Commission staff working document accompanying document to the Decision of the European Parliament and of the Council establishing a European Microfinance Facility for Employment and Social Inclusion (Progress Microfinance Facility) - Ex-ante evaluation {COM(2009) 333 final}
Date: 2009-07-02
Institutions: European Commission
Subjects: EU action, EU employment policy, bank, employment statistics, female work, financial institution, job security, microloan, youth employment

EN 

EN 

   EN 

 
COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 2.7.2009 
SEC(2009) 907 

COMMISSION STAFF WORKING DOCUMENT 

Accompanying document to the 

DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

establishing a European Microfinance Facility for Employment and Social Inclusion 
(Progress Microfinance Facility) 

EX-ANTE EVALUATION 

{COM(2009) 333 final} 

EN 

   EN 

 
 
  
 
 
 
 
 
 
TABLE OF CONTENTS 

Introduction .............................................................................................................................. 4 

1. 

1.1. 

1.2. 

1.3. 

2. 

2.1. 

2.2. 

2.3. 

2.4. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

3.6. 

4. 

4.1. 

4.2. 

4.3. 

4.4. 

4.5. 

5. 

Problem definition........................................................................................................ 5 

High potential demand for micro-credit not met.......................................................... 5 

A situation worsened by the crisis ............................................................................... 6 

Specific risks for target groups .................................................................................... 7 

The current initiatives at the EU level...................................................................... 7 

CIP................................................................................................................................ 7 

JEREMIE ..................................................................................................................... 8 

JASMINE..................................................................................................................... 8 

Conclusion.................................................................................................................... 9 

The need to go beyond current action: creating a micro-finance facility ........... 10 

Objectives of the Facility ........................................................................................... 10 

Functioning of the Facility ......................................................................................... 11 

Funding of the Facility ............................................................................................... 12 

Coordination of the Facility ....................................................................................... 13 

Accompanying measures ........................................................................................... 14 

Volume of appropriations, human resources and other administrative expenditure.. 15 

Assessment of the chosen action.............................................................................. 15 

Effectiveness – Added value...................................................................................... 15 

Efficiency ................................................................................................................... 16 

Coherence................................................................................................................... 16 

Time needed for implementation ............................................................................... 17 

Conclusion.................................................................................................................. 17 

Monitoring and evaluation ...................................................................................... 17 

EN 

2 

   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-credit studies carried out in the context of JEREMIE 

contribution agreements between the Commission 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 

3 

   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 employment, 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  joint  initiative  with  international  financial 
institutions  particularly  the  EIB  Group,  this  new  facility  will  extend  the  range  of  targeted 
financial  support  to  new  entrepreneurs  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  the  Communication  of  20  November  20073  in  which  the 
Commission presented a European initiative for the development of micro-credit in support of 
growth  and  employment.  The  Communication  identified  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 Commission 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 global 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  microcredits  in  support  of  growth  and  employment  and 
offered  an  additional  EUR  5  Mio  of  support  for  a  pilot  action  to  be  implemented  in  the 
context of the JASMINE framework. The European Parliament called on the Commission to 
cofinance projects for microcredits in particular 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-employment  but  do  not  have  access  to  traditional 
banking services. 

1 

2 
3 

4 
5 

6 

EN 

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  from  the  EIF  and  the  EIB  and  uses  the  latest  data 
available with regard to the micro-finance sector in the EU. 
COM (2009) 257, 3.6.2009 
A  European  initiative  for  the  development  of  microcredit  in  support  of  growth  and  employment, 
COM(2007) 708 final /2. 
COM(2007) 708. 
A  European  initiative  for  the  development  of  microcredit  in  support  of  growth  and  employment, 
COM(2007) 708 final /2. 
Recommendation 2003/361/EC regarding the SME definition (OJ L 124, 20.5.2003, p. 36). 

4 

   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 confronted 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 international 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 points to the still tight 
credit conditions facing businesses 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, national central banks report 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 become 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 too 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 for 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 loan/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  per  assisted  SME.  Only  one  in  seven  SMEs 
receiving  guaranteed  credit  via  the  micro-credit  window  reported  that  alternative  sources, 
covering  the  full  amount  of  loan,  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 
8 

9 

10 

EN 

www.bis.org./statistics/rppb0904 
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).  
EMN (2008): Overview of the Microcredit Sector in the European Union 2006 - 2007; EMN Working 
paper No.5, July 2008; see also: http://www.european-microfinance.org/characteristic_en.php  
As  quoted 
http://ec.europa.eu/enterprise/dg/files/evaluation/final_report_eip_interim_evaluation_04_2009_en.pdf 

the  entrepreneurship  and 

innovation  programme: 

interim  evaluation  of 

the 

in 

5 

   EN 

 
 
 
 
 
                                                 
of  micro-credit  in  support  of  growth  and  employment”11,  the  EC  has  acknowledged  that 
Europe lacks the necessary intermediaries, capital 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 over 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) 

(2) 

(3) 

(4) 

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 tightening, rising costs of borrowing)13; 

an  expected  increase  in  defaults  and  losses  (higher  defaults,  higher  indebtedness  of 
micro-finance institutions' customers, possibly exposure to foreign currency risk); 

an  increased  demand  driven  by  “riskier  bank  customers”  which  are  not  served  by 
banks anymore; 

deposit  taking  micro-finance  institutions  report  that  client  cash  needs  have  gone  up, 
causing savings to be withdrawn and sometimes straining repayments14 

By far the majority of micro-credit to disadvantaged persons in the EU is provided by non-
commercial  micro-finance  institutions  (NGOs,  Foundations,  Government  bodies,  Member 
States'  promotional  banks,  non-bank  financial  institutions)  but  these  providers  do  not 
currently  have  the  capacity  to  meet  the  important  demand.  Also  banks  such  as  the  savings 
banks and cooperative banks in cooperation with NGOs are offering microloans15. Although 
efforts have been undertaken to extend the financial 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  main  source  of  finance  for  these  institutions 
consists  of  capital  provided  by  shareholders  and  grants,  the  current  crisis  worsens  their 
situation due to the scarcity 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 record and lack of (sufficient) collateral translate 
into  a  higher  risk  profile  of  these  clients  for  the  banks,  with  a  concomitant  risk  of  higher 

11 

12 

13 

14 

15 

16 

COM(2007) 708 final/2;  
see: http://eur-lex.europa.eu/LexUriServ/site/en/com/2007/com2007_0708en01.pdf 
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. 
See e.g. Fitch Ratings Ltd. (2009): Microfinance – Testing its resilience to the Global Financial Crisis; 
22.1.2009. 
CGAP  (2009):  The  Global  Financial  Crisis  and  its  impact  on  Microfinance;  Focus  Note  No.  52, 
February 2009. 
Source: EMN Working Paper No. 5 "Overview of the Micro-credit Sector in the European Union 2006- 
2007", July 2008. 
One of the aims of JASMINE is to build up this capacity. 

EN 

6 

   EN 

 
 
                                                 
default rates, lower recovery rates and ultimately higher net losses. In addition the granting of 
microcredit  entails  higher  operational  costs,  due  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-bankable', unless additional funding or risk-sharing 
is made available to support the risk. The issue of costs for project evaluation, other handling 
costs  and  advice  to  borrowers  has  in  some  Member  States  been  solved  through  a  close 
cooperation  between  banks  and  regional  and  local  public  business  development  agencies 
where these costs are partly covered by the public institutions. 

1.3.  Specific risks for target groups 

The EMN working paper "Overview of the Microcredit sector in the European Union 2006-
2007" (July 2008) highlights that the clients targeted by the EU microlenders surveyed for this 
study  are,  in  order  of  importance,  financially  excluded  individuals  followed  by  women, 
unemployed  persons,  ethnic  minorities  and  immigrants.  There  is  considerable  overlap 
amongst  many  of  these  groups.  Youth  (18-25  years)  and  disabled  people  remain  as  lower 
priority  groups.  In  2007,  44%  of  microloan  clients  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 underrepresented  amongst  microloan  clients  when 
compared to their proportion in the population and to microlending programmes operating in 
developing countries, where they represent 85.2% of total  clients (Daley-Harris,  2007). The 
relevance  of  other  at  risk  groups  such  as  immigrants  and  youth  as  microcredit  clients  is 
significant in some countries. For example, in Spain and France, immigrants are represented 
well over their proportion in the population whereas in Hungary and Spain young people are 
represented well over their proportion of the entrepreneurs’ population. 

The  effects  of  the  crisis  on  the  overall  financial  situation  (and  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.  THE 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  Competitiveness  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 microfinance institutions, such as the Spanish 
MicroBank and the French ADIE organisation, 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 

7 

   EN 

 
 
 
                                                 
guarantees to financial intermediaries for loans of up to EUR 25 000 to micro-enterprises with 
up to nine employees, particularly entrepreneurs starting a new business or self-employment.  

2.2.  JEREMIE  

The JEREMIE initiative allows for combining contributions from operational programmes of 
the European Regional Development Fund (ERDF) and the European Social Fund (ESF) with 
loan capital and other sources of finance to support the creation and expansion 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  have  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  institutions  acting  as  holding  funds.  The  financial 
contributions managing authorities need to transfer to the holding fund reduces however the 
available funding of ESF operational programmes targeted at employment measures.  

The Commission launched in 2007 "JASMINE" a new European-level facility which aims at 
supporting  the  development  of  non-bank  micro  finance  institutions  in  Member  States. 
Financial support comes from the existing technical assistance budget of the Structural Funds 
(European Regional Development Fund - ERDF) which the European Commission manages. 
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. 

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 and regions. JASMINE is the operational arm of the micro-credit 
initiative  of  the  Commission.  The  initiative  is  also  supported  by  a  preparatory  action  of  the 
European Parliament.  

The Commission and the EIB decided 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 pilot phase covering the years 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  Commission  (technical  assistance 
budget  of  the  European  Regional  Development  Fund  -  ERDF)  and  in  5%  by  the  EIF. 
Technical assistance will comprise among others: mentoring as well as technical and financial 
advice to MFIs/micro-credit providers; evaluation and rating of MFIs/micro-credit providers; 
promotion of good practices and dissemination of know-how 

Regarding funding, the EIB has decided to contribute an amount of EUR 20 M to the EIF in 
the  framework  of  the  EIF  Risk  Capital  Mandate  micro-credit  pilot  facility  together  with 

EN 

8 

   EN 

 
additional  funding  provided  by  co-financing  partners.  During  the  pilot  phase,  the  EIF  is 
identifying a number of investment opportunities supporting micro-credit in the EU, e.g. with 
participations in microfinance funds/vehicles and 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-credit  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 initiative, 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  scope  to  address  a  further  demand  mainly  for 
following reasons: 

•  As  the  majority  of  micro-credit  in  the  EU  is  delivered  through  non-commercial  micro-
finance 
institutions  (NGOs,  Foundations,  Government  bodies,  non-bank  financial 
institutions),  compliance  with  the  financial  requirements  of  the  facility  have  proven 
difficult. So far only 30% of the proposals received under this microcredit pilot facility18 
meet the requirements of the pilot.  

•  Further as a co-financing facility, EIF’s operations 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  market  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  Community  and  national  efforts  have  to  be 
strengthened  as  to  increase  the  supply  of  micro-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  vulnerable  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 facilities. For instance the UK used 
the system in 2000-06 with results that were satisfactory, but has not brought it forward to the 
new programming period 2007-13.  

Further, the use of ESF resources for the purpose 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 

9 

   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  arrangements.  This  would  allow  non-bank  micro-
finance institutions to expand their activities.  

Using Community resources would be the most appropriate 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 individual 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 Community 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  provision  by  national  or  EU  funds  of  guarantees  for  providers  of 
micro-credit; and where appropriate, that the financial implications 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  Europe’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 disadvantaged groups including the young. 

The specific objective is to generate approximately 45.000 loans for these target groups over 
the period of the Facility (up to 8 years). 

EN 

10 

   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  the  EIB  group  and/or  where  relevant  another 
international  financial  institution.  The  Facility  would  run  for  a  maximum  period  of  eight 
years.  At  the  closing  of  the  Facility,  remaining  capital  will  be  returned  to  the  Community 
budget.  

The detailed terms and conditions for the implementation of the Facility will be laid down in a 
mandate  agreement  between  the  Commission  and  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  institutions  (either  senior  or 
subordinated)  or  bond  subscription.  These  are  instruments  designed  in  order  to  provide 
liquidity to the micro-finance institutions that will in turn use the funding to extend loans to 
final  beneficiaries  (e.g.  microborrowers,  social  venture  funds,  etc)  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).  Subordinated  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-utilisation  of  the  funding  by  the  micro-finance  institution  (e.g.  loan  to  the 
micro-finance institution of 6 years, 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  compensate  the  EIF/IFI  for  the  credit  risk 
associated  with  such  exposure  so  that  a  micro-finance  institution  gets  access  to  and/or 
receives  a  loan  under  more  favourable  conditions.  The  term  of  the  transaction  should  not 
exceed  3  years.  Such  intervention  will  be  conditional  on  achievements  of  certain  targets  by 

19 

The products listed are purely indicative.  

EN 

11 

   EN 

 
 
                                                 
micro-finance  institutions,  like  volumes  of  financing,  failing  to  reach  this  the  credit  risk 
premium could be claimed back from the micro-finance institutions.2. Equity Instruments: 

Equity  instruments  may  take  the  form  of  equity  participation  either  in  micro-finance 
institutions or in Investment Vehicles providing funding to micro-finance institutions. In case 
of equity participation in a micro-finance institution, 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  sources  of  funding  (e.g.  other 
IFIs, banks, etc). In case of an Investment Vehicle, 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  

Direct  guarantees  issued  to  the  benefit  of  micro-finance  institutions  to  cover  part  of 
a) 
their microloans portfolio on the basis of pre-defined eligibility criteria (e.g. only new loans 
can be guaranteed, maximum loan amount, availability period, % of risk covered etc); 

Funded  risk  sharing  agreements,  i.e.  loans  granted  to  provide  liquidity  to  the  micro-
b) 
finance  institutions  (see  above)  with  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  partial,  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 future, in which case the guarantee premium will be 
paid  gradually  as  the  portfolio  builds  up,  depending  on  the  portfolio's  risk  profile.  The 
origination period should not exceed 2 years, but could be extended several times. 

3.3. 

Funding of the Facility 

Setting up the Facility would require 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  realistic  possibility  would  therefore  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 European 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 established 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  proposed.  During  the 
negotiations, the EP had decided to add EUR 100 M (2004 prices, equivalent to EUR 114 M 
in current prices). This additional amount would now be used with a direct benefit for citizens 
concerned by Progress actions. The EUR 100 M could leverage up to EUR 500 million and 
meets  the  requirements  in  terms  of  feasibility  in  the  context  of  the  current  Financial 
Perspectives. 

EN 

12 

   EN 

 
 
Progress = 
€100 million  

Leveraged = 
€500 million 

Banks

Microfinance Institutions 
(MFIs)

Beneficiaries 
(Unemployed, disadvantaged groups, 
Women, young people, etc.)

Investing  a  lower  amount  could  improve  the  current  situation  but  risks  not  to  create  the 
critical mass necessary to alleviate the current 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  objectives  and  priorities  set  under  the  Progress 
Decision. 

3.4. 

Coordination of the Facility  

From  the  Commission  side  the  overall  coordination  would  be  ensured  through  the  already 
existing CIP/JEREMIE coordinating committee (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 Financial Affairs Directorate General since this Unit 
has  the  responsibility  for  the  implementation  of  the  Competitiveness  and  Innovation 
Framework  Programme  (2007-2013)  (CIP).  In  order  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  Directorate  General  and  the  Economic  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-ordination  committee  (consisting  currently  of 
representatives  of  the  Enterprise  and  Industry  DG,  Economic  and  Financial  Affairs  DG, 

EN 

13 

   EN 

 
 
 
 
 
 
 
 
 
Regional  Affairs  DG  and  EIF)  which  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 includes training, guidance, mentoring and coaching, 
as well as further support such as interest rebates. These are the core activities of the ESF – 
which will directly support this initiative.  

•  ESF  technical  assistance  will  help  to  improve  the  capacity  within  the  Member  States  to 
absorb  the  funds  and  to  reach  out  to  the  'ESF  beneficiaries'  e.g.  through  the  Public 
employment  services  and  NGOs.  Managing  authorities  will  be  supported  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 the 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)

JASMINE
Technical support 
from ERDF

Beneficiaries 
(Unemployed, disadvantaged groups, 
Women, young people, etc.)

European Social 
Fund

Training, 
guidance, 
mentoring, 
as well as
Loan Rebates

EN 

14 

   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 directly necessary for the effective 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 Facility 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 Directorate 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  Directorate  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. 

ASSESSMENT OF THE CHOSEN ACTION  

4.1.  Effectiveness – Added value 

Overall the creation of a microfinance 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  the  Facility  relates  to  a)  the  rapidity  and  timeliness  of  its 
intervention; and b) the targeted support offered to individuals and enterprises whose lack of 
credit  rating  or  credit  history  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 sharing with the banking sector in order to alleviate 
existing risk-management related lending constraints. 

20 

See section 1.1. 

EN 

15 

   EN 

 
 
 
 
 
 
                                                 
As indicated above, the Financial Perspectives require the funding of the Facility 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 examining the leverage effect 
it could have in relation to the product developed and the risk taken. 

In  particular  guarantee  schemes  have  a  high  leverage  effect,  in  that  the  budget  allocated 
allows supporting a higher loan volume. 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  high.  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 the final beneficiaries is typically higher, resulting 
in  higher  expected  default  rates.  Leverage  is  therefore  generally  lower  than  for  loan 
guarantees. However, based on experience under CIP 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 coherence 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 Affairs DG for the day-to-day implementation of 
the Facility and monitoring of the IFI(s).  

Moreover, the currently existing coordination committee on CIP/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 representatives of EIF to give general guidance ensuring 
coherent action. 

EN 

16 

   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 adaptation of the Progress decision in order to 
allow for the re-allocation of funds. The legislative 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  currently  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 programme seems to be the most appropriate 
solution.  

The  reallocation  of  funds  from  the  Progress  Decision  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 current prices could be managed in order not to endanger the 
achievement  of  the  overall  objectives  and  envisaged  outcomes  of  the  Progress  programme. 
Moreover,  from  a  political  point  of  view  it  is  generally  accepted  that  the  current  economic 
crisis  requires  a  redeployment  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 part 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 final beneficiaries by: 

–  Gender 

–  Age group 

–  Educational attainment 

–  Vulnerable groups (minorities, migrants, disabled, other disadvantaged) 

•  Sectors of activity covered 

•  Number of agreements with eligible intermediaries 

•  The degree of leverage 

EN 

17 

   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 

18 

   EN 

 
ANNEX 1 – MAIN FEATURES OF MICRO-CREDIT IN THE EU 

Micro-credit  is  the  extension  of  very  small  loans  (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 initiative 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 created21.  

Experience  shows  a  survival  rate  of  well  over  60  %  after  two  years  for  businesses  set  up 
thanks  to  micro-credit.  In  purely  economic  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-employed,  and  socially  excluded  people  lacking 

access to traditional sources of capital; 

–  its  object:  the  creation  or  expansion  of  income-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 individual loans required which in turn 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 00222 

–  a more labour-intensive delivery system for making loans, involving greater knowledge of 
borrower capacity and a close relationship with the borrower, especially during the start-up 
phase of the micro-enterprise, through mentoring and general business support. 

21 

22 

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 
Source: EMN Working Paper No. 5 "Overview of the Micro-credit Sector in the European Union 2006- 
2007, July 2008. 

EN 

19 

   EN 

 
 
 
                                                 
ANNEX 2 - IDENTIFIED FUNDING NEEDS  

Under  the  JEREMIE  contribution  agreements  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-credit initiative of the Commission. 

According  to  these  studies,  the  main  challenge  for  micro-finance  institutions/micro-credit 
providers in the EU is to develop and maintain a flexible and sustainable funding model for 
micro-credit  operations  that  allows  them  to  realise  their  individual  approach  towards 
providing  micro-credit  (target  groups,  objectives)  as  well  as  to  enlarge  their  portfolio  and 
develop  their  institutional  capacity.  In  this  regard  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 

20 

   EN 

 
Funding need   Description  

Start-up costs/ 
Institutional 
development  

Equity  

Any costs connected to the creation or 
substantial expansion of a micro-finance 
institution  

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).  

Typical sources of funding  

Donations and public subsidies  

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.  

Operational 
costs of lending 
operations  

1. Transaction costs connected to the 
provision of microloans  
2. Risk costs arising from defaulted loans  

Additional non-financial services 
provided to microenterprises (by 
specialised service providers)  

Capital market through partner 
banks, revolving loan funds set 
up using European structural 
funds (ERDF/ESF). 
Recapitalisation with public 
funds  

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)  

Donations and public 
subsidies, partly using existing 
schemes co-financing Business 
Development Services 
revenues from users of services 

Operational 
costs of non-
financial 
services 
provided  

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: 
C

M h 2009

d P li R

i B ildi

d i

EN 

21 

   EN 

 
 
ANNEX 3 - EXISTING COMMUNITY INITIATIVES ON MICRO-CREDIT 

The JEREMIE (Joint European Resources for Micro and Medium Enterprises) initiative has 
been set up further to the possibilities offered by Article 44 of Regulation (EC) No 1083/2006 
and Articles 43 to 46 of Commission 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-credit  operations,  for  example,  in  disadvantaged 
urban  areas.  The  JEREMIE  initiative  allows  for  a  combination  of  contributions  from 
operational  programmes  of  the  European  Regional  Development  Fund  (ERDF)  and  the 
European  Social  Fund  (ESF)  with  loan  capital  and  other  sources  of  finance  to  support  the 
creation  and  expansion  of  micro,  small  and  medium-sized  enterprises.  Funding  from 
instruments established through JEREMIE may also be combined with business support and 
institution-building measures financed by the Structural Funds.  

Under the growth and employment initiative (1998-2000)23 and the multi-annual programme 
for the promotion of  enterprise  and  entrepreneurship, in particular  SMEs  (2001-2005),24 the 
European Union provided partial guarantees to cover portfolios of micro-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  Investment  Fund  (EIF)  on  behalf  of  the  European 
Commission.  

The  Community  Programme  for  Employment  and  Social  Solidarity  (Progress)  2007-2013 
supports the European Microfinance Network (EMN) with a view to promoting microfinance 
as a tool to fight social and economic exclusion and to promoting micro-entrepreneurship and 
self-employment. 

Under the new generation of rural development programmes, the European Agricultural Fund 
for  Rural  Development  (EAFRD)  may  co-finance  expenditure  in  respect  of  an  operation 
comprising  contributions  to  support  venture  capital  funds,  guarantee  funds  and  loan  funds. 
EAFRD supports also the creation and development of micro-enterprises26. 

The European Globalisation Adjustment Fund, which can intervene to mitigate the economic 
and social impacts of restructuring and relocation, can provide support for redundant workers 
to create new businesses or move into self-employment27. 

23 

24 

25 

26 

27 

Council  Decision  98/347/EC  of  19  May  1998  on  measures  of  financial  assistance  for  innovative  and 
job-creating small and medium-sized enterprises (SMEs) - the growth and employment initiative (OJ L 
155, 29.5.1998). 
Council Decision 2000/819/EC of 20 December 2000 on a multiannual programme for enterprise and 
entrepreneurship, and in particular for small and medium-sized enterprises (SMEs) (2001-2005) (OJ L 
333, 29.12.2000). 
Decision  No  1639/2006/EC  of  the  European  Parliament  and  of  the  Council  of  24  October  2006 
establishing  a  Competitiveness  and  Innovation  Framework  Programme  (2007  to  2013)  (OJ  L  310, 
9.11.2006). 
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  1974/2006  (the  relevant  implementing  rules)  (OJ  L  368, 
23.12.2006). 
Regulation  (EC)  No  1927/2006/EC  of  the  European  Parliament  and  of  the  Council  of  20  December 
2006 – OJ L 406 on establishing the European Globalisation Adjustment Fund (OJ L 406, 30.12.2006). 

EN 

22 

   EN 

                                                 
In the context of its Communication on "A European initiative for the development of micro-
credit  in  support  of  growth  and  employment"28,  the  Commission  together  with  the  EIB 
launched in 2008 "JASMINE" , a new initiative which aims at supporting the development of 
primarily  non-bank  MFIs/micro-credit  providers  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 forms of technical assistance 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 funding 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  supported  by  a  preparatory  action  of  the  European 
Parliament (€ 4 M). 

In the context of a EUR 5 M pilot project aimed at Roma inclusion, the Commission will over 
the period 2010-2011 dedicate resources for supporting microcredit programs on a pilot basis. 

28 

COM(2007)708 final/ 2, 20.12.2007. 

EN 

23 

   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  first  in-depth  look  into  the  Western  European 
microfinance  market  in  an  attempt  to  formulate  an  overall  picture  of  how  microfinance  has 
developed so far and evaluate what are its greatest needs and challenges in order to plan an 
appropriate  course  for  its  promotion.  The  existence  alone  of  these  markets  is  a  recent 
development and their overall organisation is still not well established. In the four countries 
examined in this study, the market place is no more 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 presented 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. The individual reports and more importantly the 
overall  Capacity  Building  report  that  Evers  &  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-prevalence of poverty and financial exclusion. Furthermore, combating 
poverty using microcredit in countries 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  report,  but  can  be  summarised  as  wealthy,  well 
financed,  competitive,  and  regulated,  although,  with  small  pockets  within  each  population 
composed of specific groups that are chronically vulnerable to social and financial exclusion. 
The  general  contextual  similarities  bring  about  a  series  of  more  specific  connections  that 
currently  affect  the  microfinance  markets.  These  countries  all  have  more  robust  legal 
establishments than the developing countries where microfinance institutions have flourished 
over  the  past  three  decades.  Yet,  despite  the  maturity  of  their  legal  structures,  the  national 
legislatures in all four countries 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 meant that institutions wanting to 
be  microfinance  institutions  or  at  least  open  microfinance  operations,  must  be  licensed  as 
some type of traditional financial institution, or operate in partnership with one. Until 2007, 
when MicroBank was established in Spain, no microfinance specialised, financial institution 
existed in Western Europe.  

In general, microcredit in Western Europe is disbursed from banks through diverse collections 
of microfinance focused, social organisations. Yet, because of banking laws and fairly strict 

EN 

24 

   EN 

 
 
regulatory  oversight,  these  social  organisations  are  not  able  to  completely  integrate  loan 
portfolio  management  into  their  operations  and  especially  are  not  able  to  take  deposits. 
Another characteristic that all these markets share is a lack of reliable information. Specific 
information regarding microfinance was not readily 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  between  diverse  groupings  of  non-profit 
institutions  known  as  Social  Microcredit  Support  Organisations  (SMSOs)  which  represent 
private  as  well  as  public  entities,  and  Savings  Banks  which  are  also  non-profit.  While 
differences exist in disbursement models, all microcredit is originally supplied by the Savings 
Banks.  New  model  innovations  are  attempting  to  make  the  SMSOs  more  independent  and 
more responsible in risk-sharing. These include providing SMSOs with guarantee and capital 
funds  while  placing  portfolio  management  in  their  hands  and  in  turn  applying  performance 
criteria to their 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 more than one type of bank (including for-profits), but as in 
Spain, these loans are not disbursed directly by the banks. The funds are channelled through 
both  private  and  public  entities  that  provide  loan  management  services  to  the  banks  and 
Business  Development  Services  to  the  borrowers.  In  Germany,  the  formal  source  of 
microcredit  is  programmes  of  the  regional  promotional  banks  and  the  federal  bank  (KfW 
Bankengruppe), and more significantly, joint ventures between social 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 private 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  rest  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  similarity  between  their  operations  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  otherwise  not  qualified  for  credit  from  the  highly 
consolidated and centralised British banking system. In terms of their overall loan portfolio, 
operations considered to fall into the microcredit 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,  there  are  considerably  more  social  lending 
focused institutions. In Italy, targeting is somewhat more evenly balanced, and the immigrant 
community is increasingly becoming a focus for social lending programmes. In Spain, lending 
is decidedly social in nature. In general, all four markets have grown significantly since their 

EN 

25 

   EN 

 
beginnings and potential demand is considered 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 performance data from their loan portfolios. In other 
cases  it  was  apparent  that  some  of  the  smaller  non-profits  that  proliferate  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  based  on  surveys  run  by  this 
study’s research teams, in-depth analysis of more macro data, and info 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  consolidation  and  coordination.  In  Italy  and  Spain,  a 
plethora of public and non-profit actors populate the market and operate with little interaction 
and no cohesive strategy. In Germany too, it was noted that the market was comprised of a 
large  number  of  institutions  granting  a  very  small  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 social support organisations are highly dependent on 
subsidies from public and private 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 support organisations and their 
Business  Development  Services  and  or  loan  support  services  are  essential  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 markets’ own lack of capacity to 
conduct intensive analysis as well as the lack of sufficient marketing programmes that might 
help gauge the breadth of demand. 

EN 

26 

   EN 

 
Traditional financial institution licensing is a limiting factor for most aspiring microfinance 
institutions as it confines these new institutions and their innovative products within the rules 
applied  to  the  traditional,  profit-driven  financial  system.  Apart  from  the  expenses  of  legal 
incorporation  and  compliance,  aspiring  microfinance  institutions  in  these  countries  must 
operate within the range of acceptable 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 demand will rise with unemployment and poverty 
rates,  or  will  demand  be  tempered  by  risk  aversion  behaviour  on  the  part  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 proved to be efficient in providing 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  history,  the  studies  revealed  a  diversity  of 
approaches,  methodologies,  instruments  and  institutions  engaged  in  providing  as  well  as 
facilitating  access  to  financial  services  to  underserved  entrepreneurs,  micro  enterprises  and 
individuals. 

Eastern Europe 

Microcredit is mainly provided by Non Bank Financial Institutions, evolved from NGOs. The 
innovative models developed have proven to be sustainable and replicable at larger  scale in 
Romania and in Bulgaria. 

In Bulgaria, within the last five years, the banks started offering special products penetrating 
down  to  increasingly  lower  segments  of  the  market,  and  today  the  micro-credit  sector  in 
Bulgaria  has  unquestionably  carved  its  place  within  the  lending  industry.  It  involves  a 
growing range of commercial banks and a well established group of microfinance institutions 
(MFIs) that pioneered a variety of micro-credit products and built credibility for their target 
clientele, notably micro enterprises, small entrepreneurs, business start-ups and disadvantaged 
borrowers. The main challenge is to further broaden and deepen the outreach of microfinance 
to particular at-risk groups which may be more difficult to reach.  

In  Romania,  beside  the  specialised  SMEs  banks  targeting  mainly  small  and  medium 
enterprises, a well established and sustainable micro finance sector covers the gap left by the 
commercial  banks  in  financing  micro  enterprises,  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 microcredit 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 

27 

   EN 

 
Central Europe 

In Central European countries, as in Western 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  operates  on  a  very  small  scale  and  the  State-owned 
SZRB bank is the only significant provider of credits and guarantees for small business, and it 
provides only a low volume of microcredits. 

Furthermore, there are no formal MFIs for which microfinance is a core activity, and the three 
organisations  that  have  or  continue  offering  micro  loan  products  do  so  as  a  side  activity. 
There  remain  some  significant  policy  barriers  to  the  development  of  a  sustainable 
microfinance  for  enterprise  industry  in  Slovakia,  and  it  would  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  products  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  guarantees,  guaranteed  loans  and  technical 
assistance programmes for SMEs. Some microenterprises 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 countries still well under average 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  insufficient  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  regulatory  changes  have  brought  in  difficult 
obligations for smaller microfinance institutions. Some countries, mainly in Central Europe, 
prioritise large company growth rather than small business development. In parallel, little 
is done to develop financial institutions, 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  exclusion  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  their  financing  needs.  This  is  counterproductive  for  the 

EN 

28 

   EN 

entrepreneur,  who  gets  expensive  financing  and  no  counselling  or  training,  and  on  the  long 
term for the financial sector. 

EN 

29 

   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  Netherlands  and  Poland  on  behalf  of  the  European 
Investment  Fund  (EIF)  within  the  framework  of  the  JEREMIE  programme.  These  studies 
analyse the demand and supply side of microcredit 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 supply 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 microcredit in France at 211,000 loans per year for new 
and established enterprises while 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 (depending on the methodology of calculation used32). 
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  enterprises  with  0-1  employees.  However,  only  13%  (90,000)  of 
microenterprises use microcredit either from a bank or a savings and credit cooperative. Thus, 
an estimated gap of 190,000 exists in the microcredit market. Owing to strict regulations and 
structural shortcomings of the State microfinance programme, microcredit expansion has been 
limited.  Microenterprises  seeking  very  small  loans  also  remain  excluded  from  the  formal 
banking system, despite bank downscaling. 

Banks serve the largest number of microenterprises 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 microloan providers have much lower outreach 
– credit unions being primarily engaged in consumer 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  are  provided  by  NGOs  and  another  2000  under  a 
governmental  programme.  With  the  exception  of  Fortis  Bank  and  municipal  credit  banks, 
banks do not engage in microcredit, but simply provide overdraft facilities. Dutch society has 
a well developed welfare system, but this does not explain the poor provision of microcredit. 
The  study  reveals  a  total  potential  demand  for  microloans  of  43,500  persons  out  of  which 
60% are considered non-bankable. 

29 
30 
31 
32 

European Micro-finance Network. 
Adie: "Association pour le droit à l'initiative économique". 
MFC: Micro Finance Centre http://www.mfc.org.pl/ 
Calculations  based  on  the  number  of  existing  enterprises  or  on  the  number  of  potential  micro-
enterprises, i.e. the number of low-income persons wishing to set up a business.  

EN 

30 

   EN