Open Days: EU microcredit schemes improve access to finance

The double impact of microcredit allows it to address the 'macro problems' which 'plague modern European societies', explains Bas Verkerk.

By Bas Verkerk

07 Oct 2014

Microcredit is receiving increasing attention from politicians and policymakers alike. This is occurring against the backdrop of Europe's lingering financial crisis, bringing about the need to boost employment and to rally some of Europe's badly slouching national economies. Several member states have already introduced microcredit in their respective operational programmes and the EU has launched specific schemes tackling the prevalence of obstacles in accessing traditional banking services.

Microcredit is defined by the European commission as a loan or lease of less than €25,000 to support the development of self-employed people and micro-enterprises. What is fascinating about microfinance, however, is the fact that it has a double impact. On the one hand it serves the purpose of generating income, thus having an economic influence; on the other microcredit is seen as having a social impact by contributing to social inclusion and therefore to the financial inclusion of individuals. Indeed, microcredit is intended to address macro problems that plague modern European societies. This is done by enabling even the most disadvantaged people to start businesses and provide a living for themselves.

"Microfinance in the EU goes beyond financing"

Of all the enterprises in the EU, 92 per cent are microenterprises. And 99 per cent of the start-ups created in the EU every year are micro-and small enterprises, which in turn provide more than 90 million jobs across Europe. It is therefore not surprising that access to finance is a pressing issue for micro-enterprises and SMEs. This is particularly salient in view of the heterogeneity of the microfinance market in Europe where country-specific legal and institutional frame- works dominate. Structural problems like high unemployment rate and lack of confidence in both politicians, as well as political institutions, have further lowered the levels of investment.

In its endeavour to secure financing for Europe's small companies, the European commission launched its European progress microfinance facility in 2010, and is designed to provide tailored funding to eligible intermediaries through different types of financial instruments. Its raison d'être is to maximise outreach through a flexible investment approach by giving small awards and focusing on social groups with limited access to the conventional credit market. Furthermore, the EU programme for employment and social innovation (EaSI), the newly created financing instrument with social innovation at its heart is intended to support employment, social policy and labour mobility across the EU. With a special focus on youth and social inclusion, the programme feeds into the Europe 2020 strategy flagship initiatives.

But microfinance in the EU goes beyond financing. European social fund (ESF) and joint action to support micro-finance institutions in Europe technical assistance (JASMINE) provide both mentoring and training for potential entrepreneurs as well as capacity building for intermediaries, respectively. Maximising success in business ventures is as much a question of guidance as it is of finance.

"Maximising success in business ventures is as much a question of guidance as it is of finance"

Just like the multiple microfinance organisations across Europe, the ALDE group in the Committee of the Regions is also doing its part to create more awareness of the possibilities of accessing finance via EU microcredit schemes. As part of the EU Open Days, my group is holding a workshop on using EU microcredit schemes. The workshop will explore the joint initiatives of the commission, European investment fund and European investment bank, therefore providing a forum for best practices in terms of both technical and financial assistance. In our view, increasing the supply of microcredit is essential for encouraging new businesses, self-employment and stimulating economic growth. Micro entrepreneurs are often faced with the difficulty of raising money due to what the banks see as a high-risk, low-return activity coupled with high handling fees. This is not just a problem for businesses; it's a problem for the wider economy because it slows growth. In order to counter this trend and to improve access to finance, enhancing the capacity of non-bank microcredit providers is essential.

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