments is EUR 60.17 million. This is due to the fact
that a disbursement does not happen immediately after the signature of a
contract and can be split into multiple instalments, pending the fulfilment of
contract conditions. In general, non-banks have been faster in requesting
disbursements than banks.

For guarantees, the situation is different,
partially owing to the nature of this product. Guarantees are not disbursed
like funded investments. They may be called in the event of a default, and they
only cover part of a microcredit provider’s portfolio. For reasons similar to
last year,[10]
the net amount of called guarantees is relatively low, at
EUR 1.34 million, with FM Bank and Qredits having called almost 90 %
of this amount. The net amount of called guarantees is expected to increase
significantly over time. As of the end of March 2014, this had increased to EUR
2.11 million.

Leverage achieved

Leverage explains how the goal of
EUR 500 million in microloans can be achieved with initial EU funding
of EUR 100 million.[11]
A leverage of approximately two has been reached, thanks to EIB co-investment,
and this is further multiplied by the leverage created at microcredit provider level.
The highest leverage is provided by guarantees. The other most used instrument
is the senior loan. For this particular type of funding, it is difficult to
leverage the original funding, as sometimes the intermediary simply on-lends
the amount provided by Progress Microfinance. However, even in case of a senior
loan, a leverage of 1.5 or 2 has been requested from some intermediaries and,
exceptionally, the leverage has been set as high as 5. According to the latest
EIF projections, Progress Microfinance will achieve the target leverage of 5,
in spite of the prevalence of senior loans among the funded instruments. This
is mainly due to the higher-than-forecasted leverage of guarantee agreements.

2.3. 
Applications funded and rejected

Several applicants did not manage to complete
the application procedure and receive Commission approval (for guarantees) for
Progress Microfinance. However, as in previous years, formal rejection is
unlikely to take place at EIF board level, where only thoroughly screened applications
are submitted. The interim evaluation will analyse in more detail why certain
applications were not completed.

3. 
IMPLEMENTATION AT MICROBORROWER LEVEL

The latest projections indicate that more
than 20 000 final recipients received microloans totalling EUR 182 million
by 31 March 2014. This represents a strong increase, but there is still a
significant market gap to be filled. The Study estimates the total unmet
interest at final recipient level in Europe to be EUR 2.7 billion.

3.1. 
Microloan volumes and the number of final
recipients

At the reporting date, there were 12 690
final recipients, with some of these benefiting from more than one microloan.
More precisely, 5 942 clients benefited from 6 236 microloans, worth
EUR 51.6 million, on-lent by microcredit providers, thanks to funded
instruments. Guarantees enabled intermediaries to offer 7 016 microloans, totalling
EUR 69.3 million, to 6 748 microborrowers.

However, not every interested entrepreneur
is successful in their application for a microloan. Using a proxy rejection
rate, it is estimated that almost 2000 applications for loans supported by
funded instruments were rejected.

3.2. 
Social and employment impact of Progress
Microfinance

It is clear from Progress Microfinance’s
objectives, as set out in the Decision, that outreach to disadvantaged groups will
be key.

3.2.1. 
Outreach to disadvantaged groups

Data on Progress Microfinance’s social
impact are collected at microborrower level and submitted to the Commission
annually. According to the interim evaluation, the need to report these values
does not impose a significant burden on microcredit providers. It may be more
of a challenge to those whose systems still heavily rely on paper. Complying with
the social reporting requirement could, therefore, have a positive effect on a
microcredit provider’s overall administration. The data presented below do not
take into account all final recipients, however, as these data are not
available for all of them.

Job creation via self-employment and
start-ups

Entrepreneurship is often seen as a viable
alternative to wage-earning and can be a powerful tool to fight unemployment. Difficulties
in accessing finance represent one of the main barriers for aspiring
entrepreneurs; this was one of the main ideas behind creating Progress
Microfinance. The social reports from 2013 confirm that, with sufficient
funding, entrepreneurship can flourish and can help disadvantaged groups find a
way out of unemployment. 60 % of the individuals for whom data are available
were either unemployed or inactive at the time of their microloan application,
which is significantly higher than the 32 % reported in 2012. As
microborrowers benefiting from Progress Microfinance are often unable to access
other forms of funding, it is likely that they would have remained unemployed
without a Progress Microfinance-sponsored microloan. Around 38 % of recorded
recipients were employed, almost 2 % did not answer and the rest were studying.

Women entrepreneurs

More than 36 % of recorded entrepreneurs
are women, slightly less than the 39 % reported last year. Three out of
the nineteen providers who had provided data by the reporting date reported a
higher proportion of loans going to women than to men this year. These
providers are the two Portuguese banks, Millenium bcp (50.03 %) and Banco
Espírito Santo (58 %), and Lithuania’s Siauliu Bankas (67 %). Nine
other providers also show good outreach to female clients, who represent around
40 % of their portfolios.

Youth and senior
entrepreneurship

Although the majority
of loan takers are in the main age group of 25-54 year-olds (84.4 %), the
data collected show that Progress Microfinance continues to work with a
significant group of final recipients aged under 25, with 5.9 % of
recipients in this age group (compared to 5.2 % last year). The interim evaluation
will contain a more precise age break-down.

Supporting minorities

Information on minority support remains
limited, due to either legal restrictions or the sensitivity of the issue. More
information is expected to be collected as part of the interim evaluation,
which will use individual interviews in addition to questionnaires. We do know,
however, that some intermediaries have significant outreach to Roma
communities, e.g. Adie in France and Mikrofond in Bulgaria.

Educational background

Microborrowers who make use of microloans
have varied educational backgrounds, including those with no formal education through
to university-educated entrepreneurs. The largest amount of work on outreach to
those with primary or no formal education was done by the two French providers.
BCC Mediocrati and Millenium bcp, however, have the highest proportion of recipients
with a post-secondary or university education. The largest group of entrepreneurs,
42.89 % according to the available data, have completed secondary
education.

Sustainable impact

A lower number of called guarantees
reported suggests that final recipients are better able to repay their
microloans. This suggests that either they have continued their business activities
or they have started a wage-earning activity. A survey conducted among
microborrowers conducted as part of the interim evaluation will provide
additional information on the current status of final recipients.

3.2.2. 
Small amounts making a big impact

Microloans are, by
definition, capped at EUR 25 000. The interim evaluation found that
one intermediary thinks this ceiling is too low. Nevertheless this limit, in
line with experience from previous years, is seldom reached.

30 % of microloans backed by guarantees are
below EUR 5 000 and 40 % are between EUR 5 000 and 10 000.
It is difficult to identify a clear pattern in their size. For example, a
non-bank MFI from Western Europe may provide some of the smallest microloans (e.g.
Microstart) as well as the biggest ones (e.g. Qredits). The situation is very
similar for microloans provided through funded instruments. 70 % of these
are below EUR 10 000, with 51.3 % below EUR 5 000.

3.3. 
Sector and regional distribution of
supported entrepreneurs and microenterprises

Sector distribution of financed
microenterprises

Sector distribution remains broadly similar
to 2012, with more than half of final recipients coming from trade (which saw a
3 % increase since last year) and agriculture (down by 7 %).

Regional distribution of financed
microenterprises

The map below indicates the number of recipients
by NUTS1 regions as of 30 September 2013, and demonstrates Progress
Microfinance’s good geographical coverage. Some countries with microcredit
providers who have signed a contract under Progress Microfinance may not yet show
any recipients, as it usually takes some time between the contract being signed
and the actual provision of microloans by an intermediary.

4. 
COMPLEMENTARITY AND COORDINATION WITH OTHER
EUROPEAN UNION INSTRUMENTS

To better reach out to final recipients and
further develop the microfinance market in the EU, Progress Microfinance aims to
create added value by ensuring efficient coordination and smart complementarity
with other EU instruments.

All microcredit providers are required to work
with entities providing training and mentoring services, particularly those
supported by the European Social Fund (ESF). According to the interim
evaluation’s preliminary results, around 50 % of microcredit providers
have done this. The Commission understands the importance of business
development services for self-employed people and microenterprises, particularly
those coming from disadvantaged groups. As a result, it continues to demand that
the EIF enforce this key requirement.

Progress Microfinance alone is not able to
fully address the market gap identified by the Study. The Commission is encouraging
Member States to be more active in offering national schemes for microfinance
financial instruments, particularly by using their ESF resources. The new EaSI
programme will help close the gap. The programme has three axes: Progress;
EURES; and Microfinance and Social Entrepreneurship. Under the third axis, a
budget of at least EUR 86 million will be allocated to microfinance,
building on Progress Microfinance activities and adding new ones, such as activities
relating to capacity-building. In addition to this budget, repayments from
Progress Microfinance will be used for additional support under the third axis
of EaSI. These repayments are expected as of 2018, from the Commission’s
portion of the overall funded instruments budget.

The Commission’s technical assistance for microcredit
providers, the Joint Action to Support Microfinance Institutions in Europe (JASMINE),
played an important role in developing the market between its launch in 2008 and
the end of 2013. Given the initiative’s positive impact on the sector and its
complementarity with Progress Microfinance, and in line with stakeholder
requests for further integration of the Commission’s microfinance activities, in
the future the Commission will fund this kind of activity under the Progress
axis of EaSI. The Commission intends to expand its activities and adapt them to
help address existing market gaps (e.g. legal advice, tailor-made training).

5. 
CONCLUSIONS AND OUTLOOK

In 2013, the expectation was confirmed that,
following a slow initial take up, there would be a steady rise in providing microloans
to final recipients. The Study confirmed the need to broaden the geographical coverage
of microloans, and showed significant unmet demand for microloans throughout
the EU. This has been addressed by extending Progress Microfinance activities
into three new Member States in 2013 (Denmark, Slovakia and the UK) with two more to come in 2014 (Sweden and Croatia).

Guarantees have proved to be an extremely
successful instrument for microfinance support, with their budget expected to
be fully used by the end of 2014. When issuing new financial instruments under
EaSI 2014-20, the provision of guarantees to microfinance intermediaries will be
prioritised.

Social reporting confirms that Progress
Microfinance has increased its outreach activity with regard to disadvantaged
groups, and has had a strong impact on job creation by facilitating access to
finance for the unemployed and for economically inactive people.

In 2014, activity in the third axis of EaSI
will begin. Lessons learned from Progress Microfinance have fed into the design
of the financial instruments in this axis of the programme and in deciding to
give increased attention to capacity-building for microcredit providers. More
technical assistance will also be offered under the first axis of EaSI.

Progress Microfinance will continue to offer
its products until 2016, as planned, to keep addressing the financing gap on
the EU microfinance market. After Progress Microfinance ends, the balance due
to the EU will be used for microfinance and social enterprise support under
EaSI.

[1]               For
more detailed information about Progress Microfinance’s funding, products and
management, please refer to the 2010 annual report: http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52011DC0195.

[2]               By
Evers & Jung: http://ec.europa.eu/social/BlobServlet?docId=12485&langId=en.

[3]               By
Ramboll Management Consulting (ongoing).

[4]               http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:347:0238:0252:EN:PDF

[5]               Including co-investment from the private sector and
re-flows; see also section 2.2 below.

[6]               For
an up-to-date list of intermediaries, please see http://ec.europa.eu/social/main.jsp?catId=983&langId=en.

[7]               An umbrella organisation of several microcredit
providers.

[8]               An umbrella organisation of several microcredit
providers.

[9]               For more detailed information about Progress
Microfinance’s products please refer to the 2010 annual report.

[10]             Please see the 2012 annual report:
http://ec.europa.eu/social/BlobServlet?docId=10430&langId=en.

[11]             In total, EUR 104.2 million has been allocated to
Progress Microfinance, including EUR 3 million from a European Parliamentary
Preparatory Action which was allocated in 2010.