Compendium 2.3.1 Outreach & research
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2.3.1 Outreach & research on special groups
There is a well-documented gap in the supply of conventional finance from banks to support small-scale income generating activities. The high fixed costs of managing loans of under €25,000, for example, makes them uninteresting to most financial institutions. These difficulties are compounded for people who lack collateral and experience, and for those who face discrimination in the labour market. In this context, there are certain groups, such as women, single parents, young people, ethnic minorities, and people with disabilities that face insurmountable financial barriers which prevent them from escaping from a dependence on benefits and/or the submerged economy. For many people, the perceived barriers are so high that they do not even entertain the thought that starting their own business might be an option.
Indeed, moving from the informal economy to formal self-employment often represents a substantial risk to the individual and in many cases people stand to gain little by doing so. In order to offer special groups targeted advice and finance when needed, very precise knowledge on their individual circumstances is necessary. Such knowledge requires an investment in time and resources which is generally not financially interesting to banks. Moreover, gaining the necessary trust to access such knowledge is a challenge, as those working in the submerged economy are often the most reluctant to discuss their personal circumstances.
A number of EQUAL projects have provided insights into the social reality of certain groups that employment policy usually ignores. These insights allow for a better understanding of the barriers to financial inclusion specific groups face, which can serve as a basis for developing mechanisms and products better suited to their needs. Furthermore, ensuring that relevant financial products are visible to those who could take advantage of them is also a significant challenge dealt with by several EQUAL projects.
How EQUAL has approached the issue – examples
Given the degree of financial and social insecurity faced by many people, it can be extremely risky to take any irrevocable steps which could put at risk one or more sources of income (social security or informal work). Therefore, a precise understanding of the situation of each target group is necessary, as the wrong kind of financial product can easily result in further impoverishment. Having a presence within the communities of these groups has proven fundamental for building trust and initiating the process of financial inclusion.
Ethnic minorities and migrants
EQUAL partner ADIE (Association pour le droit à l´initiative économique), the largest dedicated microcredit operator in western Europe, has carried out substantial outreach and research in the deprived Parisian suburbs with a target group of whom 86% come from sub-Saharan Africa, three-quarters are women and about a third are illiterate.
The covert nature of the issue means that until now there has been very little information about the people who work in the informal economy, but the EQUAL project Supporting Income Generating Activities among Ethnic Groups and Communities set out to fill the gap. It was led by ADIE, with the French national employment agency (Agence Nationale pour l’Emploi – ANPE) and three other organisations as partners.
The ANPE representative Alain Mundinger says: “The project has allowed us to gain a real insight into the lives of marginalised groups, and to understand why they choose the informal economy. We plan to spread this information through our agency and study how to further adapt various laws.”
ADIE used its consolidated branch structure, its links within the communities and word-of-mouth contacts fostered by lending groups to deliver 242 loans of between €1,000 and €5,000, mainly to African women, in 2003.
This unprecedented in-depth contact with groups normally considered to be far from the labour market, let alone entrepreneurship, allowed ADIE to distinguish three types of informal activity:
- The first type of client is typified by women who are involved in traditional activities in a sporadic way, making the most of opportunities when they arise at the weekend or in the evening. In these cases the informal activities bring in less than 10% of their total income;
- A second category of people work informally for around ten hours a week to provide a small but regular complement to their other sources of income;
- Finally, for some people, informal activity has become or is close to becoming the main activity, taking up more than 80% of the time and bringing in a third of their income.
While all three groups increased their income as a result of a microloan from ADIE, only the third group, along with a few of the second group, had a strong motive for leaving the informal economy.
Unemployed people in rural areas
All the EQUAL partnerships stress the importance of good communication campaigns. Nevertheless, many argue that it can take at least a year to build up the relationship of trust required for lending to take off in hard-to-reach communities.
Sierras Norte de Cordoba (SNdC) developed a series of innovatory tools for making both finance and advice more accessible to self-employed people. Its methods have had an impact on regional employment legislation and deserve to be shared among other European projects, especially those working in rural areas.
Importantly, SNdC mobilised the grass-roots network of community organisations and front-line community workers to become the “funnel” for engaging with potential entrepreneurs at the earliest stage. It started by creating a comprehensive database of all the local organisations and agencies that had any contact with the unemployed, followed by a campaign of 213 personal meetings with the key actors. The aim was to inform them of what the EQUAL project could do and establish a permanent channel for referring on unemployed people. Altogether the project mobilised a major network of 275 local actors in this way.
These local contacts were then encouraged to organise a small meeting of between 10 and 15 unemployed people with whom they had regular contact and trust. One of the EQUAL staff animated these meetings using a specially designed presentation which looked at the main barriers and risks of setting up a business from the point of view of an unemployed person and then provided a range of possible solutions.
Sierras Norte de Córdoba designed and tested a new financial product in the form of start-up grants paid on a monthly basis to ease the transition into entrepreneurship. Potential entrepreneurs were channelled into an integrated support itinerary with financial packages specially designed according to their situation in order to help them turn their ideas into reality.
Altogether, EQUAL awarded grants to 72 projects, involving 96 previously unemployed people. At the end of the project 67 functioning firms had been created in under three years.
In terms of reaching rural communities, The Red Accent EQUAL project also highlighted the potential of the internet for potential entrepreneurs with poor access to transport who found it difficult to get to the offices of the local development agencies. Red Accent developed a system of on-line business advice covering financial products available for start-ups. A network of business advisers was put in place to answer all questions put to them within a maximum of 48 hours. During the first eight months, 290 people received on-line advice, of which 47% were women.
Deprived urban areas
Sant Cosme Innova has worked in a particularly deprived neighbourhood of Barcelona, known for its high social exclusion and unemployment rates, as well as high academic failure and crime rates and home to significant gypsy and other ethnic minority communities. The project has built up an improved understanding of the overall financial situation of the most disadvantaged groups in Sant Cosme. Indeed, a survey carried out by this EQUAL partnership revealed that 80% of those approached were interested in self-employment – but none could provide security for a loan and all required non-financial support for setting up a business. The Sant Cosme Innova project was particularly successful in developing links between the public and private sectors as well as bringing together organisations with financial, business and social expertise and making them accessible for groups usually excluded from accessing finance.
For example, within this project, the Caixa Catalunya provided part of the funds, Fundació Un Sol Món provides the financial expertise and a specialist organisation called FIAS offers expertise in mentoring. Through close discussions with social services and the personalised advice programme carried out by other project partners, Un Sol Món has been able to build up a better understanding of the overall financial situation of their clients with a view to proposing financial services closely matched to their situation and needs.
EQUAL projects focusing on the challenges of women reveal a number of specific barriers to finance and entrepreneurial activity.
The EQUAL partnership Accelerating Women’s Enterprise (AWE) brought together ten organisations working at the cutting edge of women's enterprise development spanning the English regions. The lead partner was Women into the Network (WIN).
Research by AWE in the UK showed that women prefer to set up business in a tentative manner, requesting significantly smaller loans than their male counterparts (as low as €650 in the case of the Power Loan Fund). Other significant barriers affecting women are the exclusion of part-time businesses and certain traditional sectors, low benefit disregards and traditional risk assessment criteria.
WIN also carried out research to assess how banking professionals perceived their male and female business clients and vice versa. As a result of the findings, as well as influencing policy, successful training interventions have been developed such as ‘Developing effective working relations with your SME clients’ for bankers and ‘How to manage your bank manager’ for women owner managers.
Research and lobbying at regional, national and European level
The EQUAL partnership Cyfenter, in Wales, has been at the forefront of research into access to finance for special groups and their conclusions build on the information gained in the outreach activities mentioned above.
Their research was one of the most significant surveys of small businesses in Wales, based on over 2,000 research participants, focusing particularly on those groups least represented in enterprise. Research included questionnaires, in-depth interviews, regional focus groups and a seminar with policy makers, research participants and business support providers to share the findings of the research and agree on recommendations to take forward. Influence at Welsh Assembly level was extensive while work at European level has taken on board a number of Cyfenter’s policy recommendations.
The knowledge from ADIE’s outreach and research has also provided an invaluable foundation for lobbying for legislative changes to ease the transition from the informal to the formal economy. “The government has already adopted certain of ADIE’s proposals in its Law for Social Cohesion,” said Gérard Sarracanie of the government department DIES. These include exonerating people who declare themselves as micro-enterprises, under certain conditions, from up to three years’ social security contributions, as well as providing them with a more progressive tax regime.
In addition to adapting financial products to the different groups, the local research and outreach described above started to uncover more widespread barriers in the institutional and framework conditions. Some of the groups below have carried out larger-scale research projects at regional, national and trans-national level and have used this information to press for legal and administrative changes that would make financial access easier for the target group. The study carried out by the CEFT transnational partnership on benchmarking microlending schemes points to the huge differences in institutional contexts, target groups and the schemes included under micro-credit in just four member states (the UK, Germany, the Netherlands and the Czech Republic). In this context, clarity about the central mission of each microcredit operation and good research into the real (rather than assumed) needs of target groups is a prerequisite for success. CEFT produced some of the first benchmarks on the different institutional situations.
Following on from this, in 2005 the ESF commissioned a study on “policy measures to promote the use of microcredit”. This research examined the existing bridges and barriers between the social welfare system, the employment/enterprise system and the financial system, and explored which bridges could be built and barriers demolished. The study identified six key factors determining the success of measures to promote microcredit: entrepreneurial context, policy measures, welfare bridge, legal framework, financial bridge and funding/support. It highlights, in particular, the need for an integrated view of the different systems if self-employment and micro-credit are to become effective policy tools for social inclusion. Furthermore, this study provided the foundation for the tool created by COPIE, the ESF-funded Community of Practice on Inclusive Entrepreneurship.
Recommendations for mainstreaming policies
Financial support must be evidence-based, which means extending the above-mentioned approaches to people’s real needs. Given the precarious situation that many groups are in, much of this research will involve personal contact and outreach by trusted groups. The advice given fulfils a series of functions:
- Understanding and controlling risk
- Promoting the financial products to the targeted hard-to-reach groups
- Supporting the build-up of financial capacity
- Continuous monitoring of the evolution of their needs
A new approach is needed to supplying small amounts of money to people whose access to traditional funding is limited. This approach must be simpler for both the provider and the user and should include:
- Improving links between business support providers and individual start-up clients;
- Developing hands-on financial mediation as a core function of services to people starting businesses;
- Building links between finance institutions and under-represented groups in ways that benefit both;
- Constantly ensuring people are aware of any financial support schemes that could be relevant to them, via a unified source of information (at regional or national level) about schemes for financial support.
Tax and legislative conditions should be adapted to facilitate start-ups. Some examples are:
- Extending unemployment benefits during the early stages of starting a business;
- Exonerating people who declare themselves as micro-enterprises, under certain conditions, from certain social security contributions;
- Offering a more progressive tax regime to those starting up micro-enterprises.
Links to EQUAL case studies
- ADIE (F): http://ec.europa.eu/employment_social/equal/data/document/etg2-suc-adie_en.pdf http://www.adie.org/
- Red Accent (E): http://ec.europa.eu/employment_social/equal/practical-examples/entrep-red-accent_en.cfm
- Cyfenter – Wales (UK): http://ec.europa.eu/employment_social/equal/practical-examples/entrep-cyfenter_en.cfm
- NEMESIS EQUAL partnership (Sierras Norte de Cordoba) (E): https://webgate.ec.europa.eu/equal/jsp/dpComplete.jsp?cip=ES&national=ES20040470
- Sant Cosme Innova (E) http://ec.europa.eu/employment_social/equal/practical-examples/entrep-financial-ladders_en.cfm https://webgate.ec.europa.eu/equal/jsp/dpComplete.jsp?cip=ES&national=ES467
- Un Sól Món Foundation (E): http://obrasocial.caixacatalunya.com/CDA/ObraSocial/Home/0,3423,1x3y,00.html (Warning: site traps users)
- UK Strategic Framework For Women's Enterprise: http://ec.europa.eu/employment_social/equal/practical-examples/entrep-strategic-framework_en.cfm
- Accelerating Women’s Enterprise (AWE): http://ec.europa.eu/employment_social/equal/data/document/etg2-suc6-awe.pdf
- Basel II accord: http://www.bis.org/publ/bcbs107.htm
- FEBEA, European Federation of Ethical and Alternative Banks: http://www.febea.org/
- Social Return on Investment in Europe: http://www.sroi-europe.org/
- Micro-lending: a case for regulation - Prof. Dr. Udo Reifner: http://www.european-microfinance.org/data/File/Micro-lending_-_A_case_for_Regulation.pdf
- European Commission: Policy measures to promote the use of microcredit: http://ec.europa.eu/employment_social/spsi/docs/social_inclusion/microcredit_part1-3_en.pdf
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