EN    EN EN 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 2.7.2009 
SEC(2009) 907 
  
COMMISSION STAFF WORKING DOCUMENT 
Accompanying document to the 
 
DECISION OF THE EUROPEAN P ARLIAMENT AND OF THE COUNCIL 
 
establishing a European Microfinance Facili ty for Employment and Social Inclusion 
(Progress Microfinance Facility) 
  
EX-ANTE EVALUATION  
  
{COM(2009) 333 final}  
EN 2   EN TABLE OF CONTENTS 
Introduction ................................................................................................................... ........... 4 
1. Problem definition........................................................................................................ 5 
1.1. High potential demand for micro-credit not met.......................................................... 5 1.2. A situation worsened by the crisis ............................................................................... 6 1.3. Specific risks for target groups .................................................................................... 7 
2. The current initiatives at the EU level...................................................................... 7 
2.1. CIP....................................................................................................................... ......... 7 
2.2. JEREMIE ................................................................................................................... .. 8 
2.3. JASMINE................................................................................................................... .. 8 
2.4. Conclusion................................................................................................................ .... 9 
3. The need to go beyond current action : creating a micro-finance facility ........... 10 
3.1. Objectives of the Facility ........................................................................................... 10 
3.2. Functioning of the Facility......................................................................................... 11 3.3. Funding of the Facility............................................................................................... 12 3.4. Coordination of the Facility ....................................................................................... 13 3.5. Accompanying measures ........................................................................................... 14 3.6. Volume of appropriations, human resources  and other administrative expenditure.. 15 
4. Assessment of the chosen action.............................................................................. 15 
4.1. Effectiveness – Added value...................................................................................... 15 
4.2. Efficiency ................................................................................................................ ... 16 
4.3. Coherence................................................................................................................. .. 16 
4.4. Time needed for implementation ............................................................................... 17 4.5. Conclusion................................................................................................................ .. 17 
5. Monitoring and evaluation...................................................................................... 17 
EN 3   EN ANNEX 1 – Main features of micro-credit in the EU ............................................................. 19 
ANNEX 2 - Identified funding needs ...................................................................................... 20 ANNEX 3 - Existing Community initiatives on micro-credit.................................................. 21 ANNEX 3 - Existing Community initiatives on micro-credit.................................................. 22 ANNEX 4 - Summary of micro-cr edit studies carried out in  the context of JEREMIE 
contribution agreements between the Co mmission and the EIF for 2007 and 2008 . 24 
Annex 5 "Overview of the Microcredit sector in the European Union 2006-2007" extract from 
the EMN working paper (July 2008) ......................................................................... 30 
EN 4   EN INTRODUCTION  
 
The present ex-ante evaluation1 follows the announcement by the Commission in its recent 
communication on "A Shared Commitment for Employment"2: 
To offer a new chance to the unemployed and open the road to entrepreneurship for some of 
Europe’s most disadvantaged groups, including the young, the Commission will shortly propose a new EU microfinance facility for em ployment, to develop micro-enterprises and the 
social economy. By reallocating EUR 100 million from the existing budget which could leverage more than EUR 500 million, in a join t initiative with international financial 
institutions particularly the EIB Group, this ne w facility will extend the range of targeted 
financial support to new entrepre neurs in the current context of a reduced credit supply. 
Founders of microenterprises will also be  supported by mentoring, training, coaching and 
capacity building, in addition to interest-rate support by the ESF. 
This announcement is in line with th e Communication of 20 November 2007
3 in which the 
Commission presented a European initiative for the development of  micro-credit in support of 
growth and employment. The Communication iden tified four priority areas for action: 
improving the legal and institutional environment in the Member States, changing the climate in favour of employment and entrepreneurship , promotion of best practises and providing 
addional financial capital for new and non-bank microcredit finance institutions.
4 As a first 
step in implementing this agenda, the Commi ssion and the European Investment Bank (EIB) 
created JASMINE in 2008 which it provides mentoring for non-bank microcredit finance 
institutions and a financing window for a gl obal amount of EUR 20 Mio offered by the EIB. 
The European Parliament in its resolution of  24 March 2009 requested that the Commission 
reinforces its efforts to develop microcredi ts in support of growth  and employment and 
offered an additional EUR 5 Mio of support fo r a pilot action to be implemented in the 
context of the JASMINE framework. The Europ ean Parliament called on the Commission to 
cofinance projects for microcredits in pa rticular for disadvantaged target groups. 
Micro-credit in the EU means loans under EUR25,0005. It is tailored for micro-enterprises, 
employing less than 10 people6 (91% of all European enterprises), and unemployed or 
inactive people who want to go into self-emp loyment but do not have  access to traditional 
banking services. 
                                                 
1 This ex-ante evaluation has been prepared by the Commission's Employment, Social Affairs and Equal 
Opportunities DG in close cooperation with the other most concerned Commission services: the 
Economic and Financial Affairs DG, Enterprise and Industry DG and the Regional Policy DG. The report benefitted from important input received fr om the EIF and the EIB and uses the latest data 
available with regard to the mi cro-finance sector in the EU. 
2 COM (2009) 257, 3.6.2009 
3 A European initiative for the development of microcredit in support of growth and employment, 
COM(2007) 708 final /2. 
4 COM(2007) 708. 
5 A European initiative for the development of microcredit in support of growth and employment, 
COM(2007) 708 final /2. 
6 Recommendation 2003/361/EC regarding the SME definition (OJ L 124, 20.5.2003, p. 36). 
EN 5   EN 1. PROBLEM DEFINITION  
The positive employment growth of 6 million during 2007/8 has been totally reversed by the 
economic crisis and Europe is now being confr onted with very high levels of unemployment 
increase – possibly as much as 2.5 million in 2009 and 3.0 million in 2010.  
 
Recent data from the Bank for in ternational settlements shows a dramatic fall in outstanding 
loans accounting for more than EUR1.98bn. This  is the most significant reduction ever 
recorded in the history in a single quarter7. The slowdown in lending po ints to the still tight 
credit conditions facing businesse s and individuals, serving as a warning that while recovery 
is emerging in the economy, low levels of  lending by banks and borrowing could have a 
negative effect. In addition, nati onal central banks re port on falling lending to companies and 
households. 
 
The combination of the general credit squeeze with the increasing levels of unemployment 
means that people who would like to either beco me self-employed or start a micro enterprise 
cannot do so. Further, vulnerable groups8 have insufficient access to  micro-credit as main 
stream banks in particular consider them as t oo risky and cost intensive (the latter due to the 
relative small size of loans). However, most Member States have public institutions which 
offer finance to SMEs and individual entrepreneurs including micro-loans.  
1.1. High potential demand fo r micro-credit not met 
 
Micro and small enterprises form the core of the Western European economic system. 99% of 
the 2 million start-up enterprises that are created every year are micro or small enterprises. One third of these enterprises are launched by the unemployed.
9 
 
With regard to the job-creation potential of lo an/micro-credit guarantee instruments existing 
evaluation evidence of the Growth and Employment initiative10, suggests that the loan/ micro-
credit window on average created 1.2 jobs pe r assisted SME. Only one in seven SMEs 
receiving guaranteed credit vi a the micro-credit window repor ted that alternative sources, 
covering the full amount of lo an, were available to them which shows that the target 
effectiveness of this scheme was very high. 
 
In December 2007, with the EC Communication “A  European initiative for the development 
                                                 
7 www.bis.org./statistics/rppb0904 
8 In particular those considered as being 'non-bankable', i.e. not having access to normal credit systems; 
young people, or those who live in circumstance of financial uncertainty (single mothers, disabled, 
migrants, redundant workers).  
9 EMN (2008): Overview of the Microcredit Sector in the European Union 2006 - 2007; EMN Working 
paper No.5, July 2008; see also: http://www.e uropean-microfinance.org/characteristic_en.php   
10 As quoted in the interim evaluation of the entrepreneurship and innovation programme: 
http://ec.europa.eu/enterprise/dg/files/evaluation/ final_report_eip_interim_evaluation_04_2009_en.pdf 
EN 6   EN of micro-credit in suppor t of growth and employment”11, the EC has acknowledged that 
Europe lacks the necessary intermediaries, capit al and environment to unlock the potential of 
micro-credit in the EU. According to estimates based on Eurostat  data, potential demand for 
micro-credit in the EU could amount to ove r 700,000 new loans, worth approximately EUR 
6296 million in the short term12. This demand is however currently not met as can be 
concluded from the country studies summarised in Annexes 4 and 5.  
1.2. A situation worsened by the crisis 
 
The crisis is affecting micro-finance institutions mainly by: 
(1) difficulties in accessing external sources of funding: many financial institutions are 
currently facing major problems and refocusing  on their core business and less riskier 
market segment (liquidity tight ening, rising costs of borrowing)13; 
(2) an expected increase in defaults and losse s (higher defaults, hi gher indebtedness of 
micro-finance institutions' customers, possi bly exposure to foreign currency risk); 
(3) an increased demand driven by “riskier ba nk customers” which are not served by 
banks anymore; 
(4) deposit taking micro-finance institutions re port that client cash needs have gone up, 
causing savings to be withdrawn and sometimes straining repayments14 
By far the majority of micro-credit to disa dvantaged persons in the EU is provided by non-
commercial micro-finance institutions (NGOs , Foundations, Government bodies, Member 
States' promotional banks, non-bank financia l institutions) but these providers do not 
currently have the capacity to meet the impor tant demand. Also banks such as the savings 
banks and cooperative banks in cooper ation with NGOs are offering microloans15. Although 
efforts have been undertaken to extend the fi nancial capacity of micro-finance institutions16, 
those have so far not fully responded to the immediate need for access to finance of those affected by the economic crisis. Since the ma in source of finance for these institutions 
consists of capital provided by shareholders and grants, the current crisis worsens their 
situation due to the scarc ity of (public) resources.  
 
Moreover, the banking sector considers lending to  the microcredit target groups as risky and 
cost intensive. The lack of an adequate track reco rd and lack of (sufficient) collateral translate 
into a higher risk profile of these clients fo r the banks, with a concomitant risk of higher 
                                                
 
11 COM(2007) 708 final/2;  
see: http://eur-lex.europa.eu/LexUriServ/site/en/com/2007/com2007_0708en01.pdf 
12 See Annex 4 of the Communication "A European initiative for the development of micro-credit in 
support of growth and employment" - COM(2007)708 final/ 2, 20.12.2007. 
13 See e.g. Fitch Ratings Ltd. (2009): Microfinance – Te sting its resilience to the Global Financial Crisis; 
22.1.2009.  
14 CGAP (2009): The Global Financial Crisis and its impact on Microfinan ce; Focus Note No. 52, 
February 2009.  
15 Source: EMN Working Paper No. 5 "Overview of the Micro-credit Sector in the European Union 2006- 
2007", July 2008. 
16 One of the aims of JASMINE is  to build up this capacity. 
EN 7   EN default rates, lower recovery rates and ultimate ly higher net losses. In addition the granting of 
microcredit entails higher operational costs, du e to the handling costs. Clients also need 
intense business support services and advice. As a result, banks are not interested in certain 
client segments which end up being 'non-banka ble', unless additional funding or risk-sharing 
is made available to support the risk. The issu e of costs for project ev aluation, other handling 
costs and advice to borrowers has in some Member States been solved through a close cooperation between banks and regional and lo cal public business development agencies 
where these costs are partly c overed by the public institutions. 
1.3. Specific risks for target groups 
 
The EMN working paper "Overview of the Micr ocredit sector in the European Union 2006-
2007" (July 2008) highlights that th e clients targeted by the EU microlenders surveyed for this 
study are, in order of importance, financia lly excluded individuals followed by women, 
unemployed persons, ethnic minorities and immi grants. There is considerable overlap 
amongst many of these groups. Youth (18-25 year s) and disabled people remain as lower 
priority groups. In 2007, 44% of microloan clie nts were women, 2% of  clients were from 
ethnic minorities, 12% were immigrants, 12% were youth and less than 1% of microloan 
clients were disabled people. Women are unde rrepresented amongst microloan clients when 
compared to their proportion in the population and to micr olending programmes operating in 
developing countries, where they represent 85.2 % of total clients (Daley-Harris, 2007). The 
relevance of other at risk gr oups such as immigrants and yout h as microcredit clients is 
significant in some countries. For example, in  Spain and France, immigrants are represented 
well over their propor tion in the population whereas in Hungary and Spain young people are 
represented well over thei r proportion of the entr epreneurs’ population. 
 
The effects of the crisis on th e overall financial situation (a nd the limitations on lending as 
described above) combined with the pressure  on social protection systems and rising 
unemployment rates will worsen the situation of the mentioned groups. Not only will the 
group of potential clients increase, they will have  even more difficulties to access finance.  
2. T
HE CURRENT INITIATIVES AT THE EU LEVEL  
 
The present section examines the main ongoing initiatives at EU level aiming at promoting 
micro-credit17.  
2.1. CIP 
The main Community wide instrument currently available for financing establishment and 
growth of small businesses is the Compe titiveness and Innovation Framework Programme 
(CIP). The programme’s SME guarantee facility  for micro-loans provides loan guarantees 
which make it possible for banks and non-bank mi crofinance institutions, such as the Spanish 
MicroBank and the French ADIE or ganisation, to make more debt  finance available to micro-
enterprises by reducing their exposure to risk. The facility includes co-,  counter- and direct 
                                                 
17 For a complete overview of the current ongoing initiatives see Annex 3  
EN 8   EN guarantees to financial intermediaries for loan s of up to EUR 25 000 to micro-enterprises with 
up to nine employees, particularly entrepreneur s starting a new business or self-employment.  
2.2. JEREMIE  
The JEREMIE initiative allows for combining contributions from ope rational programmes of 
the European Regional Development Fund (ERDF)  and the European Social Fund (ESF) with 
loan capital and other sources of finance to s upport the creation and e xpansion of micro, small 
and medium-sized enterprises. The decision to  implement JEREMIE rests with the Managing 
Authorities of the Member States and regions. 
As of May 2009, 9 holding fund agreements ha ve been signed between the EIF and the 
Managing Authorities in: Greece, Romania,  Latvia, Lithuania, Slovakia, Languedoc-
Roussillon (France), Campania (Italy), Bulgaria and Cyprus. Further agreements have been signed with national or regional institutio ns acting as holding funds. The financial 
contributions managing authorities need to tr ansfer to the holding fund reduces however the 
available funding of ESF opera tional programmes targeted at  employment measures.  
The Commission launched in 2007 "JASMINE" a ne w European-level facility which aims at 
supporting the development of non-bank micro finance institutions in Member States. 
Financial support comes from the existing techni cal assistance budget of the Structural Funds 
(European Regional Development Fund - ERDF) which the European Commission manages. 
The facility is managed within  the European Investment F und (EIF), which is already a 
partner of the Commission in the fiel d of micro-credit through JEREMIE. 
2.3. JASMINE 
 
On 10-11 September 2008, the Commission together with the EIB launched "JASMINE", a new initiative which aims at supporting the development of non-bank MFIs/micro-credit providers in Member States a nd regions. JASMINE is the operat ional arm of the micro-credit 
initiative of the Commission. Th e initiative is also  supported by a preparatory action of the 
European Parliament.  
The Commission and the EIB decide d to set up a specific micro- credit facility, whose purpose 
will be to channel various forms of technical assistance and funding primarily to selected non-
bank MFIs/micro-credit providers to help them to improve the quality of their operations, to 
expand and to become sustainable
. The facility is managed within the European Investment 
Fund (EIF), which is already a partner of the Commission in the field of  micro-credit through 
JEREMIE. The initiative starts with a pilo t phase covering the y ears 2009-2011. The objective 
of the pilot phase is to acquire experience and know-how in delivering funds and technical 
assistance to some selected MFIs/micro-credit providers. 
Technical assistance part will be financed in 95% by the Co mmission (technical assistance 
budget of the European Regional Developmen t Fund - ERDF) and in 5% by the EIF. 
Technical assistance will  comprise among others: mentoring as  well as techni cal and financial 
advice to MFIs/micro-credit providers; evaluati on and rating of MFIs/micro-credit providers; 
promotion of good practices and dissemination of know-how 
Regarding funding, the EIB has d ecided to contribute an amount of EUR 20 M to the EIF in 
the framework of the EIF Risk Capital Mandat e micro-credit pilot facility together with 
EN 9   EN additional funding provided by co-financing pa rtners. During the pilot phase, the EIF is 
identifying a number of investment opportunitie s supporting micro-credit in the EU, e.g. with 
participations in microfinance funds/vehicles an d with risk sharing arrangements (both funded 
and unfunded).  
The European Parliament in its resolution of  24 March 2009 requested that the Commission 
reinforces its efforts to develop micro-cred it in support of growth and employment and 
offered an additional 4 Mio € of support for a preparatory action to be implemented in the 
context of the JASMINE initiativ e, in particular to provide  seed funding for non-bank micro-
credit institutions. The European Parliament called on the Commission to co-finance projects 
for micro-credit in particular  for disadvantaged target groups and to make use of EU 
budgetary allocations.  
The pilot phase of JASMINE shows there is sc ope to address a further demand mainly for 
following reasons: 
• As the majority of micro-cr edit in the EU is delivered  through non-commercial micro-
finance institutions (NGOs, Foundations, Government bodies, non-bank financial 
institutions), compliance with the financia l requirements of the facility have proven 
difficult. So far only 30% of the proposals re ceived under this micr ocredit pilot facility18 
meet the requirements of the pilot.  
• Further as a co-financing facility, EIF’s opera tions under the EIB microcredit pilot facility 
must have a sufficiently commercial profile so as to address co-financer’s return 
requirements. Given the specificity of the ma rket for micro-credit (higher risk and cost 
intensive), bank's have tended to adopt a 'risk- averse' approach especially in markets where 
micro credit is not well established.  
• Finally, the EIB Microcredit pilot facility  (EUR 20m to cover EU27 and candidate 
countries) would require additional resources to  be of a sufficient scale to generate the 
market.  
2.4. Conclusion 
 
It appears from the above that the ongoing Co mmunity and national efforts have to be 
strengthened as to increase the supply of mi cro-credits on a sufficient scale and within a 
reasonable time-frame so as to address the high  demand of those who need it most in this 
period of crisis i.e. unemployed or vulnerabl e people who want to go into self-employment 
but do not have access to bank credits.  
There is relatively little ESF experience of using funding facili ties. For instance the UK used 
the system in 2000-06 with results that were satisfactor y, but has not brought it forward to the 
new programming period 2007-13.  
Further, the use of ESF resources for the purpos e of micro-credit could negatively impact on 
the implementation of other anti-crisis measures  and not establish the EU-wide risk-sharing 
mechanism required for alleviating the general lending constraints.  
                                                 
18 EIB - RCM Microcredit pilot facility established under JASMINE 
EN 10   EN 3. THE NEED TO GO BEYOND CURRENT ACTION : CREATING A MICRO -FINANCE FACILITY  
 
The above shows there is scope for new action in order to make  full use of the potential of 
micro-finance in terms of job creation and social inclusion. This action would support 
increased loan volumes to final beneficiaries among others by sharing the costs of defaults 
through guarantees and other risk-sharing arra ngements. This would allow non-bank micro-
finance institutions to expand their activities.  
Using Community resources would be the most a ppropriate since this allows to reach out to 
all those affected by the crisis  throughout the European Union and avoid a dispersed approach 
towards increasing micro-credit supply by indi vidual Member States. This intervention would 
among other things, take the form of a risk-sharing mechanism in  order to compensate for the 
risks incurred by the micro finance institutions  and enhance their access to wholesale lending. 
It should therefore be set up at EU level in order to maintain a level-playing field between all 
micro-finance institutions in the European Union.  
Creating a microfinance facility  (Facility) within the Commun ity budget, would moreover be 
in line with the indications given by the European  Parliament to provide for the (co-)financing 
of projects relating to the provi sion by national or EU funds of  guarantees for providers of 
micro-credit; and where appropria te, that the financial implica tions of the requested proposal 
or proposals should be covered by EU budgetary allocations.  
3.1. Objectives of the Facility 
 
Strategic objective 
 
As a response to the current crisis and to address the structural problems disadvantaged 
groups have when financing the setting-up or development of a business, set up an EU 
microfinance facility for employment to offer a new chance to the unemployed and open the 
road to entrepreneurship for some of Eur ope’s most disadvantaged groups, including the 
young.  
 
Operational objectives  
 
Providing additional EU resources to increase access to micro-credit for:  
• those who have lost their job or are at risk  of losing their job, and disadvantaged people 
including the young, that want to  start or further develop their own micro-enterprise, 
including self-employment 
• micro-enterprises, in particular in the social  economy, that benefit to  those who have lost 
their job and disadvantag ed groups including the young. 
The specific objective is to ge nerate approximately 45.000 loans for these target groups over 
the period of the Facility (up to 8 years). 
EN 11   EN 3.2. Functioning of the Facility 
 
The functioning of the Facility would build on the experience with CIP and be based upon a 
Community contribution over four years to th e EIB group and/or where relevant another 
international financial institution. The Faci lity would run for a ma ximum period of eight 
years. At the closing of the Facility, remaini ng capital will be retu rned to the Community 
budget.  
 
The detailed terms and conditions for the implemen tation of the Facility will be laid down in a 
mandate agreement between the Commission a nd the EIB group/IFI. In implementing the 
Facility and achieving its objectives several instruments can be used: 
• guarantees and risk-sharing instruments 
• equity instruments 
• debt instruments 
• support measures 
Possible products developed under the Facility could be19: 
1. Debt Instruments: Debt instruments may take the form of loans to  micro-finance instituti ons (either senior or 
subordinated) or bond subscriptio n. These are instruments desi gned in order to provide 
liquidity to the micro-finance inst itutions that will in turn use the funding to ex tend loans to 
final beneficiaries (e.g. microbo rrowers, social venture funds, et c) over a certain period of 
time. Specific terms of the financing would be agreed over on a case by case basis (e.g. 
eligibility criteria). S ubordinated loans may be used, for instance, when the micro-finance 
institution needs to strengthen its financial/capital base but the legal environment does not 
permit (or easily permit) to increase the equity. The terms of the loans could be structured so as to lead to a re-util isation of the funding by the micro-fi nance institution (e.g. loan to the 
micro-finance institution of 6 year s, with an average maturity of  the micro-loans of 2 years => 
the reutilisation could be of up to three times). 
Debt instruments could be also utilised to finance Investment Vehicles providing liquidity to 
various micro-finance institutions, e.g. under the form of bond subscription (senior, mezzanine or junior bonds). 
Another possibility would be that  the EIF/IFI grants a loan to  micro-finance institutions to 
finance eligible loans or guarantee/issue credit  protection on a third party loan to a micro-
finance institution. The Commission would comp ensate the EIF/IFI for the credit risk 
associated with such exposure so that a mi cro-finance institution gets access to and/or 
receives a loan under more favourable conditi ons. The term of the transaction should not 
exceed 3 years. Such intervention will be co nditional on achievements of certain targets by 
                                                
 
19 The products listed are purely indicative.  
EN 12   EN micro-finance institutions, like volumes of fina ncing, failing to reach this the credit risk 
premium could be claimed back from the micr o-finance institutions.2. Equity Instruments: 
Equity instruments may take the form of e quity participation eith er in micro-finance 
institutions or in Investment Vehicles providing funding to micr o-finance institutions. In case 
of equity participation in a micro-finance in stitution, in addition to the funding provided, by 
increasing the equity base the micro-finance institution receives more stable resources that would also have the effect of facilitate its access to external sour ces of funding (e.g. other 
IFIs, banks, etc). In case of an Investment Vehi cle, the investment in equity would increase 
and strengthen the risk protection provided to  other investors (e.g. bond investors) while 
directly finance micro-finance institutions. 
3. Guarantee products: Guarantee products may take the form of  a) Direct guarantees issued to the benefit of  micro-finance institutions to cover part of 
their microloans portfolio on the basis of pre- defined eligibility criteria (e.g. only new loans 
can be guaranteed, maximum loan amount, availa bility period, % of risk covered etc); 
b) Funded risk sharing agreements, i.e. loan s granted to provide liquidity to the micro-
finance institutions (see above) w ith in addition the risk share of part of the portfolio (e.g. 
50%). In this case, the micro- finance institution would write off from the amount it has to 
repay to EIF/IFI under the loan  the share of losses covered by EIF/IFI on each microloan. 
c) An unconditional (but partia l, eg. 50%) guarantee of the micro-finance institutions' 
portfolio of eligible loans. The Commission would pay the corresponding guarantee fee. It 
could consist of loans generated in the futu re, in which case the guarantee premium will be 
paid gradually as the portfo lio builds up, depending on the por tfolio's risk profile. The 
origination period should not exceed 2 year s, but could be extended several times. 
3.3. Funding of the Facility 
 
Setting up the Facility would requi re non-refundable contributions in  the form of liquidities to 
IFI. Given the volume of funding required for impact , the ceilings and margin available in the 
Financial Perspectives would not accommodate additional funding to be drawn down from the 
Community budget. The only realis tic possibility would therefor e be to reallocate funding 
from an existing budget line.  The Progress budget line seems to be the most appropriate in 
this regard. The reallocation from Progress will require a modification of the Progress 
decision and the adoption of a Decision by the Eu ropean Parliament and Council establishing 
a new legal base for the Facility. Article 159 par. 3 would serve as a legal basis. The 
beneficiaries would be establishe d in the EU Member States.  
 
It is proposed to commit EUR 100 M over 4 years
. In the Commission's initial proposal for 
Progress (in 2004) a budget of EUR 558 M (2004 prices) was pr oposed. During the 
negotiations, the EP had decided to add EUR 100 M (2004 prices, equi valent to EUR 114 M 
in current prices). This additio nal amount would now be used with  a direct benefi t for citizens 
concerned by Progress actions. The EUR 100 M could leverage up to EUR 500 million and 
meets the requirements in terms of feasibilit y in the context of the current Financial 
Perspectives. 
EN 13   EN  
  
Microfinance Institutions 
(MFIs)Progress = 
€100 million  
Banks
Beneficiaries 
(Unemployed, disadvantaged groups, 
Women, young people, etc.)
Leveraged = 
€500 million 
 
 
Investing a lower amount could improve the curre nt situation but risk s not to create the 
critical mass necessary to alleviate the curren t lending constraints and boost the micro-finance 
provision for the targeted groups. 
Investing a higher amount than the proposed EUR 100 M could be desirable, but the 
screening of the current budget line of Progress has shown that  the re-allocation of such a 
higher amount would negatively affect the objec tives and priorities set under the Progress 
Decision.  
3.4. Coordination of the Facility  
 
From the Commission side the overall coordi nation would be ensured through the already 
existing CIP/JEREMIE coordinating co mmittee (see under "coherence" below). 
 
The day-to-day implementation of the Facility  would be entrusted to the EIF Programme 
Management Unit of the Economic and Financia l Affairs Directorate General since this Unit 
has the responsibility for the implementa tion of the Competitiveness and Innovation 
Framework Programme (2007-2013) (CIP). In or der to ensure the coherence between the 
particular transactions, the specific objectives of the Facility and the Community objectives in 
the field of employment and social affairs in general, the Commission services will set up an 
investment committee with representatives of the Commission's Employment, Social Affairs 
and Equal Opportunities Dir ectorate General and the Econo mic and Financial Affairs 
Directorate General. This will be the decision making committee in respect of the transactions 
concerning the Facility. 
 
Directorate General Employment, Social Affairs and Equal Opportunities will participate, at a 
senior management level, in the policy co-o rdination committee (consisting currently of 
representatives of the Enterp rise and Industry DG,  Economic and Financial Affairs DG, 
EN 14   EN Regional Affairs DG and EIF) wh ich ensures a co-ordinated and synergistic operation of 
financial instruments. 
3.5. Accompanying measures 
• All of the analysis and literature on enterprise  start-ups points to the essential requirement 
of support for the entrepreneur. This include s training, guidance, mentoring and coaching, 
as well as further support such as  interest rebates. These are th e core activities  of the ESF – 
which will directly support this initiative.  
• ESF technical assistance will help to improve the capacity within th e Member States to 
absorb the funds and to reach out to the 'ESF beneficiaries' e.g. through the Public 
employment services and NGOs. Managing author ities will be supporte d to set up (or to 
help set up) micro-credit provision. The interest  rebate foreseen by the current Regulation 
can also be applied. 
These actions would be complementary to th e accompanying measures financed through the 
ERDF technical assistance under the JASMINE facility aiming at building the capacity of 
non-bank micro-credit providers and creating the necessary conditions for micro-credits to be developed. 
Microfinance Institutions 
(MFIs)
Beneficiaries 
(Unemployed, disadvantaged groups, 
Women, young people, etc.)JASMINE
Technical support 
from ERDF
European Social 
Fund
Training, 
guidance, 
mentoring, 
as well as
Loan Rebates
 
 
 
EN 15   EN 3.6. Volume of appropriations, human resources and other administrative 
expenditure 
 
The Community intervention for the period 2010-2013 will amount to EUR 100 M. The 
financial envelope may also cover expenditure  related to preparatory actions, monitoring, 
control, audit and evaluation di rectly necessary for the effec tive and efficient implementation 
of the Facility and the achievement of its objectives. The budget for these support actions shall not exceed 1% of the budget of the F acility and will be managed by the Commission. 
 
Furthermore, the management of the Facility will entail related administrative work by the services of the Commission. It is estimated that 1 AD post would need to be redeployed 
internally in the Employment, Social Affairs and Equal Opportunities Di rectorate General to 
manage the Microfinance Facility and to ensure the synergies with ESF Managing 
Authorities. 2 external staff would also need to be added in the EIF Programme Management 
Unit of the Economic and Financial Affairs Dir ectorate General. Since the Facility will 
continue to receive payments  after the commitment period 2010-2013 and due to its revolving 
nature, this additional staff would be required beyond the commitment period until the 
winding down of the Facility.  
4. A
SSESSMENT OF THE CHOSEN ACTION  
4.1. Effectiveness – Added value 
 
Overall the creation of a microf inance facility (Facility) with  a dedicated budget would allow 
for achieving the objectives set in terms of  disbursing loans to the unemployed and 
disadvantaged groups and thus creating employment and social inclusion.  
 
Given the currently reduced level of lending and the dramatic fall in outstanding loans (cited 
earlier), the added-value of th e Facility relates to a) the rapidity and timeliness of its 
intervention; and b) the targeted support offere d to individuals and ente rprises whose lack of 
credit rating or credit histor y is an obstacle to  get funding for the creation of economic 
activity. Currently existing initiatives do not specifically target employment and social 
inclusion.  
 
The effects of the Facility will depend on the products deployed and the general economic 
situation, but there are indications, e.g. from the Growth and Employment initiative20 that 
there is a significant job creation potential.  
 
In addition, the Facility could help in risk sharin g with the banking sector in order to alleviate 
existing risk-management re lated lending constraints. 
                                                 
20 See section 1.1. 
EN 16   EN  
As indicated above, the Financia l Perspectives require  the funding of the F acility by means of 
a reallocation from an existing budget line ( in casu  Progress).  
4.2. Efficiency 
 
The efficiency of the initiative can be measured in particular by examini ng the leverage effect 
it could have in relation to the pr oduct developed and the risk taken. 
In particular guarantee schemes have a high leverage effect , in that the budget allocated 
allows supporting a higher loan vo lume. This is due to two reasons: 
• The EU budget covers only the estimated risk  exposure at the level of the microcredit 
portfolio 
• There is a chain of actors with risk-sharing arrangements, increasing further the leverage 
effect 
Loan guarantees for example, have high leverage as they are often provided in the form of 
counter-guarantees to institutions that in turn provide guarantees to other actors, such as 
intermediaries and banks. Due to the risk-sharing between these various actors, the leverage in 
terms of volume of loans supported is very hi gh. For micro-loans, the situation is usually 
different, in that the microfinance institution will typically provide loans directly to the final beneficiaries, and that there will therefore be  a more limited number of  actors in the chain, 
sharing risks. In addition, the risk profile of th e final beneficiaries is ty pically higher, resulting 
in higher expected default rates. Leverage is therefore generally lower than for loan 
guarantees. However, based on experience under CI P and taking into account the risk profile 
of the targeted final beneficiaries, it is expected that leverage will be a ratio of approximately 1 to 5, meaning that a budget allocation of EUR 100 M could allow to leverage approximately 
EUR 500 M of microcredit to  final beneficiaries. 
4.3. Coherence 
 
As shown above, the Facility will act in c oherence with other ongoing Community initiatives 
and complement these. This coherence will be strengthened by the proposed sub delegation to the services of the Economic and Financial A ffairs DG for the day-to-day implementation of 
the Facility and monitoring of the IFI(s).  
 
Moreover, the currently existi ng coordination committee on CI P/JEREMIE will be extended 
to cover the Facility as well. It is foreseen that this committee meets on a regular basis at the 
level of senior management and with representa tives of EIF to give general guidance ensuring 
coherent action. 
EN 17   EN 4.4. Time needed for implementation 
 
Setting up the Facility requires the adoption of a new legal base through a decision by the 
European Parliament and the Council and an ad aptation of the Progress decision in order to 
allow for the re-allocation of funds. The legisl ative process will require  time, but could most 
likely proceed quickly since the change to the Progress decision will be very limited and the 
new legal base will be following the standard  approach for this type of Decision.  
4.5. Conclusion 
 
Taking into account the limitations of the curre ntly running initiatives and the strong 
Community interest in meeting the objectives for this initiative in  a term as short as possible, 
the setting up of a microfinance facility through the adoption of a new legal base and the 
reallocation of EUR 100 M from the Progress pr ogramme seems to be the most appropriate 
solution.  
 
The reallocation of funds from the Progress D ecision will require an  adjustment of the 
activities developed under the different strands of  activities. The services of the Employment, 
Social Affairs and Equal Opportunities DG have carried out a screening which shows that the 
reallocation of EUR 100 M in cu rrent prices could be managed in order not to endanger the 
achievement of the overall objectives and e nvisaged outcomes of the Progress programme. 
Moreover, from a political point of view it is  generally accepted that  the current economic 
crisis requires a redeploy ment of resources to actions that  can benefit more directly those 
groups of European citizens that are affected by the crisis.  
5. MONITORING AND EVALUATION  
 
Monitoring and evaluation requirements will be pa rt of the mandate to the EIB group/IFI. On 
a yearly basis, data will be reported by  or on behalf of the EIB group/IFI on: 
• Number and the size of loans  
• break-down of the fina l beneficiaries by: 
– Gender 
– Age group 
– Educational attainment 
– Vulnerable groups (minorities, migr ants, disabled, other disadvantaged) 
• Sectors of activity covered 
• Number of agreements with eligible intermediaries 
• The degree of leverage 
EN 18   EN  
Evaluation will take place after 4 years and at the end of the mandate period. The evaluations 
shall in particular examine the extent to which the objectives of the Facility have been reached 
and formulate recommendations for improvement or possible follow-up.  
EN 19   EN  
ANNEX  1 – MAIN FEATURES OF MICRO -CREDIT IN THE EU 
 
Micro-credit is the extension of very small lo ans (micro-loans) to entrepreneurs, to social 
economy enterprises, to employees who wish to  become self-employed, to people working in 
the informal economy and to the unemployed and others living in poverty who are not 
considered bankable. It stands at the crossroads between economic and social preoccupations. It contributes to economic initi ative and entrepreneurship, job creation and self-employment, 
the development of skills and active inclusion for people suffering disadvantages. 
Micro-credit has also proven its  cost effectiveness as  a public policy tool, costing a fraction of 
equivalent passive labour market measures: the average cost of support for micro-credit 
schemes in Europe is reported to  be under EUR 5 000 per job created
21.  
Experience shows a survival rate of well over 60 % after two year s for businesses set up 
thanks to micro-credit. In purely economi c terms public support for micro-credit is 
worthwhile even if the job created only lasts a year. 
 
Micro-credit is defined by: 
– its target: micro-entrepreneurs, the self-e mployed, and socially excluded people lacking 
access to traditional sources of capital; 
– its object: the creation or expansion of inco me-generating and job- creating activities or 
micro-enterprises, whose principal need is usually the financing of initial investment or of the working capital; 
– the small amount of the individu al loans required which in tu rn relates to the limited debt-
servicing capacity of the target clientele.  Typically, this amount does not exceed EUR 25 
000. The average micro-loan provided by Micro-finance Institutions in Europe is approximately EUR 11 002
22 
– a more labour-intensive delivery system fo r making loans, involvi ng greater knowledge of 
borrower capacity and a close relationship with the borrower, especia lly during the start-up 
phase of the micro-enterprise, through mentoring and general business support. 
                                                 
21 Estimates of between EUR 1 000 and EUR 8 000 - Financial Instruments of the Social Economy in 
Europe and their impact on job creation, 1997. Under EUR5 000 - Finance for Local Development 2002: http://www.localdeveurope.org 
22 Source: EMN Working Paper No. 5 "Overview of the Micro-credit Sector in the European Union 2006- 
2007, July 2008. 
EN 20   EN ANNEX  2 - IDENTIFIED FUNDING NEEDS  
Under the JEREMIE contribution agreemen ts for 2007 and 2008, the Commission has co-
financed together with the EIF (85%/15%) micro- credit studies covering 12 Member States to 
examine how these Member States could improve  their own micro-credit environment in the 
areas highlighted in the micro-cr edit initiative of the Commission. 
 
According to these studies, the main challe nge for micro-finance institutions/micro-credit 
providers in the EU is to develop and mainta in a flexible and sustainable funding model for 
micro-credit operations that allows them to  realise their indivi dual approach towards 
providing micro-credit (target gr oups, objectives) as well as to enlarge their portfolio and 
develop their institutional capacity. In this re gard it is crucial to differentiate between 
different types of finance for specific micro-finance institutions  need. Capital is needed for 
equity and the refinancing of loans to increase the portfolio. Expenses connected to operational and risk costs need to be covered mainly from operational income or additional 
sources.  
The whole continuum of funding needs for micro-credit operations in the EU can be 
structured as follows: 
EN 21   EN  
Funding need  Description  Typical sources of funding  
Start-up costs/ 
Institutional 
development  Any costs connected to the creation or 
substantial expansion of a micro-finance 
institution  Donations and public subsidies  
Equity  Any sustainable micro-finance institution 
needs equity capital. Due to the special 
nature of its operations the equity ratio should go well beyond the one set for credit institutions in the minimum capital requirements (Basle II).  Donations and public subsidies 
Retained earnings Venture philanthropy  
Refinancing loan capital  Many micro-finance institutions start their 
lending out of own equity. To reach scale it is necessary to find other resources to refinance the loan capital.  Capital market through partner 
banks, revolving loan funds set up using European structural funds (ERDF/ESF). 
Recapitalisation with public 
funds  
Operational costs of lending operations  1. Transaction costs connected to the 
provision of microloans  2. Risk costs arising from defaulted loans  Income from interest and sub-
sidies, in some cases the costs of expected defaults are shared with public authorities through guarantee structures (e.g. CIP)  
Operational costs of non-financial services provided  Additional non-financial services 
provided to microenterprises (by specialised service providers)  Donations and public 
subsidies, partly using existing schemes co-financing Business Development Services revenues from users of services 
Income subsidies for microfinance clients  Some of the microfinance clients need 
additional income subsidies in the start-up phase of their business.   In some countries schemes have been successfully established to encourage 
people, who receive social welfare 
payments, to become self-employed. People retain a certain percentage of their welfare payments for some time after be-coming self-employed.  Public funds  
Source: EVERS & JUNG and EIF Market studies on Micro Lending in the European Union: 
Ci B i l d i d P l i R d iM h 2 009
EN 22   EN ANNEX  3 - EXISTING COMMUNITY INITIATIVES ON MICRO -CREDIT  
The JEREMIE (Joint European Resources for Mi cro and Medium Enterprises) initiative has 
been set up further to the po ssibilities offered by Article 44 of Regulation (EC) No 1083/2006 
and Articles 43 to 46 of Comm ission Regulation (EC) No 1828/ 2006. In the past, national and 
regional programmes supported by  the Structural Funds have  provided capital and other 
support in a less systematic way for micro-cred it operations, for example, in disadvantaged 
urban areas. The JEREMIE initiative allows for a combination of contributions from 
operational programmes of the European Re gional Development Fund (ERDF) and the 
European Social Fund (ESF) w ith loan capital and other sources of fi nance to support the 
creation and expansion of micro, small and medium-sized enterprises. Funding from 
instruments established through JEREMIE may al so be combined with business support and 
institution-building measures fina nced by the Structural Funds.  
Under the growth and employment initiative (1998-2000)23 and the multi-annual programme 
for the promotion of enterprise and entrep reneurship, in particular SMEs (2001-2005),24 the 
European Union provided partial guarantees to cover portfolios of micr o-loans for borrowers 
lacking security. These provisions have been extended to cover 2007-2013 with the 
Competitiveness and Innovation Framework Programme (CIP)25. The micro-credit guarantee 
window is managed by the European Investme nt Fund (EIF) on behalf of the European 
Commission.  
The Community Programme for Employment and Social Solidarit y (Progress) 2007-2013 
supports the European Microfinance Network (E MN) with a view to pr omoting microfinance 
as a tool to fight social and economic exclusi on and to promoting micro-entrepreneurship and 
self-employment. 
Under the new generation of rural development programmes, the Europe an Agricultural Fund 
for Rural Development (EAFRD) may co-finance expenditure in respect of an operation 
comprising contributions to support venture ca pital funds, guarantee f unds and loan funds. 
EAFRD supports also the creation and development of micro-enterprises26. 
The European Globalisation Adjustment Fund, wh ich can intervene to mitigate the economic 
and social impacts of restructuring and relo cation, can provide suppor t for redundant workers 
to create new businesses or move into self-employment27. 
                                                 
23 Council Decision 98/347/EC of 19 May 1998 on measures of financial assistance for innovative and 
job-creating small and medium-sized enterprises (S MEs) - the growth and employment initiative (OJ L 
155, 29.5.1998). 
24 Council Decision 2000/819/EC of  20 December 2000 on a multiannua l programme for enterprise and 
entrepreneurship, and in particular for small and medium-sized enterprises (SMEs) (2001-2005) (OJ L 
333, 29.12.2000). 
25 Decision No 1639/2006/EC of the European Parliament and of the Council of 24 October 2006 
establishing a Competitiveness and Innovation Fr amework Programme (2007 to 2013) (OJ L 310, 
9.11.2006). 
26 Article 71(5) of Regulation (EC) No 1698/2005 of 20 September 2005 on support for rural development 
by the European Agricultural Fund for Rural Development (EAFRD) (OJ L 277, 21.10.2005), and 
Articles 50 to 52 of Regulation (EC) No 1974/200 6 (the relevant implementing rules) (OJ L 368, 
23.12.2006). 
27 Regulation (EC) No 1927/2006/EC  of the European Parliament a nd of the Council of 20 December 
2006 – OJ L 406 on establishing the European Globalisation Adjustment Fund (OJ L 406, 30.12.2006). 
EN 23   EN In the context of its Communication on "A Europ ean initiative for the development of micro-
credit in support of gr owth and employment"28, the Commission together with the EIB 
launched in 2008 "JASMINE" , a new initiative wh ich aims at supportin g the development of 
primarily non-bank MFIs/micro-credit provid ers in Member States and regions. The 
Commission and the EIB decided to set up a specific micro-credit facility, managed by the 
EIF, whose purpose is to channel various form s of technical assistan ce and funding primarily 
to non-bank MFIs/micro-credit providers to help them to improve the quality of their 
operations, to expand and to become sustainable . Technical assistance is  co-financed by the 
Commission (95%) and the EIF (5%), while fundi ng will be provided by the EIB, which has 
contributed € 20 M from its own sources, to gether with additional funding from other 
financial institutions. JASMINE is also suppor ted by a preparatory action of the European 
Parliament (€ 4 M). 
In the context of a EUR 5 M pilot project ai med at Roma inclusion, the Commission will over 
the period 2010-2011 dedicate resources for suppor ting microcredit programs on a pilot basis. 
                                                 
28 COM(2007)708 final/ 2, 20.12.2007. 
EN 24   EN ANNEX  4 - SUMMARY OF MICRO -CREDIT STUDIES CARRIED OUT IN THE CONTEXT OF 
JEREMIE  CONTRIBUTION AGREEMENTS BETWEEN THE COMMISSION AND THE 
EIF  FOR 2007  AND 2008 
 
The main results of the studies can be summarised as follows: 
Western Europe - Summary (UK, Spain, Germany, Italy) 
Western Europe - Main findings  
The findings of this study constitute the firs t in-depth look into the Western European 
microfinance market in an attempt to formulat e an overall picture of how microfinance has 
developed so far and evaluate wh at are its greatest needs and challenges in order to plan an 
appropriate course for its promotion. The exis tence alone of these markets is a recent 
development and their overall orga nisation is still not well esta blished. In the four countries 
examined in this study, the market place is no mo re than a decade old on average. Based on 
the uniform market immaturity as well as the similar economic, political and social contexts 
of the four countries, many similar trends pr esented themselves. The fundamental challenge 
for most microfinance institutions in these countries is achieving efficient operational models that can maximise social as well as financial performance. In these countries that is 
complicated by the pre-existence of competitive financial service sectors along with elaborate 
and well-enforced legal oversight structure. Th e individual reports and more importantly the 
overall Capacity Building report that Ever s & Jung (Germany) has compiled discuss the 
details of the deficiencies and practical  recommendations for their improvement. 
 
Western Europe - A common background 
In the Western European context the scope of demand is naturally limited by the dual realities 
of the relatively low-prevalen ce of poverty and financial excl usion. Furthermore, combating 
poverty using microcredit in countri es with well-established social security benefits systems is 
a separate discussion entirely. The economic and social contexts of these countries are well 
outlined at the beginning of each country repo rt, but can be summarised as wealthy, well 
financed, competitive, and regulated, although, with small pockets within each population 
composed of specific groups that are chronicall y vulnerable to social and financial exclusion. 
The general contextual similari ties bring about a series of more specific connections that 
currently affect the microfin ance markets. These countries all have more robust legal 
establishments than the developing countries wh ere microfinance institutions have flourished 
over the past three decades. Yet, despite the ma turity of their legal structures, the national 
legislatures in all four countri es have not enacted any microfinance specific legislation. The 
lack of regulation is most pronounced in the UK where microfinance does not officially exist. 
Above all, the lack of microfinance specific regulation has m eant that institutions wanting to 
be microfinance institutions or  at least open microfinance operations, must be licensed as 
some type of traditional fina ncial institution, or operate in  partnership with one. Until 2007, 
when MicroBank was established in Spain, no mi crofinance specialised, financial institution 
existed in Western Europe.  
In general, microcredit in Western Europe is disbursed from banks th rough diverse collections 
of microfinance focused, social organisations. Ye t, because of banking laws and fairly strict 
EN 25   EN regulatory oversight, these soci al organisations are not able to completely integrate loan 
portfolio management into their operations an d especially are not ab le to take deposits. 
Another characteristic that all these markets share is a lack of reliable information. Specific 
information regarding microfinance was not read ily available in any of the four countries.  
Western Europe - Varied country features 
Despite a high degree of contextual uniformity, the reports show that the prevalent business 
models in each country differ. 
In Spain , the model is based on partnerships be tween diverse groupings of non-profit 
institutions known as Social Microcredit S upport Organisations (SMSOs) which represent 
private as well as public entities, and Savi ngs Banks which are also non-profit. While 
differences exist in disbursement models, all mi crocredit is originally supplied by the Savings 
Banks. New model innovations are attempting to  make the SMSOs more independent and 
more responsible in risk-shari ng. These include providing SMSO s with guarantee and capital 
funds while placing portfolio management in their hands and in turn applying performance 
criteria to th eir operations. 
The Italian model is similar to that of Spain but slightly more diverse in terms of the types of 
actors. Microcredit is provided by mo re than one type of bank (inc luding for-profits ), but as in 
Spain, these loans are not disbursed directly by the banks. The funds ar e channelled through 
both private and public entities that provide lo an management services to the banks and 
Business Development Services to the borrowers. In Germany , the formal source of 
microcredit is programmes of the regional pr omotional banks and th e federal bank (KfW 
Bankengruppe), and more significan tly, joint ventures between so cial services and municipal 
authorities (ARGEs). A third, less prevalent arrangement, is the DMI model composed of 
private, start-up centres that partner with banks  (much in the way privat e social organisations 
in Spain and Italy operate). The German market is a diverse mix of for- and non-profits and 
public sector entities and many of the lenders. The promotional banks are only ones that lend 
any significant volume as the re st grant only minimal numbers of loans per year (in many 
cases, much less than 50). The UK is an outlier in this discussion because there is no 
microcredit model. Although the Community Development Finance Institutions (CDFIs) do not officially have microfinance operations they  are considered the chief microfinance lender 
by default because of the simila rity between their ope rations and the stated guidelines for 
micro-enterprise lending at the European level.  While a variety of CDFIs exist, the majority 
are non-profits and officially non-bank in terms of  their legal charter. There historical purpose 
has been to fund entrepreneurs who have othe rwise not qualified for credit from the highly 
consolidated and centralised British banking syst em. In terms of their overall loan portfolio, 
operations considered to fall into the microc redit category represent only 28% (13.42 million 
Euros in volume). 
 
Western Europe - Main issues 
The target of microcredit in these four markets varies. Micro-enterprise lending exists in all 
four markets, being the focus in the UK. In Germany, a greater volume  of microcredit is 
focused on micro-enterprise lending; however, th ere are considerably more social lending 
focused institutions. In Italy, targeting is somewhat more ev enly balanced, and the immigrant 
community is increasingly becoming a focus for so cial lending programmes.  In Spain, lending 
is decidedly social in nature. In general, all four markets have grown significantly since their 
EN 26   EN beginnings and potential demand is consid ered to be substantial. However, performance was 
specifically hard to track in these four markets due to a number of issues. In many cases, 
institutions were not forth-coming with performa nce data from their loan portfolios. In other 
cases it was apparent that some of the smalle r non-profits that prolif erate in these markets 
lacked the capacity due to weak information management and or the lack of human 
expertise . 
The current size of the markets is hard to measure exactly as well, due to the unavailability 
of reliable data regarding cumulative number of loans and total loan value. Overall, the 
supply and demand findings from  the country reports were ba sed on surveys run by this 
study’s research teams, in-depth analysis of more macro data, and in fo provided by industry 
associations. The following table is an attempt to compile the best data available and place each market in its national context.  
 
Western European markets are over-crowded with social support organisations . This is a 
result of the young markets’ lack of consolid ation and coordination. In Italy and Spain, a 
plethora of public and non-prof it actors populate the market and operate with lit tle interaction 
and no cohesive strategy. In Germany too, it wa s noted that the market was comprised of a 
large number of institutions granting a very sm all number of loans. In Germany and Italy, 
national level efforts have been made to form some level of coordination (the RITMI in Italy 
and DMI in Germany), but in Spain, there has been no such progress. In Germany, Italy and 
Spain, the diversity of these institutional groupings and lack of consolidation behind well 
guided regulatory measures are seen as potential challenges to market development. Further 
difficulty results from the fact that the soci al support organisations are highly dependent on 
subsidies from public and priv ate donors. There is thus little movement toward commercial 
viability . This lack of commercialisation in many cases has reinforced a lack of 
professionalisation (due to lower wages and less training capacity ). On the other hand, despite 
the problems they currently confront, it is felt  that these social suppor t organisations and their 
Business Development Services and or loan s upport services are esse ntial in the Western 
European markets. 
Regarding information in these markets, all of the countries reported a lack of information 
regarding potential demand . This was in part due to the ma rkets’ own lack of capacity to 
conduct intensive analysis as we ll as the lack of sufficient ma rketing programmes that might 
help gauge the breadth of demand. 
EN 27   EN Traditional financial institution licensing is a limiting factor for most aspiring microfinance 
institutions as it confines th ese new institutions and their in novative products within the rules 
applied to the traditional, prof it-driven financial system. Apar t from the expenses of legal 
incorporation and compliance, aspiring microfin ance institutions in these countries must 
operate within the range of accep table interest rates outlined by national usury laws (this does 
not apply to the UK). The high operating costs inherent in microfinance, the inability to 
take savings and the non-existence of economies of scale due to limited demand mean that 
auto-sustainability in this sector will not  be achieved in the foreseeable future.  
Another serious concern for the future  in all the country markets was the future effects of the 
mounting economic crisis . It is very unclear whether donors will continue to support 
microfinance as substantially, and whether de mand will rise with unemployment and poverty 
rates, or will demand be tempered by risk av ersion behaviour on the pa rt of the potential 
entrepreneurs. 
 
CEE - Summary (Romania, Bulgaria, Czech Republic, Slovakia) 
CEE - Main findings 
Microfinance is perceived in the region as an effective tool in fighting social and financial 
exclusion and poverty and has prov ed to be efficient in providi ng sustainable development in 
Eastern and Central Europe. However,  in spite of the fact that the four countries are located in 
the same region and share a common recent hist ory, the studies revealed a diversity of 
approaches, methodologies, instruments and ins titutions engaged in providing as well as 
facilitating access to financial services to unde rserved entrepreneurs, micro enterprises and 
individuals. 
Eastern Europe 
Microcredit is mainly provided by Non Bank Fina ncial Institutions, evolved from NGOs. The 
innovative models developed have proven to be sustainable and re plicable at larger scale in 
Romania and in Bulgaria. 
In Bulgaria , within the last five year s, the banks started offering special products penetrating 
down to increasingly lower segm ents of the market, and toda y the micro-credit sector in 
Bulgaria has unquestionably carv ed its place within the lend ing industry. It involves a 
growing range of commercial banks and a well established group of microfinance institutions 
(MFIs) that pioneered a variet y of micro-credit products and bu ilt credibility for their target 
clientele, notably micro enterprises, small entrepreneurs, business start-ups and disadvantaged borrowers. The main challenge is to further br oaden and deepen the outreach of microfinance 
to particular at-risk groups whic h may be more difficult to reach.  
In Romania , beside the specialised SMEs banks targeting mainly small and medium 
enterprises, a well established and sustainable mi cro finance sector covers the gap left by the 
commercial banks in financing micro enterprise s, individual entrepreneurs, family based 
business and small private farms.  The non-bank financial sector is growing faster since an 
enabling legal framework is in place, reaching almost a third from the financial services 
granted to the economy. The biggest  challenge of the Romanian mi crocredit sector amidst the 
current liquidity crisis is servicing the 700 million Euros of estimated uncovered demand 
(2007) within the micro enterprises sector, underserved by the formal financial sector. 
EN 28   EN Central Europe 
In Central European countries, as in Wester n Europe, specialised State-owned banks and the 
commercial banking sector are the main suppliers  of financial services for the SME sector. 
However, the lack of specialised institutions and little institutional focus on microenterprise development mean that microfinance is undeveloped, although the demand seems to be growing. 
In Slovakia , the microfinance market remains undeveloped. The microfinance program 
within the National Agency for SMEs operate s on a very small scale and the State-owned 
SZRB bank is the only significant provider of credits and guarant ees for small business, and it 
provides only a low volume of microcredits. 
Furthermore, there are no formal MFIs for whic h microfinance is a core activity, and the three 
organisations that have or c ontinue offering micro loan produc ts do so as a side activity. 
There remain some significant policy barrier s to the development of a sustainable 
microfinance for enterprise indus try in Slovakia, and it woul d almost certainly require a 
significant level of new capital to launch a dedicated and formal MFI. 
Banks in general remain unwilling to enter this market without guarantees from the State or 
EU. However, the strong and growing demand for consumer credit pr oducts indicate that 
there remains a demand for enterprise microfinance. In the Czech Republic there are no 
specific microfinance institutions. Micro enterprises do not have a clear legal definition and are mostly included into the SME segment. Only a few state owned banks such as Moravian Guarantee or the Development Bank provide gu arantees, guaranteed loans and technical 
assistance programmes for SMEs. Some microenter prises obtain financing from mainstream 
financial institutions, but they often use consumer, mortgage or credit card lending to finance their operations. 
CEE - Main issues 
An overarching problem is the lack of definition of microcredit . The EU definition of loans 
of under EUR 25,000 may not be adapted to countr ies still well under av erage EU per-capita-
GDP levels. With no clear definition of players, tools, offer and demand, it is very difficult to 
gather reliable data and build statistics . 
Another issue is the legal and regulatory background . It is sometimes nonexisting, as in the 
Czech Republic or in Slovenia. It is insuffici ent or not adapted, as in Bulgaria, where a 
financial institution must have share capital. In Romania, after an initial good law in 2005, the 
Microfinance Companies Law, some recent re gulatory changes have brought in difficult 
obligations for smaller microfin ance institutions. Some countries, mainly in Central Europe, 
prioritise large company growth rather th an small business development . In parallel, little 
is done to develop financial in stitutions, projects or products geared towards small and very 
small companies. 
Although mainly workforce exporters, Central and Eastern European countries do see part of 
their population, mainly the Roma, face exclus ion problems. They have set up programmes 
and actions to face the issue, but microfinance, which is a tool for financial and therefore 
social inclusion, is seldom considered as a priority . 
The micro and small entrepreneurs tend to use the fast-developing consumer credit 
products as a default answer to thei r financing needs. This is  counterproductive for the 
EN 29   EN entrepreneur, who gets expensive financing and no counselling or training, and on the long 
term for the financial sector. 
EN 30   EN ANNEX 5 "OVERVIEW OF THE MICROCREDIT SECTOR IN THE EUROPEAN UNION 2006-2007"  
EXTRACT FROM THE EMN29 WORKING PAPER (JULY 2008) 
In 2007, Adie30/EMN, MFC31, Pentor Polska/MFC and SEON/EMN carried out Microfinance 
Market Studies in France, Hungary, the Nether lands and Poland on behalf of the European 
Investment Fund (EIF) within  the framework of the JERE MIE programme. These studies 
analyse the demand and supply side of microc redit differentiating between the non-bankable 
demand (less than EUR15,000) and the bankable demand (between EUR15,000 and EUR30,000). However, in order to estimate the suppl y of bank microcredit, the studies had to 
rely on statistics concerning access to bank loans as  most often banks do not provide specific 
information on microloans. 
Adie estimates the demand for bank microcredi t in France at 211,000 loans per year for new 
and established enterprises wh ile only about 111,000 microloans are offered by banks. With 
regard to non-bank microcredit, 10,000 loans are provided by Adie while between 90,000 and 
140,000 loans are needed every year (depen ding on the methodology of calculation used
32). 
Thus, the demand for microcredit in France is  largely unmet, with 100,000 microloans from 
banks and between 80,000 and 130,000 loans from non-bank microcredit providers lacking. 
In Hungary an estimated 280,000 microenterprises  are in need of credit, of which 70% 
constitute the smallest ente rprises with 0-1 employees. However, only 13% (90,000) of 
microenterprises use microcredit either from a bank or a savings and cr edit cooperative. Thus, 
an estimated gap of 190,000 exists in the microc redit market. Owing to strict regulations and 
structural shortcomings of the State microfin ance programme, microcredit expansion has been 
limited. Microenterprises seeki ng very small loans also remain excluded from the formal 
banking system, despite bank downscaling. 
Banks serve the largest number of microenterpris es in Poland, with almost 40% of microfirms 
having access to a credit line and 20% claiming to use working capital loans. However, the 
intervention of banks is limited to mature microenterprises, which is only a small fraction of 
the total market. Credit unions and non-bank micr oloan providers have much lower outreach 
– credit unions being primarily engaged in c onsumer lending while non-bank providers serve 
relatively small numbers of clients due to lack of sufficient funding to enable them to grow. 
In the Netherlands only 200 microloans ar e provided by NGOs and another 2000 under a 
governmental programme. With the exception of  Fortis Bank and muni cipal credit banks, 
banks do not engage in microcredit, but simply provide overdraft facili ties. Dutch society has 
a well developed welfare system, but this does not explain the poor provi sion of microcredit. 
The study reveals a total potential demand fo r microloans of 43,500 persons out of which 
60% are considered non-bankable. 
                                                 
29 European Micro-finance Network. 
30 Adie: "Association pour le droit à l'initiative économique". 
31 MFC: Micro Finance Centre http://www.mfc.org.pl/ 
32 Calculations based on the number of existing en terprises or on the number of potential micro-
enterprises, i.e. the number of low-income persons wishing to set up a business.