ADIE is one of the leading European microfinance organisations and in 2007 had 18,000 loans on its books. See its website in French at http://www.adie.org/
The piece below was originally prepared within the Equal Credit project and was presented in a seminar to OECD by Holger Kuhle.
The French organisation ADIE (Association Pour le Droit a l´Initiative Economique), which was established in the early 1990s, operates almost 100 local agencies and around 300 contact offices in all regions of France, of which Hainaut in northern France is one. ADIE is probably the biggest and most experienced supplier of micro-loans in Europe.
ADIE offers a host of different products for micro entrepreneurs. First of all, there are micro-loans of up to EUR 5,000 which are accompanied by access to mentors. The aim is to finance the establishment, or development, of a micro business, usually in the retail and/or services sector. The interest rate is currently 7% with monthly repayments, plus a ‘solidarity contribution’ of 2% to 3% which is channelled into a type of mutual guarantee fund. Guarantees, which are only used, in the very rare case when debtors deliberately refuse to effect repayment, are also requested from friends, neighbours, etc.
If no equity at all is available, ADIE has two alternative offers at hand: start-up subsidies that are financed by public bodies in the region, and ‘quasi-equity’ loans that rank below commercial loans and which are fed from interest-free, so-called Predeneur funds which ADIE has set up with the support of private banks. Furthermore, special gradual loans, equipment leasing and monitoring services are also on offer. ADIE also organises founder networks in order to facilitate mutual support, as well as a virtual ‘trade union’ – financial co-operative organisations of individuals with a common affiliation, such as employment, union membership, or place of residence. Credit unions accept deposits of members, pay interest (dividends) on them out of earnings, and primarily provide consumer instalment credit to members.
Partnership model with banks
By 2001 ADIE had established work-sharing partnerships with over 50 French banks: the micro-finance organisation looks after the loan, and the banks are responsible for handling repayment. Since 1994, around 10,000 ‘solidarity loans’, with a total volume of more than EUR 30 million, have been awarded, as well as quasi-equity loans where the banks have contributed up to EUR 1.9 million (which corresponds to 77% of the overall sum). The repayment rate is currently 93% and is expected to increase even further. Compared to the cost borne by the French government for one unemployed individual (namely around EUR 18,000), the costs of subsidising a founder, between EUR 1,800 to EUR 3,000, are ridiculously low. This investment can also be termed sustainable, because the average survival rate amongst the companies established using this money, 75% after two years and 52% after five years, is in line with the French average. This is hence a good business – both for the individual and for the community.
Team and use of volunteers
One of the key obstacles facing economic initiatives, in particular those focusing upon deprived individuals, are the highly complicated and very complex requirements which apply in west European societies when establishing a business – even if this business merely involves selling pizzas. ADIE now has 240 permanent and 700 voluntary workers nationwide who, with mentoring and business advice, can assist in meeting the requirements. ADIE is also active on a political level in order to promote founder-friendlier legislation. This involves the high social collateral costs which often ‘gobble up’ the entire annual income of a micro-entrepreneur: ADIE was able to convince the French government to include in its agenda the demand to suspend or reduce these payments for low-threshold businesses during the first two business years.
Campaigning on legal regulations for micro entrepreneurs
Furthermore, ADIE is campaigning for improvements in the legal framework conditions for micro-lending in France. Supported by French banks, banking legislation has been amended so that organisations such as ADIE are now permitted to lend the money borrowed from banks to the unemployed or to social-welfare recipients. This means that it is finally possible to set up a central ‘back-office’ which receives favourable lending lines from partner banks, thus enabling them to work in a cost-saving manner. All the same, it will hardly be possible to keep operating costs so low that they remain below the usury interest rate of around 10% currently valid up to now for loans. ADIE is also campaigning here for a more flexible approach.
Experimentation in Hainaut under Equal Credit
In December 2001, ADIE Hainaut signed an agreement with the Hainaut Savings Bank (Caisse d’Epargne Hainaut) designed to improve access to banking services for micro enterprises. From 2002 the agreement has guaranteed a stable interest rate of 7.1% for a maximum term of two years, the opportunity of a four-month delay in repayment, and collateral deposit of 50% from an outside guarantor. The beneficiaries have access to a fee-free business account with the Caisse d’Epargne for a two year period and business advice services.
In the region of Hainault, ADIE implemented a new type of field agents called ‘district loan agents’. These new loan officers are based in well-defined neighbourhoods and are familiar with the local context. This concept is based on the idea that the target group of this scheme consists of persons not accustomed to leaving their neighbourhoods and interacting with so-called traditional structures. The loan officer’s task will be to fulfil the financing needs and to guide the client towards registering their activity through the services of an information and registration office. ADIE Hainaut is continuously seeking to identify enough volunteers to guarantee that all the enterprise creators financed by the project can benefit from follow-up services to support their new enterprises. In this regard, ADIE has been publishing articles in the press and focusing on volunteer involvement within the scope of their public relations work.
In addition to ADIE’s traditional activities, new instruments have been developed to enable ADIE to assist potential enterprise creators in as many ways as possible. There is, for instance, the equipment pool, comprising market stalls, vehicles and computers, which has grown as ADIE itself has evolved. This helps those who create enterprises by giving them the means of testing their activity while keeping their debt levels as low as possible. Reasons for the success of the approach