MAGAZINE N°1 - Evers und Jung

Regulating microfinance 

UK Policy developments 

Regulation for MFIs in Romania 

Improving institutional framework for self-employed in France 

Immigrants and microcredit 

Policy measures for microfinance in Europe 

n°1 April 2007

Microfinance Europe » is the new 

bi-annual EMN magazine. It will 

provide clear insights into 

European microfinance programmes, 

with a specific focus on policy 

measures that could support the development of the 

sector. Its in-depth articles offer up-to-date commentary 

on what is happening in the different European countries, 

how policies are implemented and evolving and what 

recommendations can be made by practitioners, 

researchers and academics to promote microfinance 

and micro-enterprise developments in the European 

Union. 

For its first issue, “Microfinance Europe” gathers articles 

presenting the latest changes in the legislation in some 

European countries. A first article is a brief survey on 

“regulating microfinance” and public policy in some 

European countries. The next one presents the UK 

experience with an analysis of the community finance 

sector (a broader approach that includes microfinance). 

For Romania, an article analyzes the changes that 

occurred with the implementation of the new specific 

microfinance laws. In France, the work done by Adie 

to improve the regulatory framework for micro enterprise 

development and microfinance is presented at length. 

There is also an article presenting the results of a project 

lead by EMN aimed at promoting immigrant 

entrepreneurship. A final article summarizes the main 

findings of a previous research conducted by some 

EMN members on general policy measures to promote 

microfinance in Europe. 

INDEX 

Brief Survey of “Regulating Microfinance” and Public Policy in some Western European Union Countries 3 

Latest Policy development in the U.K for the Community Development Finance Institutions 5 

Microcredit in Practice: Key Lessons and Experiences in Romania 7 

Improving the institutional framework for self-employed workers: A necessity for microcredit operators in France 10 

Supportive measures for immigrant micro entrepreneurs in Europe 13 

Policy Measures Needed to Promote Microfinance in Europe 16 

Microcréditos – La rebelión de los bonsàis 20 

EMN would like to thank all the authors of the various articles for their contributions. 

The content of the articles is under the sole responsibility of their authors. 

They do not necessarily reflect the views of EMN. 

© European Microfinance Network. This study is for personal informational purposes only. All rights reserved. No part of this 

publication may be used for commercial purposes, altered or published in any manner or form without prior permission from 

the publisher and EMN. 

Without the financial support of the European Commission within the framework of the Community Action Programme to 

Combat Social Exclusion 2002-2006, the publication of this document would not have been possible. 

The contents of this publication do not reflect the opinion or position of the European Commission. The sole responsibility lies 

with the authors and the Commission is not responsible for any use that may be made of the information contained therein.

BRIEF SURVEY OF “REGULATING 

MICROFINANCE” AND PUBLIC POLICY IN SOME 

WESTERN EUROPEAN UNION COUNTRIES 

Simone di Castri - PhD candidate in Law and Economics - University of Bologna 

In many countries, either new laws 

have been passed to meet 

microfinance demand and to 

address microfinance activity, or 

existing banking laws have been 

amended to include microfinance and 

MFIs in the regulatory framework. 

Nevertheless, during the 2006 Global 

Microcredit Summit, there was a 

unanimous call for regulatory actions 

that would allow microfinance to better 

serve the vast number of households in 

need of financial services. The 

Department of Economic and Social 

Affairs of the United Nations 

(UN/DESA) is also focusing particularly 

on the matter. Microfinance promoters, 

donors and practitioners are also 

calling for studies on the topic. In fact, 

even though this is already considered 

a fundamental issue when discussing 

the future of microfinance growth and 

effectiveness, and even though many 

scholars have laudably pointed out 

various methodologies and 

complications regarding regulation, 

there is still a lack of a systematic 

procedure for studying the 

implementation of regulation, not to 

mention a larger discussion of the 

theoretical basis of policy makers’ 

choices. 

From the point of view of the 

production of a reliable and working 

reflection on microfinance regulation, 

the major problem is probably the 

difficulties in reaching legal data 

globally and in assessing studies on 

impact and outreach of microfinance 

programs and related best practices. 

Such research and study are necessary 

in order to compare regulatory 

hypotheses with the actual 

effectiveness of projects, as shown by 

their records. But homogenous and 

comparable information for a holistic 

study is currently very hard to come by, 

making such a study difficult at this 

point in time. 

As for European countries, it is 

challenging to address microfinance 

regulation coherently because of the 

coexistence of two macro markets with 

such significant structural differences, 

one composed of developed 

economies, the other of countries still 

in transition after the collapse of the 

Soviet block. 

There is a great difference between 

East and West in the capacities of their 

infrastructures. Demographically, 

microfinance faces two distinct 

components of demand: local citizens 

in the East, and largely migrants in the 

West. As a consequence, the current 

structure of the microfinance industry 

differs extraordinarily, in the typology 

of providers and their targets. There 

are also significant differences in the 

ways of covering operating costs, 

providing loan capital, or collecting 

capital for guarantee funds (either 

through donors’ funding or the selfsustainability 

of the microfinance 

project). In fact, the average loan 

amount changes notably, as do the 

operating costs and interest rates 

charged. Finally, the entrepreneurial 

context also varies. 

All structural distinctions should be 

reflected in the policy intervention, in 

order to provide the market and its 

participants with the right level of legal 

security and to protect against failures 

and abuses as much as possible. 

Looking solely at microfinance in 

Western Europe, differences between 

countries’ markets are also 

remarkable. In these developed 

countries, however, the cause-effect 

relationship between facts and 

regulation is often reversed, the latter 

producing the first: market structure 

and size, and types and scale of 

microfinance providers in these 

countries, often reflect the regulatory 

framework put in place by policy 

makers. 

In France, the microfinance market 

is led by Adie, which is growing in 

scale, has reached operating 

efficiency, is moving toward 

sustainability, has a relevant role in 

lobbying for pro-effectiveness legal 

and tax amendments and is called on 

as an advisor on social matters by 

public authorities. 

Adie and the other MFIs have been 

supported by Loi 2001-420 on 

“Nouvelles Régulations Economiques”, 

which allows them to lend directly to 

their borrowers. This improves 

operational flexibility and increases 

the responsiveness of MFIs 

management. Furthermore, since 

2005, the “Borloo” law on social 

cohesion supports microcredit 

development and sets up a “Fonds 

pour la cohésion sociale” (73 million 

euros) to promote microcredit by 

guaranteeing business and consumer 

loans to unemployed people and lowincome 

households. Tax exemptions 

for new micro entrepreneurs are also 

foreseen and interest caps on loans to 

individuals have been removed. French 

lawmakers believe in microfinance and 

in assisting its enlargement through 

regulation and public policies. 

In Spain, the microfinance sector 

has grown exponentially since 

2001, especially by the commitment 

of saving banks to partnerships with 

social institutions. 

There are also two distinct public programs, 

one involving the government with 

women’s organizations, and the other, 

la Caixa, driven by the Instituto de 

Crédito Oficial (ICO) in collaboration 

with private financial institutions, 

social work institutions and the 

European Investment Fund (EIF). 

Microfinance as a tool for promoting selfemployment 

has also been mentioned 

in the II National Plan on Social 

Inclusion. 

3

4 

A particular role in the development of 

the industry is played by the Entidades 

Sociales de Apoyo al Microcrédito 

(ESAM), which are various public or 

private entities that assist by helping 

financial providers and prospective 

clients to meet, introducing feasible 

projects to the banks, and mentoring 

people before and after they borrow. 

Spanish law covers three types of 

credit institutions: banks, credit 

cooperatives and savings banks, which 

are organized as private foundations 

and are allowed to lend. Savings banks 

account for close to 50 per cent of the 

total assets of the Spanish financial 

sector. A specific legal framework for 

microfinance does not exist yet. 

In Germany, Kreditwesengesetz 

(KWG), the German Banking Act, 

only allows lending by institutions 

with a bank status. Market entry is 

costly. 

Microcredit is provided mainly by 

banks linked to Grunderzentren (nonprofit 

organizations that incubate 

business), which are accredited (and 

trained) by the Deutsche Mikrofinanz 

Institut (DMI). A microfinance 

investment fund of three million euros 

is provided by both the 

Gemeinschaftsbank für Leihen und 

Schenken (GLS), a cooperative bank, 

and by the Federal government. The 

fund covers completely the banks’ 

possible losses. The public 

Kreditanstalt für Wiederauf-bau (KfW) 

Bank is also an important actor. 

Even though there is no direct 

regulatory intervention on microfinance, 

the German government has given an 

incentive to the microfinance mission 

by creating a new entrepreneurial 

entity, the Ich-AG, which has been 

created to allow individual workers to 

step out of the informal sector. New 

Ich-AG entrepreneurs receive favorable 

tax treatment and public subsidies for 

three years (600 euros monthly the 

first year, 360 the second, and 240 the 

third) or until their businesses earn 

25,000 euros per year. 

In the United Kingdom, the microfinance 

industry is somewhat different 

compared to continental Europe. 

The British government has strongly 

encouraged the action of community 

development financial institutions 

(CDFIs), which are increasing their 

relevance in lending and investing in 

deprived areas and in markets 

underserved by mainstream finance. 

CDFIs act in a more complex policy 

environment, with a plurality of 

activities, products and missions that 

are beyond the provision of 

microfinance services alone. Incentives 

to invest in CDFIs are supported by tax 

breaks. Without a ceiling on interest 

rates, CDFIs can structure their 

products looking at sustainability, 

people’s needs and their capacity to 

pay back loans. 

Partnerships with commercial banks 

are common, and the latter have 

special instruments for financially 

marginalized people thanks to 

Government collaboration. The Small 

Firms Loan Guarantee Scheme 

(SFLGS) enables uncollateralized 

small entrepreneurs with a viable 

business plan to borrow money. The 

Department of Trade and Industry 

provides 75% of the security to the 

bank, which takes the risk on the 

remaining 25% of the loan. As for 

savings, the Basic Bank Account has 

been designed for low-income people. 

British public policy clearly cares 

about the financial and social inclusion 

of marginalized people, and the 

regulatory framework is helpful, 

primarily through consumer credit 

legislation. 

In the Netherlands, the Government 

promotes Public-Private Partnerships 

(PPP) for financing MFIs. 

In Italy, the microfinance industry is 

small and molecular, fragmented 

into nearly a hundred various 

projects active on a very local scale. 

And yet, in Italy, 14% of households do 

not have access to financial services, 

immigration is constantly increasing, 

wages are low, and financial services 

are expensive. 7.5 million people, 

13,2% of the population, live below the 

relative poverty line. In the south, 

usury is still extensively practiced and 

working in the informal sector is 

widespread. 

Under the present Italian legal 

framework, lending is prohibited to 

non-authorized intermediaries, and 

requirements for entering the market 

are strict and costly. Banca Etica, 

Mutue di Auto Gestione (MAGs) and a 

few credit cooperatives are the only 

financial intermediaries with their own 

microcredit projects. The sector 

involves mainly small public and 

private institutions, mostly non-profit 

associations, which negotiate loans 

through a bank. The underdevelopment 

of these projects increases transaction 

and monitoring costs. All non-bank 

projects are entirely subsidized. 

Although there is a broad demand for 

financial services from people who do 

not have access to the mainstream 

system and although the microfinance 

sector is underdeveloped compared to 

many other EU countries, amendments 

to banking regulations that would 

facilitate microfinance have not yet 

been considered by Italian regulators. 

Italy is a clear example of how regulation 

can constrain microfinance growth if it 

is not tailored to actual social needs. 

Furthermore, there are no signs of 

forthcoming public policies to 

encourage microfinance or microentrepreneurship. 

This brief article does not intend 

to address the large number of 

public policy and regulatory 

matters on microfinance in Western 

European Countries, but only to offer a 

short overview of some aspects of 

several different frameworks. 

Many questions and hypotheses arise, 

and they should be subject to a 

consistent comparative analysis in 

order to design a pan-European 

approach to the field. 

The main issues to focus on are: 

• the role of social intermediaries and 

their inclusion in or exemption from 

mainstream banking legal requirements 

• the search for homogeneity in terms, 

evaluations and (best) practices 

• the valorization of governance 

requirements 

• the improvement of the role of 

mainstream financial intermediaries in 

the sector, through PPP, incentives 

and some coercive methods that take 

into account their accountability 

towards stakeholders and communities 

(as the US Community Reinvestment 

Act already does), and emphasizing the 

potential of savings banks, cooperative 

banks and foundations 

• the maximization of public subsidies 

• the capacity of European policy to 

spur the provision of microfinance. 

One may also argue that financial 

inclusion and economic democracy 

should be included in the range of

LATEST POLICY DEVELOPMENTS 

IN THE U.K FOR THE COMMUNITY 

DEVELOPMENT FINANCE INSTITUTIONS 

By Tess Pendl, Policy Manager, Community Development Finance Association (cdfa) 

Community Development Finance 

Institutions (CDFIs) are independent 

non-profit financial institutions. 

They provide capital and support to 

enable individuals and organisations to 

develop and create wealth in disadvantaged 

communities and under-served markets. 

CDFIs offer services and products such 

as financial advice, loans and venture 

capital to entrepreneurs who otherwise 

have difficulty obtaining access to 

finance and related support. The cdfa 

is the UK trade association for CDFIs. 

With the UK government taking an 

increasing interest in social enterprise, 

there have been a number of recently 

implemented policies and policy 

changes which have affected and will 

continue to affect the CDFI sector. 

The life story of the Community 

Investment Tax Relief (CITR) has 

evolved considerably since its 

birth. 

This innovative fundraising tool was 

engendered in response to a Social 

Investment Task Force recommendation 

in their report of 2000 “Wealth Beyond 

Welfare”. It allows a 25% reduction 

over 5 years in the tax liability of any 

individual or business investing in a 

CDFI. As of September 2005, more 

than 20 CDFIs had registered to offer 

CITR to potential investors. Between 

2003 and September 2005 a total of £38 

million was raised by this mechanism. 

The Treasury Select Committee inquiry 

of 2006 found that the additional 

investment attracted by CITR is still “a 

very long way” from the original target 

set by the Social Investment Taskforce 

for such a scheme. The Committee 

asserts that it supports “the extension 

of the tax relief to investments made in 

personal lending by CDFIs and to credit 

unions seeking subordinated capital.” 

It recommends that “the Government 

also consider the introduction of a 

matched funding scheme to provide 

incentives for housing associations and 

other charities to invest in CDFIs.” In 

addition to the findings of the Select 

Committee, the Chancellor announced 

in November that the scheme will be 

undergoing a review. This could be a 

positive development for the sector, 

which is making increasing use of the 

CITR mechanism to lever external 

funding. CDFIs are anxious that the 

government should retain and 

augment its interest in CITR, and the 

cdfa is involved in the latest review, 

which is also looking at other capital 

raising strategies. In examining how 

the sector has reacted to CITR, it is 

clear from CDFI feedback that there 

are some common experiences. These 

CDFIs have dealt with large projects 

where there may be some commercial 

finance (often mortgage backed), an 

element of grant capital but little or 

limited availability of revenue and/or 

working capital for the start up or new 

business activity. CITR has also 

assisted the transformation of more 

traditional charitable organisations to 

income generating, business-focused 

social enterprises. Such organisations 

often have a strong existing brand, 

funder and client recognition, as well 

as a track record of delivery, but less 

experience of using external finance 

and managing income generating 

activities beyond public service 

contracts. Participating CDFIs have 

also been using CITR to reinforce a 

“belt and braces” approach, where one 

or more lenders or grant givers have 

already taken primary or secondary 

liens on properties and there has been 

no further security available to 

complete the project financing. The tax 

has proved useful where CDFIs have 

sought loan finance against a property 

of which the value is not easily liquidated, 

or is indeed very low. (For example 

commercial units on a Brownfield site, 

derelict sites, community facilities 

such as halls, sports centres etc which 

have limited appeal to other users or 

potential new owners.) There are also 

opportunities for co-finance (for 

example CDFI lender to provide 250K 

and then broker deal with another 

lender) but these often take a long time 

to be implemented, risking the loss of 

customer focus. 

As anticipated, the Phoenix Fund 

scaled down on 31 March 2006. 

The fund was set up by the 

Department of Trade and Industry (DTI) 

in 2000 to explore innovative ways of 

promoting business start-ups in 

disadvantaged areas, to develop 

capacity, services and profitability of 

existing businesses in those areas, and 

to provide support to marginalised 

groups and individuals wishing to set 

up their own businesses. In its lifetime, 

the fund supported 63 CDFIs with £42 

million of capital and revenue, whilst 

enabling 96 projects to provide 

business support to enterprises in 

disadvantaged areas and community 

groups. These and other CDFIs clearly 

stand to be affected by the diminishing 

activities of the Fund, but have been 

encouraged by the allocation £11m of 

transition funds for the years April 

2006-March 2008 to The Regional 

Development Agencies who now have 

responsibility for CDFIs in their 

respective geographical areas. 

However, there is now significant 

pressure on RDA ongoing budgets, so 

the cdfa is lobbying hard to ensure that 

the sector receives the necessary 

support. Among other things, the cdfa 

is examining the JEREMIE scheme as a 

tool to activate sources of finance for 

CDFIs. Despite the existence of CITR as 

an incentive to enhance returns, 

community development finance is still 

an immature sector with evolving 

assets, and faces a difficult challenge 

in enabling capital flows to support its 

activities. 

5

6 

With the publishing of the 

government White Paper 

Strong and Prosperous 

Communities in October 2006, the 

CDFI sector was able to begin to see an 

enhanced role in community development 

for its practitioners. 

The greater devolution of powers to 

local authorities as regards leading 

communities and bringing services 

together to address local needs and 

problems is allowing CDFIs to have 

more extensive input into local 

development. The Paper also provides 

for an increase in community 

consultation and empowerment, as 

well as the encouragement of stronger 

local partnerships, with local 

authorities working together. In 

addition, it provides for more stable 

funding for local areas and rewards for 

innovative solutions to local problems. 

As financial intermediaries, CDFIs 

enjoying strong links with local 

communities, they are accustomed to 

finding innovative solutions to meet 

local financial and social needs. 

In 2006, a Treasury Select 

Committee examined ways in 

which to achieve financial inclusion 

in the UK. 

Its findings were published in two 

reports at the end of the year and show 

that although some steps have been 

taken to overcome financial exclusion, 

the issue is still not accorded enough 

priority. This is good news for CDFIs, 

which have been lobbying for some 

considerable time for greater recognition 

at national and regional government 

level. Among other things, the reports 

call for special education initiatives for 

financial consumers, financial 

education in schools and the 

prioritising of financial inclusion at 

local government level. The report 

states that “sustained and predictable 

funding for work aimed at promoting 

financial inclusion is essential.” The 

Committee which took evidence from 

several practitioners, including Bernie 

Morgan, and Sarah McGeehan of the 

cdfa, found that third sector lenders 

have a vital role to play in increasing 

access to affordable credit and promoting 

financial inclusion, as well as in 

providing budgeting advice. It also 

recognised that existing funding for 

lenders is short-term in nature, and 

thus recommends that the 

Government consider how best to 

provide longer term funding, focusing 

on how to maximise the ability of public 

funds to lever private capital. The 

report states that the Government 

must also ensure money is provided to 

build capacity in financially excluded 

areas which currently lack established 

third sector lenders. The Committee’s 

recommendations address some of the 

key issues affecting the future of CDFIs 

in the UK, which are waiting to see if 

the government will offer a positive 

reaction. The government has yet to 

publish its response to the report, but a 

favourable stance will do much to 

enhance a positive environment for the 

growth of the CDFI sector. 

In November 2006, the government 

launched its Social Enterprise 

Action Plan (SEAP), designed to 

raise awareness of what social 

enterprises can achieve and to 

encourage more people to make a 

difference, either by involvement or 

investment. 

Among other things, SEAP recognises 

that social enterprises need access to 

appropriate finance, in order to 

maximise their social impact as well as 

their business performances. The Plan 

provides for a £10 000 000 investment 

in social enterprises which will be 

distributed following government 

consultation with both the social 

enterprise and finance sectors. This is 

likely to be put out to tender later this 

year. SEAP acknowledges the 

existence of conceptual and cultural 

barriers which hinder investors from 

investing in social enterprises and 

stipulates that such barriers must be 

addressed. The Government will also 

roll out further financial awareness 

training for social enterprises in 

conjunction with the Regional 

Development Agencies. This news 

should impact positively on CDFIs, 

since many are both social enterprises 

and providers of finance to social 

enterprises. Greater public awareness 

of CDFI activities and the implementation 

of actions to increase their 

effectiveness on socio-political and 

financial levels will be a fillip to the 

developing sector. 

There has been further good 

news for CDFIs, since the 

Department for Work and 

Pensions (DWP) has launched a 

service for the recovery of loans called 

the Eligible Loan Deductions Scheme. 

This initiative enables lenders, provided 

they meet approved responsible 

lending criteria, to recover loans which 

have fallen into arrears from the 

borrowers’ social benefit receipts. The 

scheme aims to increase the supply of 

affordable credit for people on low 

incomes, including those on benefits. 

The offering of benefit deductions 

under certain circumstances can 

reduce the risk of default and thus 

diminish the cost of lending. The 

Scheme will prove useful to CDFIs as a 

tool to diminish delinquency rates and 

recycle loan funds.

MICROCREDIT IN PRACTICE: 

KEY LESSONS AND EXPERIENCES IN ROMANIA 

By Maria Doiciu - Access to Finance Component Leader, Enterprise plc Consortium, TA to Develop the SMEs Sector in Romania 

1. Romanian Microfinance 

Sector – legal framework 

for microfinance activities 

Microfinance activities in 

Romania started ten years 

ago when the first international 

microfinance institution (MFI), 

Opportunity International, launched its 

Microfinance for Small and Medium 

Enterprise Development project, 

Opportunity Microfinance Romania 

(OMRO). 

The average Romanian MFI has around 

eight years of operational experience, 

greater than the six year average in 

Eastern Europe and Central Asia 

(ECA), but less than its global peers. 

During the years 2003-2006, the sector 

evolved rapidly and became more 

efficient and productive in achieving its 

mission of providing support and services 

to underserved entrepreneurs. 

The regulatory framework is keeping 

up with the fast pace of change of the 

sector: 

• Government Ordinance 40 (2000) 

provides for licensing of non-bank 

credit organizations to administer 

public funds 

• The Micro Finance Companies (MFC) 

Law no.240, adopted by the 

Romanian Parliament in July 2005, 

creates an enabling environment for 

MFIs to grow and expand their 

portfolio of products and support 

services with microcredits of up to 

25,000 euros 

• Government Ordinance 28 (January 

2006) regulates non-bank financial 

institutions (NBFI).The National 

Bank of Romania is the supervisory 

authority for all NBFIs, that is leasing 

companies, mortgage companies, 

credit unions and microfinance 

institutions 

The microfinance activity is recognized 

and laws support its development and 

commercialization. The regulatory 

framework is mostly liberal, for 

instance no limitation is set on 

geographical expansion or foreign 

investment. 

The activity is regulated by the National 

Bank which registers and licenses 

MFIs, which is a positive point. However, 

the registration and licensing process 

for existing and newly established MFIs 

is complicated, time-consuming and 

expensive; the accounting, auditing 

and reporting requirements are similar 

to those of banks and are hard to meet 

by MFIs; only credit operations are 

allowed, even though the capital 

requirement is relatively high at 

200,000 euros. 

The activity is also becoming more 

competitive as microfinance is also 

carried out by credit unions and banks. 

In addition to the first eight microfinance 

institutions established with the 

support of international donors, 

around 20 new microfinance companies 

established under the new legal 

framework are in the process of 

registration and licensing with the 

National Bank of Romania. 

This present moment is crucial for the 

evolution of the sector. Some smaller 

MFIs might disappear and the bigger 

ones need to adapt to the new 

constraints, find funds and keep their 

mission. 

2. Romanian Microfinance 

Sector - Current status, 

statistics 

The first assessment of the 

Romanian microfinance market 

(a microcredit being defined as 

up to 25,000 euros or USD 32,500) was 

completed by ShoreBank Advisory 

Services. The main findings of the 

assessment are the following: 

7 

Peer Groups 

All Romanian 

CAPA Finance, CDE, Express Finance, FAER, Integra, LAM, OMRO, 

ROMCOM; 20 newly established MFIs 1 

Size 

Romanian Large: Gross Loan Portfolio > $8,000,000 

Target: Micro and small enterprises; farmers (high- end) 

in 2006 CAPA Finance, CDE, Express Finance, OMRO 

Romanian Medium: Gross Loan Portfolio = $2,000,000 - $8,000,000. 

Target: Micro and individual entrepreneurs; farmers (broad) 

in 2006 FAER, LAM, ROMCOM 

Romanian Small: Gross Loan Portfolio < $2,000,000 Target: self employed, 

vulnerable groups : women at risk, unemployed (low-end) 

in 2006 Integra and around 20 other newly established MFIs 

1. In the registration process the average capital is 200,000 euros

8 

100% 

80% 

60% 

40% 

20% 

0% 

A reasonable estimate of the potential 

number of creditworthy borrowers who 

would want to borrow less than 25,000 

euros on a regular basis is approximately 

120,000, with an aggregate demand of 

about 570 million euros. The regions of 

the greatest concentration of these 

borrowers are Transylvania (37,000 

potential borrowers, 208 million euros) 

and Bucharest- Ilfov (23,000 potential 

borrowers, 114 million euros). The 

remaining demand is spread fairly 

evenly across the rest of the country, 

with the weakest demand in the South 

West-Oltenia region . 

The MFIs included in this study are 

organised into peer groups by size and 

type, thus allowing for comparisons 

among similar institutions. As the 

table below demonstrates, the industry 

consists primarily of small and 

medium-sized organizations trending 

towards continued growth. The year 

2006 allowed exceptional growth for 

the Romanian microfinance sector, so 

that at the end of the year four MFIs 

succeeded in graduating into the 

“Large” category. This trend is 

continuing in 2007, mainly due to the 

large investment of the EU-Romanian 

Government and the EBRD in the 

sector. 

Many commercial banks are implementing 

SME lending programs funded by the 

EBRD, including the Romanian 

Commercial Bank, Raiffeisen Bank, 

Transilvania Bank, Alpha Bank, 

Romanian Development Bank–Group 

Societe Generale and the Pro credit 

Bank. This allows them to improve the 

client assessment process and to 

downscale, serving small companies., 

The Romanian MFIs are committed to 

fulfilling their social mission by 

contributing to improving the lives of 

underserved entrepreneurs through 

52 

4 

44 

Romanian Microfinance Market 

31 

12 

57 

2003 2004 2005 2006 (estim) 

SMEs Banks MF Institutions Uncovered demand 

30 

15 

55 

the provision of credit and business 

development services. 

While members serve their clients 

using many different methodologies 

such as individual lending, group 

guarantee, technical assistance and 

training, networking etc., they believe 

in implementing commercial principles 

to achieve sustainable and efficient 

financial institutions. This allow them 

to reach a large number of clients who 

would otherwise not have access to 

affordable financial services. 

The investor and donor community 

promotes transparency and highlights 

financial reporting disclosure, 

encouraging the MFIs to adopt 

International Financial Reporting 

Standards (IAS1 on disclosure) and 

industry-specific standards as a bridge 

for reaching scale and increasing 

funding flows to the microfinance 

industry. 

113% 

82% 

25 

20 

55 

3. The structure of the MFI 

portfolio 

Unlike other countries where 

MFIs can attract savings from 

individuals and diversify the 

possibilities for funding of current 

operations, Romania’s legislation does 

not offer this option to MFIs. The 

development of the banking system 

and the good examples already in 

place of commercial loans granted to 

MFIs by banks, e.g. Romanian 

Development Bank and OMRO, including 

World Bank microfinance programs, 

EU-EBRD Program, could be the 

driving force for sustainable and 

successful development of the 

Romanian MFI sector. 

Over the last three years the large and 

medium-sized Romanian MFIs posted 

positive operational sustainability, and 

since 2005 positive financial selfsufficiency. 

This performance compares 

favorably with the All MFIs 3 peer 

average of 119%. Due to the fact that 

donations and grants are no longer 

widely available in Romania, Romanian 

MFIs will continue to pay attention to 

the profitability and sustainability 

indicators mentioned here. 

It is important to mention here that the 

average retention rate in the system 

was 70% (2005). This means that the 

clients are pleased with the financial 

services provided by MFIs and with the 

methodology employed to extend 

micro-credits. 

Indicator 2003 2004 2005 2006 2 

121% 

114% 106% 

95% 

2003 2004 2005 

Operational Self-Sufficiency 

Financial Self-Sufficiency 

Number of MF Organizations 14 14 9 29 

% in Countries Outreach 60% 80% 85% 90% 

Numbers of loans 8400 14900 20000 30000 

Average loan (euros) 3100 3400 5200 6000 

2. The contribution of the 20 newly established MFCs is estimated 

3. Benchmarking ECA Microfinance 2004

4. Portfolio quality indicators 

Romanian MFI portfolio quality 

indicators show an improvement 

since 2004. 

PAR 90 days decreased from 1.5% to 

0.9% and was lower than the ECA 

average of 1.1%. 

PAR 30 days is unusually high at 4.1% 

versus the ECA average of 2.3%, but 

this may reflect differences in the 

population served, the size of loans 

and lending methodologies. The 

Romanian MFI sector is currently 

focusing on improving portfolio quality 

for various reasons, especially as 

access to commercial funds becomes 

more important. Portfolio at risk > 90 

days (2005) was 1.5%. 

5. Development perspectives 

The Romanian MFI sector is 

entering into a new stage of 

development. 

Legal, economic and financial changes 

will continue to reshape the opportunity 

landscape for MFIs individually and as 

a whole. 

While commercialisation is the 

strategy of almost all medium and 

large MFIs, there exists a number of 

more targeted initiatives that may take 

a different more focused path towards 

maintaining their social mission. 

6. Lessons learnt 

The importance of a clear, coherent 

and supportive legal framework 

In less than two years, the Romanian 

microfinance sector passed from not 

being regulated at all to the other 

extreme, overregulated, and it was 

learnt how important continuous 

lobbying is to making the stakeholders 

aware of the sector’s main characteristic, 

efficient financial services with positive 

social and development impact. 

Efficiency and self sufficiency 

In order to attract the funds needed to 

properly serve the increased number 

of clients, the microfinance organisation 

has to become efficient, financially 

self-sufficient and innovative in 

adapting microfinance products and 

procedures to the specificity of the 

Romanian financial culture. 

Networking 

Representatives of the Romanian 

microfinance sector are part of the EUfunded 

project named, “From 

Exclusion to Inclusion through 

Microfinance: Learning from East 

to West and from West to East”. 

The eastern MFIs are learning from 

their western peers how to assess the 

social 

impact of microfinance activities and 

how to maintain the social mission by 

improving and diversifying the support 

activities provided to the microentrepreneurs. 

9

IMPROVING THE INSTITUTIONAL FRAMEWORK 

FOR SELF-EMPLOYED WORKERS: A NECESSITY 

FOR MICROCREDIT OPERATORS IN FRANCE 

By Audrey Raabe – Programme assistant to the President – Adie (Association pour le Droit à l’Initiative Economique) 

10 

In order for self-employed workers and 

microcredit to develop, microcredit 

operators in France and in other 

Western European countries need to 

improve the institutional frameworks 

for business creation by the most 

marginalized. Adie, a French microcredit 

organization with 15,000 active clients 

has established four objectives in this 

field: 

Objective No. 1: 

To promote understanding 

of the significance of small 

businesses in France as a 

country in the process of 

de-industrialisation 

Self-employed workers and very 

small businesses are a basic 

component of the modern 

economy but French society has not 

yet become aware of the phenomenon. 

At present, 93% of enterprises in 

France have between zero and nine 

employees. This is very far removed 

from the traditional image associated 

with companies in the Paris CAC 40 

index. 

A look at the economy helps explain 

these figures. Self-employed work and 

small enterprises are far from being 

obsolete. On the contrary, such 

businesses correspond to new forms 

of organization in the modern economy 

that are a result of the evolution from 

an industrial economy towards a 

service economy and of new 

technologies facilitating work by small 

production units. 

However, the importance of selfemployed 

work is not yet sufficiently 

recognized in France which has only 

9% of self-employed workers in its 

workforce compared with a European 

Union average of 25%. Moreover, it is 

not an accident that the expression 

“self-employed work” is found only 

rarely in French law with the preferred 

term being “non-salaried work”, which 

again illustrates the predominance of 

salaried work in France. 

Adie believes that one of its roles is to 

promote awareness in this field 

Unless there is a renewed consciousness 

of the importance of self-employed 

work, the measures adopted will 

continue to remain inadequate. 

For this reason, Adie continues to rely 

on various methods to attract the 

attention of the French public authorities 

and community to these issues, e.g. 

contacts with politicians and 

administrators, media coverage, 

publication of widely disseminated 

studies, participation in numerous 

conferences, the organization of 

Microcredit Week 1 , etc. 

Adie is particularly concerned that 

measures in favour of salaried workers 

be paralleled by similar measures in 

favour of non-salaried workers, and 

similarly with respect to enterprises 

with and without employees. For 

example, a recent French law on 

personal service providers gave 

exoneration from employer contributions 

to businesses employing workers but 

failed to make similar provision for 

self-employed workers. Adie intends to 

take action seeking changes to this 

law. This seems even more important 

since personal services are a sector 

with great potential for development 

for self-employed workers. Moreover, 

these services are often provided in the 

black economy. An appropriate law in 

this field would enable a large number 

of self-employed workers to escape 

from the illegal work in which they 

often find themselves trapped. 

Objective 2: 

To shine a spotlight on 

self-employed work 

carried out in the black 

economy and to propose 

solutions 

Self-employed work in the black 

economy: An “unobserved” 

shadow zone. 

There are no statistics available for the 

informal sector, which is described 

revealingly by the OECD as “unobserved 

work”. It includes income-generating 

activities, the significance of which is 

clear from Adie’s experience and which 

are of particular interest to Adie. 

Black economy self-employment a 

result of extremely onerous social 

contributions 

These income-generating activities are 

self-employed activities, usually 

carried out by individuals, the 

productivity and profitability of which 

are too low to be covered normally as 

part of the social protection system, 

which is poorly adapted to low profit 

activities. In effect, self-employed 

workers earning small incomes are 

required to pay onerous contributions, 

which can even be higher than the 

profits generated by the business. This 

is due to the fixed contributions 

required to be paid during the first two 

years and the effect of the threshold 

governing the minimum payments for 

contributions. 

1. This is an annual event launched by Adie that aims to raise awareness in French society of the utility of microcredit and self-employment as a means 

of insertion.

As a result, many people carrying on 

this kind of activity fall into the trap of 

working in the black. This work in the 

informal sector is thus generally not 

the result of a conscious choice and, 

contrary to common opinion, people 

usually do not like to work and live in 

this manner. Moreover, it is prejudicial 

to the development of their businesses. 

Highlighting this situation has led to 

improvements in 2007 in the regulations 

governing social contributions 

Adie has directed a spotlight on the 

aberrations of this social contribution 

system, which requires entrepreneurs 

who earn the least to pay the most as a 

consequence of minimum contribution 

levels. These efforts have paid off. At 

the beginning of 2007, the government 

adopted a law which provides that 

businesses defined as micro-enterprises 2 

will no longer have to pay more than 

49% of their revenue in social contributions. 

Nevertheless, this new system is still 

limited to those businesses defined for 

tax purposes as micro-enterprises, 

which are not the only businesses that 

suffer from low turnover. Moreover, the 

micro-enterprise tax regime is not 

always appropriate to poorly paid 

activities where very low social 

contributions of the order of 10% are 

required rather than the 45% average 

which now prevails. 

Also to be noted is the fact that under 

certain conditions French law provides 

for exoneration from social contributions 

during the first three years of business 

activity for unemployed and minimum 

income beneficiaries. This measure 

has a positive effect on exiting the 

informal sector and is one of a range of 

provisions encouraging self-employed 

work as a means of insertion. 

Objective 3: 

To disseminate the idea of 

self-employed work as a 

means of social insertion 

Instead of looking for a job, you can 

create one 

Could this be a slogan for the national 

employment agency (ANPE) or for 

Unedic, the national agency in charge 

of paying unemployment benefits No! 

Because even though these institutions 

have established specific programs for 

mentoring unemployed business 

creators, some in partnership with 

Adie, they are still not dyed-in-thewool 

supporters of business creation 

as a means of exiting unemployment. 

In fact, Adie has adopted this slogan for 

this year’s Microcredit Week in May 

2007. Indeed, since its inception Adie 

has promoted this idea of selfemployed 

work as a means of inclusion 

for unemployed and minimum income 

beneficiaries. This has already led to 

the passage of an amendment to 

French law in 2005 providing that 

action taken by a job seeker with a view 

to establishing a business is recognised 

as justification for maintaining his 

unemployed status and thus continuing 

to receive unemployment payments. 

Other extremely interesting measures 

for unemployed business creators 

could also be cited. 

35% of new entrepreneurs are 

unemployed, a figure explained by the 

range of specific measures targeting 

unemployed people 

We have already mentioned the 

exoneration measure for social 

contributions known as ACCRE (Aid for 

unemployed business creators and 

purchasers). This is a formidable tool 

that encourages people to exit the 

black economy and to start legitimate 

businesses. This assistance affects a 

quarter of all business creations, or a 

total of 71,000 people. Over the last two 

years, ACCRE has been improved as a 

result of repeated lobby actions by Adie 

to the public authorities. The number 

of people benefiting from ACCRE has 

increased and exoneration from social 

contributions has been extended on a 

decreasing scale to the second and 

third years. Moreover, since 2007, it is 

granted automatically. 

EDEN (Encouragement to Develop New 

Enterprises) is another measure that 

mainly targets minimum income 

beneficiaries and young people. It 

consists of a repayable advance up to 

an amount of 6,098 euros which must 

be accompanied by the obtaining of a 

complementary loan from another 

institution (bank or non-bank). It is 

particularly useful in the case of 

destitute people lacking the resources 

necessary for starting a business. 

However, Adie, which is one of the 

managers of EDEN on behalf of the 

state, wants this advance to be 

transformed into a grant. An Adie 

evaluation study has in effect shown 

that the impact of a grant on the 

sustainability of an enterprise is 

greater than that of a repayable 

advance. Moreover, the management 

of a repayable advance is burdensome 

and the final cost is nearly as expensive 

as a system of grants, such as those 

that have been developed by Adie in 

partnership with several local authorities. 

Finally, there is the opportunity to 

continue receiving unemployment 

benefits and minimum income 

payments which are useful in providing 

a safety net for persons setting out on 

the adventure of self-employed work. 

The different institutional measures in 

favour of business creation that have 

been mentioned in this article have had 

a considerable impact on the 

development of microcredit. 

Nevertheless, it was also necessary for 

Adie to obtain specific legislative 

changes concerning microcredit which 

have now enabled Adie to envisage 

financial sustainability as a result of 

the abolition of the usury rate and to be 

more effective since it can now borrow 

for onward lending. 

Objective 4: 

Towards financial services 

open to all 

Aneed to modify legislation to 

enable the development of 

microcredit 

The main obstacles to the development 

of microcredit in France have long 

been the ceiling on interest rates, 

which does not allow for the costs 

inherent in distributing small credit 

amounts to be recovered, and the 

monopoly by banks, which prevents 

non-bank institutions from borrowing 

money for onward lending to their 

clients. These provisions were valid a 

century ago as part of the fight against 

usury and to avoid risks to the financial 

sector. They are much less justified 

today given the competition that exists 

between the banks, the generally low 

interest rates, and the excellent rate of 

reimbursement of microcredit. This is 

11 

2. This involves simplified accounting and tax obligations for businesses which generate a turnover of less than 76,000 euros in the case of resellers and 

27,000 euros in the case of service providers.

12 

why Adie lobbied intensively against 

them, finally resulting in their abolition. 

Measure No. 1: Authorisation for nonbank 

microcredit institutions to borrow 

for onward lending to their clients 

Since 2001, non-profit associations 

have been able to be authorised to 

borrow from credit establishments in 

order to onlend to unemployed and 

minimum income beneficiaries. 

This authorisation has considerably 

simplified loan management for Adie. 

In the past, the association was dependent 

on bank partners for managing loans 

and for information on repayments. 

Adie now wants this authorisation to be 

extended to social microcredit. 

Measure No. 2: Elimination of the 

usury rate 

In 2005, with the support of the banks, 

Adie succeeded in obtaining a lifting of 

the ceiling on the interest rate for 

loans granted to individual enterprises. 

An evaluation report on this measure 

carried out by the Banque de France 

and published in 2006 has shown the 

benefits of this measure. 

As a result of the lifting of the interest 

rate for its loans, Adie now envisages 

achieving financial autonomy for its 

directly credit-linked activities. 

Meetings with Adie clients have 

confirmed that they are also conscious 

of the importance of a rise in the 

interest rate to ensure the sustainability 

of Adie, while their principal need is to 

gain access to financing even if this 

comes at a cost. 

Other measures are also necessary for 

the development of microcredit in 

France 

In spite of this progress, many challenges 

remain, particularly the obtaining of 

secure financing for training and 

counselling activities for business 

creators, which is indispensable for 

their success given the complex 

regulatory regime that exists. One very 

interesting avenue opened up in 2005 

following lobbying by various French 

networks working with business 

creators. On the one hand, mentoring 

activities for business creation became 

eligible to receive grants for professional 

training. On the other hand, professional 

training organisations were required to 

reserve a portion of their funds for the 

financing of such actions. 

Unfortunately, only the first part of this 

measure still remains in France with 

the latter having been abolished. 

Conclusion: 

In a country where 12% of the active 

population survive on less than 

60% of average income and which 

has 2.7 million unemployed, there is a 

gradual rise in the level of awareness 

of the significance of self-employed 

work. 

Statistics show the value of this 

method of social inclusion. 50% of 

young people from sensitive areas in 

France would like to start their own 

business. 75% of people financed by 

our organization have withdrawn from 

social assistance measures. Moreover, 

the survival rate of the businesses they 

create are in line with the French 

average for individual businesses. 

These results are still not yet known 

widely enough. At Adie, we will 

continue to act so that the formidable 

potential for creativity existing in our 

country is better known and encouraged.

SUPPORTIVE MEASURES FOR IMMIGRANT 

MICRO-ENTREPRENEURS IN EUROPE 1 

By Miriam Guzy, former EMN training and programme manager and currently Adie project manager and by Philippe Guichandut, EMN executive director. 

Immigrant entrepreneurship is 

increasingly recognized for its 

potential contribution to the 

economy of the European Union (EU). 

A recent study by Caixa Catalunya 2 

shows the major contribution of 

immigration not only to EU population 

growth, but also to GDP. Its authors 

calculate that, without the 

demographic impact of immigration, 

GDP per capita in the EU-15 would 

have decreased by 0.23% per year 

between 1995 and 2005 instead of 

increasing by 1.79% per year. While 

immigrant and ethnic minority 

entrepreneurs show a particular 

dynamism in creating enterprises, they 

also tend to experience more severe 

problems than other small 

entrepreneurs. Access to finance, both 

for start-up and for growth, is typically 

perceived as a major problem, if not 

the greatest single problem by these 

entrepreneurs. Microlenders have 

removed many of the barriers 

characteristic of the traditional sector, 

by offering small loans, alternative 

guarantee options and flexible 

repayment plans. Nevertheless, 

immigrant micro-entrepreneurs face 

specific difficulties in accessing 

microloans and starting their 

businesses, such as insufficient 

language skills, bureaucracy, lack of 

access to information, limited 

recognition of foreign qualifications 

and professional experience, cultural 

differences… Some of these barriers 

could be better overcome by helping 

microfinance practitioners make their 

services more inclusive. It is clear, 

however, that the provision of 

microcredit alone does not suffice and 

can not be disconnected from factors 

related to business environment and 

other support services. After giving a 

short description of immigration 

entrepreneurship in six European 

countries, this article will analyze the 

needs of immigrant microentrepreneurs 

and suggest supportive 

measures for immigrant entrepreneurship. 

1. Differing situations and 

ethnic communities but 

overall fairly strong 

dynamics of immigrant 

entrepreneurship 

The countries studied (Belgium, 

France, Germany, Ireland, 

Norway, Spain) face different 

challenges due to historical reasons 

and differences in absolute and 

relative numbers of immigrants, as 

well as in the composition of 

immigrant communities. 

Germany, France, Belgium and 

Norway aretraditional countries of 

immigration, where labour migration 

was stopped in the early seventies. 

Immigration has since been mainly 

related to family reunion, marriage, 

and political reasons. Immigration was 

long considered to be temporary, and 

some of these countries have only 

recently acknowledged that 

immigrants are here to stay, and made 

changes in their naturalisation laws. 

For Spain and Ireland, traditionally 

countries of emigration, immigration is 

a new phenomenon which has 

accompanied their recently booming 

economies. Thus, the need for 

measures to promote integration had 

previously not been felt. 

The immigrant population is generally 

said to be more entrepreneurial and 

have a higher degree of self 

employment and enterprise creation, 

compared to the average population. 

This is confirmed by the data available 

in the few countries under study. In 

France and Spain, immigrants have 

higher self-employment rates than the 

average population. In Norway, the 

share of businesses owned and started 

by people with immigrant backgrounds 

is amazingly high. Also in Germany, 

where there is still less selfemployment 

among immigrants than 

natives, the share is steadily growing, 

due to a high rate of immigrant startups. 

According to the literature, the 

dynamics vary from one community to 

another. A study of the Turkish 

community 3 across Europe reveals 

major differences between host 

countries, showing that business 

environment is very significant. Indeed, 

current research on entrepreneurial 

strategies shows how entrepreneurship 

emerges from the interaction of 

personal characteristics, group 

opportunities (such as social networks 

and community resources), and structural 

opportunities of the host society 4 . 

These structural opportunities have 

two major dimensions: the labour 

market and the political and regulatory 

framework. 

1. This article is based on the executive summary of « Nurturing immigrant entrepreneurship - a handbook for micro credit and business support » 

produced by EMN as part of a project funded by the European Commission Directorate General Justice Freedom and Security INTI « Integration of third 

country nationals » programme. This project “Making Strength Meet Demand” ran from June 2005 to December 2006. It was carried out by the EMN in 

lead partnership with six of its members: Adie (France), EVERS&JUNG (Germany), First Step (Ireland), Fonds de Participation (Belgium), Network Credit 

Norway (Norway) and Un Sol Mon (Spain). The detailed study and bibliography and specific country analyses can be found www.europeanmicrofinance.org/nos_programmes_inti_en.php 

2. Le Monde « Les immigrés contribuent fortement à la croissance » - 1 er septembre 2006 

3. Manço Altay, « Sociographie de la population d’origine turque. Quarante ans de présence en Belgique (1960-2000) – dynamiques, problématiques, 

perspectives ». Bruxelles, Centres de Relations Européennes (CRE), juillet 2000 

4. Reis Oliviera, Catarina « Understanding the diversity of Immigrant entrepreneurial strategies », Article to be included in Leo-Paul (ed.), Handbook of 

research on International Entrepreneurship, Edward Elgar 

13

14 

The choice of self-employment can be 

connected with a complex combination 

of factors. Being aware of these factors 

that result in motivations, resources 

and difficulties can help business 

support practitioners better understand 

the immigrant entrepreneur’s needs. 

When asked about the reasons for 

starting their enterprise, entrepreneurs 

mention a range of push factors (such 

as low utilisation of their qualifications, 

boredom, frustration or lack of 

options) and pull factors (for example, 

being able to take control, be their own 

boss or earn better income as an 

entrepreneur). Some major causes 

commonly identified as leading to a 

strong will for immigrants to start a 

business are: 

• Difficulties on the labour market: 

immigrants are harder hit by 

unemployment, and are often 

employed in 3D (dirty, dangerous and 

demanding), temporary jobs or jobs 

where their skills are under-used. 

• The prospect of higher earning and 

social advancement, with the will to be 

independent. 

• A strong entrepreneurial culture, with 

the predominance of self-employment in 

their countries of origin and/or 

community traditions. 

• The possibility of mobilising ethnic 

resources through family and community 

networks, in terms of manpower, 

suppliers, clientele, and funding. 

• Market opportunities in the host 

country, such as demand for exotic products, 

activities linked to post-industrialisation, 

replacement of retiring businessowners, 

projects linking the country of 

origin with the host country… 

The hurdles immigrants come up 

against with, when wanting to start a 

business, give an indication of how 

strong their motivation must be. These 

hurdles include: 

• Restrictive legislations relative to 

immigrants: the permit to be selfemployed 

is particularly difficult to 

obtain in the countries of new 

immigration (Spain and Ireland). In 

other countries, access to certain 

professions may be denied from selfemployed 

immigrants, or it may 

require diplomas from the host 

country. 

• Administrative requirements: for all 

entrepreneurs, formalities and 

registration can be complicated, but 

these steps can be even more 

demanding for immigrants, with extra 

difficulties in getting foreign diplomas 

and skills recognized and in dealing 

with the paperwork. 

• The inactivity trap: many immigrants, 

who are recipients of unemployment or 

welfare benefits, risk losing a minimal 

but secure income by becoming 

entrepreneurs. In addition, they may 

have to pay tax and social security 

contributions even before their 

business becomes profitable. 

As a reason for difficulties on the 

labour market, discrimination can be 

seen as a strong push factor to starting 

a business and can result in closer 

community ties. At the same time, it 

can cause problems at many levels 

when starting the business: when 

dealing with administration, owners of 

business premises, suppliers, clients, 

banks... The combination of strong 

dynamics with strong limiting factors 

for enterprising migrants makes it no 

surprise if immigrants concentrate in 

sectors with low entry barriers in 

terms of qualifications and capital, 

such as trade, personal services, 

construction, catering and the clothing 

industry. These less competitive 

sectors are work intensive, and being 

able to rely on the family and 

community members is an asset. 

Enterprise survival rate in these 

sectors is lower than average, and 

relying on informal labour can make a 

difference for the business survival. 

Also, if the barriers of official selfemployment 

are too high, the activity 

may not be registered at all. 

2. Immigrant entrepreneurs 

need business support and 

access to finance 

In this complicated environment for 

business creation, a large part of 

the needs of immigrant microentrepreneurs 

are those encountered 

by all micro-entrepreneurs. 

While many entrepreneurs, and particularly 

immigrant entrepreneurs, start 

up their businesses without formal use 

of business support services, both 

advisors and immigrant entrepreneurs 

confirm the need for this support. 

However, based on interviews and 

focus groups,some of their views 

diverge on the nature of the support 

needed. Proper support should 

increase the chances of the business 

being a positive experience for the 

person as well as contributing an 

added value for the economy and 

society. 

Immigrant entrepreneurs face the 

following common problems faced by 

small starting businesses, although 

perhaps more severely 5 : 

• difficulties in accessing start-up 

finance and/or development finance on 

reasonable terms, 

• problems in dealing with a range 

of administrative and regulatory 

requirements 

• insufficient management skills and 

access to business support 

• limited knowledge of markets and 

marketing 

Specific issues are: 

• Access to information: immigrants 

are often unaware of existing support 

and may be hesitant towards institutional 

actors because of mistrust. They are 

often discouraged by the complexity of 

information given and the cautiousness 

of advisors who doubt their capacities 

to succeed. 

• Content of the support: formal 

business planning and administrative 

requirements are less prioritized by 

the entrepreneurs than by the 

business advisors. Finding clients 

however seems to be a particular area 

of interest for the entrepreneurs. 

• Quality of the support: focus groups 

with entrepreneurs highlighted the 

importance of an atmosphere of 

confidence and the need to trust the 

advisor. Entrepreneurs also expect 

complete, comprehensive information, 

based on experience, and concrete 

recommendations of actions to be 

taken. 

Cultural issues may affect the 

perception and prioritising of needs, as 

well as influence the relation between 

the advisor and entrepreneur, which is 

crucial for the whole process. Some of 

the important cultural issues identified 

by business advisors are: 

• Reluctance in dealing with institutions 

• Relation to rules 

• Gender relations 

• Relation to time and time management 

• The importance of spoken agreements 

in contrast to written and official 

documents 

Access to finance is the first priority in 

5. CEEDR (the Centre for Enterprise and Economic Research) « Youth Enterpreneurs, Women enterpreneurs, Ethnic Minority Enterpreneurs Co-entrepreneurs 

in the European Union and Central Eastern Europe », 2000

terms of entrepreneurs’ needs. Studies 

in several countries show that immigrant 

entrepreneurs have even less access to 

mainstream banking and public financial 

support schemes than natives. 

3. Measures for access to 

information, inclusive 

financial services and 

proper business support 

services needed to support 

immigrant entrepreneurship 

The general observation is that 

immigrants have less access to 

information for linguistic, cultural 

and social reasons: 

• they are not pro-active in their 

research, due to different cultural 

perceptions of business creation, as 

well as a mistrust in institutional 

actors, 

• they are less likely to go to traditional 

places of referral. 

Business support organisations 

therefore need to adopt pro-active 

strategies themselves, like: 

• creating information brochures and 

dedicated websites for immigrants 

themselves and organisations working 

with them, 

• being present in areas with high 

concentrations of immigrant population, 

• using community and local networks 

and word-of-mouth, 

• using immigrants’ own language. 

Microcredit aims to close a market gap 

by providing access to loans to people 

who are excluded from getting bank 

loans. The share of immigrants among 

micro-borrowers tends to be fairly 

high, with rapidly increasing numbers 

of loans and enquiries. 

• Good microlending practice as based 

on international microfinance 

experience and adapted to the 

European context enables to serve 

immigrants well, as shown by some of 

the older microlenders. Services 

should be efficient and relevant. For 

example, the smaller the loan, the 

simpler and faster the application 

process should be. 

• Microcredit is ideally a bridge to 

mainstream banking services, through 

its close partnerships with banks. 

Microcredit funds often come from 

banks, and may be linked to the clients’ 

access to a bank account and range of 

financial services. Microcredit and 

other business support practitioners 

can also play an active role in changing 

the banks’ perception of immigrant 

entrepreneurs to a positive direction. 

• Examples of inclusive financial 

schemes show the importance of interest 

and involvement of the organisation’s 

management in this issue. 

Business support services dealing with 

immigrants can be characterised by 

• Their general approach: some are 

target-specific, others prefer generic, 

but inclusive, services. Some provide a 

limited range of specific services with 

the aim of mainstreaming immigrants 

to network partner organisations, 

others provide a full range of services. 

• A special awareness on establishing 

good communication and building 

trust, by having staff with immigrant 

background, introducing cultural 

mediators, using immigrants’ native 

language and having a positive outlook. 

• Delivery methods, such as making 

advice simple and practical, building 

motivation for the making of a 

business plan and combining upfront 

and follow-up support according to the 

entrepreneur’s profile. 

• Efforts for bridging to the 

mainstream, whether preparation and 

practical assistance in dealing with 

administration, banks and authorities, 

or awareness-raising within these 

institutions. 

Remove obstacles in the regulatory 

and legal framework, and support measures 

that foster self-employment. 

Improving the environment for all 

microentrepreneurs would greatly 

benefit immigrant entrepreneurs. 

These measures, which are up to 

policymakers, include: 

• Promoting entrepreneurship as a viable 

option for a wide range of people, 

• Creating welfare bridges, 

• Fostering microfinance, and financial 

bridges, through an appropriate legal 

framework, 

• Funding and supporting microcredit 

providers. 

Recommended measures specifically 

related to immigrant entrepreneurs 

are: 

• Self-employment should be a right 

for legal residents. 

• The independent exercise of 

professional activities should be 

subject to the same rules for 

immigrants as for EU-nationals. 

• Statistical data on immigration and 

entrepreneurship should be improved. 

• Standard indicators for monitoring 

policies related to immigrant 

entrepreneurship need to be 

developed, made available and 

regularly updated. 

• Recognition of experience and 

qualifications should be facilitated. 

Implement pro-active strategies for 

awareness-raising and outreach 

Direct communication strategies: 

• Use information channels preferred 

by immigrants such as word-of-mouth 

and community networks, 

• Identify places of information where 

immigrants can be reached directly, 

• Use immigrants’ own language. 

Communicate with and through 

referral partners: 

• Raise awareness of immigrants’ 

potential as entrepreneurs. 

Improve access to finance 

Access to microfinance: 

• Strengthen the microcredit network, 

• Raise awareness about immigrants 

as a target group among microlenders, 

• Adapt lending methodology. 

Access to mainstream finance: 

• Facilitate the dialogue between credit 

institutions and migrant entrepreneurs, 

• Mainstream migrants into existing 

public funding measures for microentrepreneurs. 

Improve non-financial business support 

services 

Cultivate staff communication skills 

and intercultural competence: 

• Personal qualities (ability to listen, 

empathy, patience, flexibility, acceptance 

of diversity), 

• Language skills, 

• Intercultural competence. 

Consulting methods: 

• Practical and simple advice, 

• A flexible combination of support 

adapted to individual needs, 

• Adapted business planning. 

Microfinance practitioners are in a 

privileged position and should contribute 

to giving a positive image of immigrant 

entrepreneurs. This can be done 

by positive communication with their 

wide variety of economic partners 

(banks, chambers of trade, business 

support agencies…), as well as within 

social and political networks (social 

services, training organisations...). 

15

POLICY MEASURES NEEDED TO PROMOTE 

MICROFINANCE IN EUROPE 1 

By Jan Evers, Stefanie Lahn - EVERS & JUNG, Research and Consulting in Financial Services 

16 

Microfinance for new or 

existing small companies has 

received growing attention 

over the past years. 

Its role in integrating poor people and 

people at risk of poverty into the 

economy and society, particularly in 

developing countries, is seen as one of 

the development success stories of the 

past decade. But what is its role in 

Western Europe 

Thanks to European welfare systems, 

benefits programmes are available and 

appropriately provided to the needy. 

However, over the last years, high 

unemployment rates have stretched 

the public purse to its limits. 

Nowadays within the group of welfare 

recipients there are often many welltrained 

people of prime working age 

who are affected by long-term 

unemployment and have difficulties in 

becoming re-integrated into the 

working population. They constitute a 

new group within Europe, which is or is 

becoming socially excluded and at risk 

of poverty. Self-employment and 

microentrepreneurship have been 

identified as ways of enabling those at 

risk of poverty and social exclusion to 

participate in the economic and 

political processes of society through 

self-employment. 

The Moving Island Effect 

Welfare recipients are often confronted 

with what we term the moving island 

effect. Once they decide to become 

active and want to leave their island of 

welfare support, they are confronted 

with more and more upcoming 

hurdles. For example, in earning the 

first EURO they become obliged to 

contribute to national health and 

pension schemes. 

In particular, those wishing to create 

their own employment through 

entrepreneurship and who have lived 

in social and economic exclusion, 

sometimes for many years, find it 

difficult to access finance. Thus, they 

are facing problems which are hard to 

overcome with the traditional means 

and options at their disposal. 

Microfinance, in this respect, aims to 

diminish these hurdles by targeting 

people who are regarded as nonbankable 

by the traditional financing 

sector. 

require the attention of governments 

and policy makers. In this respect, 

awareness has to be raised that 

microfinance can only perform its role 

properly, if the environment is right. 

This problem was first addressed in 

the study “Policy measures to promote 

the use of micro-credit for social inclusion,” 

which was a part of the 

Commission’s Action Programme on 

social exclusion. FACET, EVERS & 

JUNG and nef (the New Economic 

Foundation), with assistance from the 

European Microfinance Network and 

the Microfinance Center, conducted 

this study in 2004 for the European 

Commission DG Employment, Social 

Affairs and Equal Opportunities unit 

E/2. 2 

Building Bridges 

The study focused on the 

identification and analysis of 

policy measures that promote 

the use of microfinance and that make 

the environment more “selfemployment 

friendly.” 

Ideally, these measures build bridges 

between the social welfare, employment, 

enterprise and financial systems. 

Yet, access to financial services is not 

enough. There are additional barriers 

relating to self-employment, which 

Using a transnational approach, policy 

measures of seven Member States 

(Czech Republic, France, Germany, 

1. This article was published in the 2006 summer issue of the journal « Finance and Common Goods” from the “Observatoire de la finance”. It is 

published in “Microfinance Europe” with the authorization of the “Observatoire de la finance”. 

2. The study was completed in 2005 and is available on EMN website www.european-microfinance.org or at info@eversjung.de. However, a follow up of 

the study is prepared by EMN and MFC steered by a working group part of the project “From exclusion to inclusion through microfinance”. We are looking 

for a sustainable network of institutions completing regularly the country reports. If you want to get involved, get in touch with us.

Poland, Spain, Sweden, United Kingdom) 

and one accession country (Romania) 

were analysed and evaluated with 

regard to their effectiveness. The 

policy measures assessed were: 

Entrepreneurial Context, Microenterprise 

Policy Environment, Welfare Bridges, 

Legal Framework, Financial Bridges 

and Microfinance Funding and 

Support. The findings of the survey 

were divided into these six key aspects 

and have been illustrated in a radar 

diagram for each country. 

The figure shows that there is no 

leading country amongst the eight. 

Nevertheless, there are a number of 

effective and promising policy measures 

that, with the help of microfinance, 

support social inclusion through selfemployment. 

This is the point from which political 

decision makers should now start to 

improve policy measures needed to 

promote microfinance in Europe. The 

advantage is, not everything has to be 

developed from scratch. Rather, there 

exists the possibility of learning from 

best practices and experiences of 

other European countries. Particularly 

with regard to high scoring areas, 

countries can borrow ideas from one 

another. Bringing all this together 

could be a great resource for improving 

the environment for self-employment 

and further enable European countries 

to develop their own European best 

practice model. 

In the following, policy measures and 

best practice examples are presented 

briefly for each key aspect surveyed. 

However, the full study itself gives 

much more detail. Here we try to 

explain the principle. 

Entrepreneurial context 

How entrepreneurial is the society 

and how much does it support its 

entrepreneurs 

Policy measures, which promote 

the entrepreneurial context are: 

- Awareness programmes promoting 

self-employment as a viable income 

generating activity 

- Reduction of legal, fiscal and 

administrative barriers related to 

self-employment 

Asociety supporting and actively 

encouraging entrepreneurship 

for all of its members is 

referred to as entrepreneurial. 

In an entrepreneurial society, selfemployment 

is a respectable alternative 

to wage employment. Further, a 

business failure does not automatically 

lead to an end of the entrepreneurial 

career. Rather it is considered a 

valuable experience for future activities. 

For instance, entrepreneurship training 

is an integral part of the school 

curriculum in Poland, the Czech 

Republic and the UK. This training 

promotes, at a young age, the idea that 

self-employment is a viable and 

valuable option for one’s career. 

Additionally, projects with “fictitious 

companies” promote practical 

entrepreneurship skills amongst 

young people. 

With respect to the fiscal environment, 

in France, regional authorities established 

a pilot program with lower VAT (value 

added tax) for private construction, 

home, and gardening services in order 

to encourage entrepreneurs in these 

sectors to make the transition from the 

informal to the formal sector. 

Policy environment for microenterprises 

Are there policy measures that 

promote self-employment in 

general, and for the socially 

excluded in particular 

Policy measures, which improve the 

policy environment for microenterprises 

are: 

- Provision of business advice 

through flexible internet and 

telephone support desks 

- Loan funds run by specialised NGOs/ 

banks focusing on microenterprises 

- Governments highlighting the 

importance of microenterprises 

In an ideal policy environment, a 

mixture of public and private 

initiatives promotes the creation 

and development of self-employment 

and micro-enterprises. 

Business support services especially 

developed for the needs of microenterprises 

are available, as are 

financial services which meet their 

demand. In many respects it is more 

useful for the latter to focus on 

motivation and capacity to repay than 

on more traditional means such as 

loan size and bank history. 

One example, which illustrates how 

policy measures supporting microenterprises 

can be improved, is the 

regional initiative FIRMENHILFE in 

Hamburg, Germany. It is a telephone 

based support desk, which provides 

low-level, independent and confidential 

advice in order to (re) activate the selfhelp 

ability of the micro-enterprise 

owner and to enable him or her to 

overcome or prevent financial 

problems. 

Another but different example is the 

French “Plan Dutreil,” which aims to 

reduce administrative procedures and 

requirements for micro-enterprises. 

As part of the “Plan Dutreuil” (2003) 

the support to micro-enterprises is 

streamlined. Micro-enterprises in 

certain sectors pay lower or are even 

exempted from VAT. 

Welfare bridge 

How developed is the system for 

taking people from unemployment 

to employment (including selfemployment) 

Policy measures, which help welfare 

recipients to move smoothly 

into self-employment are: 

- Income bridges 

- Collaboration between social welfare 

and employment/enterprise system 

- Active labour market policy 

Active labour market policies 

increasingly use incentives to 

encourage people into work 

17

18 

and penalise the unwilling. 

Preferably, these incentives should be 

part of a system developed to take 

welfare recipients smoothly from unemployment 

to employment, including selfemployment. 

These so-called welfare 

bridges encourage the unemployed, 

without forcing them to become selfemployed. 

Welfare bridges create a 

‘pull’ rather than a ‘push’ environment. 

This is achieved, for instance, by giving 

potential entrepreneurs time to test 

their new income generating activity 

before needing to declare formally 

their self-employment status. 

In this respect, the Irish system is 

regarded as the most advanced in 

Europe. It provides income support on 

a decreasing scale for up to four years. 

In case of a business failure, the 

person can return to the welfare 

system without facing any penalties or 

barriers. Therefore, this system allows 

people to test the income-earning 

capacity of their enterprise extensively. 

A similar approach has been adopted 

by the German Ich AG. Here income 

support decreases in three steps over 

three years. Still, the system has to be 

improved further since it lacks any 

kind of filter to prevent free rider 

effects and does not enable the 

combination with non-financial 

support. Thus, it is a promising 

approach for building bridges through 

transition periods. 

Legal framework for microfinance 

Is there a supportive legal framework 

for microfinance services 

Policy measures, which create 

favourable legal frameworks, are: 

- Specific legislation 

- Reduced capital requirements 

- Favourable fiscal status 

As regulators today consider the 

protection of savings as a basic 

right, ideally the same should 

be true for access to finance. 

Further, in addition to mainstream 

commercial banks, establishing alternative 

financial institutions, which concentrate 

on microfinance and access to financial 

services for low-income groups and 

excluded people, would be a great 

success. Introducing specific 

regulations for microfinance providers 

will foster these developments. 

For example, Polish and UK banking 

regulation is very limited. With respect 

to microfinance there exist no 

obstacles. However, usury regulations 

are lacking in both countries, which is 

problematic with regard to consumer 

protection. Yet, this gap could be closed 

with a usury law similar to the 

existing German one. Here, interest 

rates are limited to double the average 

interest rate in the sector (real estate, 

loan, etc.) or may not exceed it by more 

than 12 percent points. 

French banking regulation took a different 

path. It opened a special window 

just for microlending. Microlenders are 

allowed to provide the first most risky 

and most expensive credit to an 

entrepreneur. Bank services are not 

replaced by this credit provision, rather 

the contrary holds true: potential 

clients are prepared for bank finance. 

Financial bridges 

Are mainstream financial services 

available for excluded groups and 

self-employed 

Policy measures, which enhance 

access to mainstream financial 

institutions, are: 

- Risk sharing loan instruments 

(financial bridges) 

- tax incentives for investors (banks) 

- outsourcing of activities related to 

loan transactions 

Ideally a wide range of financial 

institutions should exist. 

In this ideal world, each of them is very 

successful in serving its target group 

with products specifically designed to 

meet its needs. In addition, financial 

institutions are interested in innovating 

and developing products and delivery 

systems that contribute to social 

inclusion, since this is supported by 

public authorities and the regulatory 

environment. 

In Finland, the public finance 

institution Finnvera finances microclients. 

After successful repayment 

and growth these clients are 

transferred to banks and become 

included in mainstream banking. 

Spanish saving banks developed and 

established units within their 

mainstream banks, which specialise in 

providing microfinance services. Caixa 

Catalunya for example possesses a 

special not-for-profit unit. Specialised 

loan officers are based within the 

general branches of the bank hence 

not only providing access to finance, 

but also providing the opportunity for a 

smooth transition from specialised 

microlending services to the mainstream. 

Similarly, the European Bank for 

Reconstruction and Development 

(EBRD) has provided support to the 

Czech Raiffeisen Bank in order to 

develop a product for micro-businesses. 

Funding and support for microcredit 

providers 

Is microcredit supported through 

direct and sustained funding 

Policy measures for mixed and long 

term funding of microfinance are: 

- Tax benefits for investors 

- Promotion of risk capital instruments 

for microenterprises 

Preferably, microfinance providers 

cover their costs through their 

financial operations. 

This, however seems hardly achievable 

in Europe. On the one hand, government 

legislated interest rate caps at low 

levels hamper covering risk and loan 

transaction costs. On the other, the 

often-expressed need for further (nonrecoverable) 

services such as business 

support services for their clients 

makes it difficult for providers to 

become financially sustainable. As 

such, the success of microfinance 

providers depends and will continue to 

depend directly on a sustained funding 

concept. In this respect it is crucial that 

funding is secured on a long-term 

basis and if possible is a mix of 

different instruments and sources. To 

solve this problem, public sources and 

(private) grants could complement the 

self-generated income of microlenders. 

After all, the aim is to build bridges 

between mainstream institutions and 

socially excluded people. Performance 

ratings could help to ensure the costefficient 

use of funds. 

For example, the Polish microlender 

Fundusz Mikro currently serves about 

8,000 clients. With interest rates 

around 20 % and default rates below 

5% it became profitable after 3 years 

and sustainable after 4 years of operation. 

At its start, a donor grant of $ 20 million 

enabled Fundusz Mikro to accumulate 

capital and receive commercial loans. 

Although the donor set clear goals, 

Fundusz Mikro was free to make its 

own decisions regarding implementation. 

In Northern Ireland (UK) the microlender 

Aspire uses its margin of 11 percent 

(2004/05: interest of 18 % minus average 

loan loss rate of 7 %) to partly cover its 

transaction costs. Nevertheless it 

competes successfully with schemes

that provide free subsidies in the area. 

The French microlender Adie and the 

international bank BNP Paribas signed 

a mutual agreement and are therefore 

an attention-grabbing model for a 

private partnership in this sector. BNP 

Paribas re-finances the portfolio of 

Adie, takes over a share of risk, and 

pays the transaction costs in part in the 

form of a grant of ten percent of the 

amount lent. This kind of financing 

package promotes efficient and 

effective lending schemes. 

An Instrument for Employment and 

Laboratory for Future Banking 

Techniques 

For years now the focus of EU 

policies has been to make its 

economy more dynamic and inclusive. 

In order to continue this process 

successfully the EU has to address the 

joint issues of unemployment and 

inactivity. In this respect, microfinance 

can be a valid instrument, especially 

for bringing unemployed back into the 

employment and enterprise system by 

encouraging self-employment and 

micro-enterprise development. 

Yet, microfinance should not be seen 

as a tool only for the poor and socially 

excluded. Rather, the opposite holds 

true. Microfinance is a valuable means 

of financing micro-enterprises and the 

self-employed by developing new 

criteria for creditworthiness evaluations 

and new forms of relationship management 

systems to widen the scope o mainstream 

banking. Microfinance is in fact a 

laboratory for future banking techniques. 

Still, the question remains, why is 

microfinance so often connected to the 

target group of poor and socially 

excluded Maybe it is because they are 

the perfect barometer of success. On 

the one hand, they provide the 

possibility of measuring the success of 

a microfinance provider. But, on a 

wider scale they help to determinate 

how “self-employment friendly” an 

environment really is. If a society is 

able to make it possible for its poorest 

members and for the ones (partly) 

excluded from social life to become reactivated 

into economic, political and 

social processes, then anyone who is 

willing should be able to start his or 

her own business. 

19

MICROCREDITOS – LA REBELION 

DE LOS BONSAIS 

MICROCREDITOS – THE REBELLION OF BONSAIS 

20 

Angel Font Vidal 

The paradox is that the whole business 

of microcredit, that has been built 

around, for and with money, has 

nothing to do with money intimately 

and substantially. Its higher objective 

is that of helping people to develop 

their own potential, it is not about 

monetary capital but about human 

capital. 

Microcredit is merely an instrument 

that allows people to unleash their own 

dreams and it also helps the poorer 

and most disadvantaged to infuse their 

life with dignity, respect and meaning. 

MUHAMMAD YUNUS, Nobel Peace 

Prize 2006. 

This book illustrates from real 

experiences the great contribution of 

microcredits to poverty eradication. It 

makes it possible to understand the 

reasons why Muhammad Yunus and 

his Grameen Bank were awarded the 

Nobel Peace Prize for 2006, as well as 

to be aware of the transformation 

which both cooperation and welfare 

policies in Europe could undergo in the 

near future if microfinance principles 

were to be implemented on a global 

scale. 

Angel Font Vidal (1965), BA in Chemistry 

and MBA, started his professional life 

in environmental engineering, although 

he soon joined Intermón-Oxfam where 

he spent eight years performing coordination 

functions as Deputy Director 

General. Since 2000 he has been the 

Director of Fundació Un Sol Món of 

Caixa Catalunya, from where he promotes 

projects for labour, social and housing 

inclusion for underprivileged groups as 

well as the development of microfinance 

in Spain, Latin America and Africa. 

WWW.ICARIAEDITORIAL.COM 

AUTHOR Angel Font 

SUBJECT Economics 

PUBLISHER ICARIA EDITORIAL 

COLLECTION Más Madera, 57 

ISBN 84-7426-899-0 

PP 104 

PRICE 8 € 

European Microfinance Network 

4, boulevard Poissonnière - 75009 Paris 

tel: +33 (0)1 56 03 59 68 

fax: +33 (0)1 56 03 59 77 

web: www.european-microfinance.org 

e-mail: emn@european-microfinance.org 

This project has received funding from the European Commission within the frame 

of the Community Action Programme to Combat Social Exclusion 2002-2006

MAGAZINE N°1 - Evers und Jung

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