European Parliament hears expert views on EPMF
Toby Johnson, 7 Dec 10
On 2nd December 2010 the European Parliament’s Employment and Social Affairs committee held a 90-minute hearing on the recently-launched European Progress Microfinance Facility (EPMF). Funding for guarantees and loans is only part of the package, the committee heard. If microfinance is to reach those who need it most – Hungary’s Kiútprogram shows what can be done in the case of Roma entrepreneurs – the European Social Fund (ESF) must step in to cover running costs and business support services.
Kinga Göncz, the Hungarian MEP who is the committee’s rapporteur on the topic kicked off proceedings by raising a number of questions, which she hoped the witnesses would answer:
- Had the estimated total of €500m taking into account contributions from commercial banks and elsewhere been reduced?
- What had happened to the proposal for interest rate subsidies?
- The two guarantee agreements signed so far had come from countries that already have a strong tradition in microfinance. What was being done to improve outreach to the rest of the EU?
- The training and mentoring support to be provided by the ESF was a most important element in enabling the facility to reach the excluded people who most need assistance. Yet it had not yet been implemented.
- The report shows that better information needs to be provided to potential applicants. How will this be improved?
Giving the first of the 10-minute speeches, Birthe Brühl-Léon of the European Investment Fund (EIF), which is the managing company for the EPMF funding vehicle (a sort of unit trust) outlined the progress that has so far been achieved. She identified the aim of the EPMF as eventually to reintegrate clients into the regular banking sector, and recognised that guarantees and loan capital are only part of the necessary mix of actions – regulatory changes and standards, capacity building, cost covering of the intermediaries and interest rate subsidies are also necessary. She announced that two guarantee deals were about to be signed, one serving deprived urban areas in Belgium, and the other disadvantaged people in the Netherlands. As regards the loan and equity capital, 14 applications are at an advanced stage and due to be signed in the first quarter of 2011. They are well balanced geographically, with half being in Western Europe and half in Eastern Europe.
Capacity building is needed
Grzegorz Galusek, general secretary of the Microfinance Centre (MFC) backed up the position that capacity building is needed. Recalling the MFC’s early days after its foundation in 1997, he pointed put that the Eastern European MFIs were established with the aid of grants; if they met their targets they were strengthened with loans, and eventually are able to tap commercial financing. There are now some 60 MFIs in Eastern Europe, which are able to cover their operating costs.
By contrast MFIs in Western Europe are very disparate, and a lot of work has to be done to segment them. The new MFIs are complementary to existing institutions such as social banks and credit unions. There is a missing link in developing the infrastructure to enable the EPMF funds to be absorbed. Technical assistance is needed, as well as the political will to work with a disadvantaged public.
Emmanuel de Lutzel, Head of Microfinance at Fortis-BNP Paribas, referred to his bank’s 17-year partnership with ADIE in France, and pleaded for specific regulation for microfinance. The ADIE-BNP Paribas partnership has now spun off MicroStart to serve Belgium, as Patrick Sapy explained. This new MFI starts life with €1.2 million in capital, and will concentrate its activities in two disadvantaged neighbourhoods of Brussels. As one of the two initial beneficiaries of the EPMF, it will receive a 75% guarantee from the EIF. Aiming to serve 800 clients per year, MicroStart aims to be self-financing by 2017. Mr Sapy made the following proposals:
- a simplified package of support for MFIs, comprising funds, guarantee and a grant for each start-up served
- a European status for the self-employed
- European recognition for social enterprises, and for MFIs as social enterprises
Kiútprogram - Microfinance for Roma businesses
see also Cserehat
In a very telling intervention, Andras Ujlaky from the Kiútprogram in Hungary described the work of that project to improve the lot of the Roma in Hungary. He made no bones of the fact that the initiative could never be financially self-supporting. “We never expect to make a profit. What we do is a social service. We should not be forced to build a portfolio of ‘normal’ loans in order to appear sustainable.”
In Hungary, the Roma number about a million and make up 7-8% of the population. They are the main losers from the end of communism, which had provided them with industrial and agricultural jobs. Now 35% are unemployed. Only 10% of Roma children graduate from secondary school, against 80% of the population as a whole.
The Kiútprogram was launched with private funding, but now has ERDF support. It uses the group lending model, and makes loans to groups of around five people. Loan amounts go up to a million forints (€3,500), and the interest rate 20%. Loans are for income generation only, and the businesses must be legal, not in the informal economy. The programme also encourages saving by opening a free savings account for all borrowers. The MFI carries out the fieldwork itself, but for regulatory reasons works with the Raiffeisen bank to do the lending.
Kiútprogram is on target for its first year, with has 46 clients in 10 groups, and 29 loans outstanding.
Not all the problems can be resolved by improving access to capital, however. One of the most serious barriers to Roma who wish to start a business is the lack of a ‘welfare bridge’. Start-up entrepreneurs have to pay social security contributions based on the minimum wage of some €300 per month – yet the welfare benefit most Roma are entitled to is only around €100 per month. Qualifications are another factor of exclusion: even selling vegetables from a barrow in the street requires a diploma requiring 70 hours of study.
No time for answers
After these presentations, and because the hearing was curtailed to 90 minutes because of the bad weather, there was little time for questions. Green MEP Elisabeth Schroedter did however raise the paradox that while the evidence is that microfinance for disadvantaged groups is loss-making, as the Parliament had always assumed, the financial institutions seem to be intending to make a profit on it. “Who is willing to bear the risk, if the EIB won’t?” she asked.
Kinga Göncz wrapped up the debate by saying that although microfinance is not a panacea, the evidence from the Kiútprogram shows that is can work. The assumption has always been that the ESF will fund the running costs of the EPMF. Without it, the Parliament woild not have been willing to devote Progress funds to it.
The experts’ replies are to be made by e-mail and circulated to the members of the committee.
Background report Microcredit networks and existing national legislations with a view to the implementation of the microfinance instrument: http://www.europarl.europa.eu/document/activities/cont/201012/20101201ATT04227/20101201ATT04227EN.pdf
Other documents related to the hearing can be found at: http://www.europarl.europa.eu/activities/committees/events.do?body=EMPL&language=EN