Microfinance, a tool Microfinance, a tool

for the active inclusion for the active inclusion

of people excluded of people excluded

from the labour marketfrom the labour market

A new microfinance facility A new microfinance facility

to tackle the crisisto tackle the crisis

Antoine SAINT-DENIS, DG Employment, Social Affairs, Equal

Opportunities

European Commission http://ec.europa.eu/social/

European Microfinance Network’s annual conference -25 June 2009, Milano

Plenary “How to reach the thousands of people at the bottom of the pyramid

and be sustainable, within the context of the financial and economic crisis?”

Political, legal and financial support

MICROFINANCE IN THE EU POLICIES

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• Many Europeans suffer from poverty and exclusion and are thus deprived from participation to economic and social life: 16% of the EU population at risk of poverty, nearly 80 million people. Some groups suffer from multiple disadvantages (eg. Roma).

• The EU emphasises that disadvantaged people have rights and potential. Social cohesion is a condition of success for the Lisbon strategy for growth and jobs.

• Based on a Recommendation adopted on 3 October 2008, the EU is implementing a strategy for the "active inclusion of people excluded from the labour market". The aim is: "a job for those who can, social participation for all." The strategy consists in an integrated approach between 3 pillars: adequate minimum income, measures to facilitate access to the labour market, quality social services.

MICROFINANCE IS A TOOL FOR ACTIVE INCLUSION

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• There is a need for professional but also personal microfinance.

• The market structure is different in Western an Central and Eastern Europe, but financial and social approaches should be better combined everywhere.

• The value added consists not only in loans, but also in advice and mentoring.

• Microfinance institutions are invited to feed in the National Strategies for Social Protection and Social Inclusion 2008-2010, in which social inclusion is the objective but tools should be multiple (not only social benefits!).

THE MICROFINANCE WE PROMOTE IN A SOCIAL PERSPECTIVE

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• 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. The fall in outstanding loans in the last quarter 2008 (€1.98bn) is the most severe reduction ever recorded in the history in a single quarter.

• Many people who would either become self-employed or start a micro enterprise cannot do so. Further, the target group of ‘ESF type of beneficiaries has insufficient access to micro-credit as mainstream banks in particular consider this group as too risky and cost intensive (the latter due to the relative small amounts of loans).

• The economic crisis requires immediate action to assist those who lost their jobs or are facing social exclusion and want to start or further develop their own business.

THE CRISIS REQUIRES FURTHER ACTION

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• On 3 June 2009, the European Commission proposed to initiate a new strategy to tackle the employment impact of the crisis.

• The priorities: maintaining employment, creating jobs and promoting mobility; upgrading skills, matching labour market needs ; increasing access to employment 

• Among the measures: acceleration of 19 billion € of funding from the European Social Fund planned in 2009-2010 ; no need for national co-funding in 2009-2010 ; 5 million apprenticeship ; immediate support by the public employment services for the unemployed ; a new EU microfinance facility.

• The "Shared Commitment for Employment" is a strong, forward looking and coordinated agenda to fight unemployment, boost job creation and pave the way for a sustainable recovery.

• The proposals will be presented to the EU leaders for their agreement at the European Council on 18-19 June.

THE COMMISSION'S RESPONSE: A "SHARED COMMITMENT FOR EMPLOYMENT"

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• A joint initiative with the EIB Group to create an EU recovery facility for employment.

• This facility aims to deepen the outreach of microfinance to particular at-risk groups which face barriers in access to credit in a context of reduced credit supply and increased risk aversion in order to support the development of enrepreneurship, the social economy and micro-entreprises and thus offer a new chance to some of Europe's most disadvantaged entrepreneurs.

• The facility will be implemented by the European Investment Fund between January 2010 and December 2013.

"PROGRESS", A NEW EU MICROCREDIT FACILITY

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• The Commission will reallocate 100 million € within the existing EU budget. The facility will be a risk-sharing mechanism.  

• Thanks to a contribution from the EIB Group, possibly along with other IFIs or specialised financial institutions, this amount could leverage up to 500 million € in loans for micro-credits.  

• Impact on the market : these amounts are to be compared with the value of the 42,750 loans disbursed in 2007: 394 million€.

 • These funds will be used for: equity financing, debt financing,

guarantees, support measures.

 

"PROGRESS", A NEW EU MICROCREDIT FACILITY (cont.)

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HOW IT WILL WORK

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THE COMPLEMENTARITY BETWEEN THE DIFFERENT EU FACILITIES

PROGRESS facility

ESF - European Social Fund

JasmineCIP -

Competitiveness and Innovation

Programme

100M€ 19 billion€ in 2009-2010 (no pre-defined envelope for microfinance at EU level)

20M€ loans (from the EIB)8 M€ technical assistance (from the ERDF - European Regional Development Fund)

(no pre-defined envelope for microfinance)

To back the upcoming recovery - people-based

To support access to employment in the long run

  To support SMEs

For all microfinance providers (banks and microfinance institutions)

  For non banking institutions  

A risk-sharing mechanism

Can offer interest rate rebates Not a risk-sharing mechanism  

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THE COMPLEMENTARITY BETWEEN THE DIFFERENT EU FACILITIES (cont.)

• The PROGRESS facility will have the capacity to fund diverse (both big and small) microfinance providers. It will be able to bear risk. • The European Investment Fund will also be in charge of the distribution of this new facility to microfinance providers that will apply.

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Commission communication “A Shared Commitment for Employment”:

http://ec.europa.eu/social/main.jsp?langId=en&catId=89&newsId=514&furtherNews=yes

DG Employment, Social Affairs and Equal Opportunities on the web:

http://ec.europa.eu/social/

Antoine SAINT-DENIS, European Commission, DG EMPL:

antoine.saint-denis@ec.europa.eu

FOR MORE INFORMATION

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