jasmine, a way to promote micromicro-credit in europe...
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JASMINE, a way to promote micro-credit in Europe
JASMINE, a way to promote JASMINE, a way to promote micromicro--credit in Europecredit in Europe
Philippe Delvaux
Directorate General for Regional PolicyEuropean Commission
9 9 JuneJune 20092009
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•• BackgroundBackground
•• MicroMicro--creditcredit initiativeinitiative
•• JASMINEJASMINE
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SMEs are the backbone SMEs are the backbone of the European Economyof the European Economy
•• 23 million23 million SMEs in Europe, representingSMEs in Europe, representing 99%99% of of all businesses in the EUall businesses in the EU
•• SMEs provide aboutSMEs provide about 2/32/3 of all private sector jobs of all private sector jobs in the EUin the EU
•• SMEs are responsible for almost all net job SMEs are responsible for almost all net job creation in the EUcreation in the EU
•• SMEs are a major factor of regionalSMEs are a major factor of regional, , economic and social cohesioneconomic and social cohesion
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9
255
1 693
21 228
Informal sector(Income-generating
activities)
> 250 employees
50 - 250 employees
10 - 49 employees
0 - 9 employees
23,2 million enterprises in EU 25
92% of enterprises inEurope are micro-enterprises
(0 – 9 employees)
Informal sector represents10 to 15% of GDP
Active population below the poverty line : 28 million
µC
Number of enterprises in the EU (x 1000)
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•• Cohesion policy strongly supports the Lisbon Agenda Cohesion policy strongly supports the Lisbon Agenda goals of growth and jobs goals of growth and jobs
•• Cohesion Policy is the biggest provider of EU funds Cohesion Policy is the biggest provider of EU funds supporting Small Businessessupporting Small Businesses
•• Total business support 2007Total business support 2007--2013:2013: €€ 55.000.000.00055.000.000.000
of which >50% is directly targeted to support for small of which >50% is directly targeted to support for small businesses, including microbusinesses, including micro--businessesbusinesses
Small businesses are top prioritySmall businesses are top priorityof Cohesion Policy 2007of Cohesion Policy 2007--20132013
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Technology & innovation
Eco friendly SMEs
ICT in SMEs
Start-ups
12% / €3.2bn
65% / €17.7bn
9% / €2.5bn
14% / €3.7bn
€€ 27 billion of support 27 billion of support specifically dedicated tspecifically dedicated to Small Businesseso Small Businesses
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JEREMIE and MicroJEREMIE and Micro--creditcredit
�� to improve access to finance for SMEs and microto improve access to finance for SMEs and micro--enterprises in the Member States and regionsenterprises in the Member States and regions
�� to create financial leverage using risk and loan based to create financial leverage using risk and loan based instruments, guarantees, etc., and their combinationinstruments, guarantees, etc., and their combination
�� to help managing authorities responsible for European to help managing authorities responsible for European programmes to reach that goalprogrammes to reach that goal
JEREMIEJEREMIE can be used to improve the provision of can be used to improve the provision of micromicro--credit in the European Unioncredit in the European Union
JEREMIE:JEREMIE: A new financial engineering instrument designed A new financial engineering instrument designed in the framework of the new regulations on Structural Fundsin the framework of the new regulations on Structural Funds
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ECEC’’s definitions definition of microof micro--creditcredit
Max. Amount : Max. Amount : €€ 25.00025.000
Number of staff 1 Number of staff 1 –– 99
Max. turnover : Max. turnover : €€ 2.0 Mio2.0 Mio
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Why do we need to do more for microWhy do we need to do more for micro--credit?credit?
�� An important gap in the marketAn important gap in the market
�� A high potential demand for microA high potential demand for micro--credit estimated to credit estimated to somesome 700 000700 000 loans amounting to someloans amounting to some €€ 6 billion6 billion
�� Potential entrepreneurs with no collateral cannot Potential entrepreneurs with no collateral cannot obtain loans through traditional channelsobtain loans through traditional channels
�� Not enough microNot enough micro--credit intermediaries providing credit intermediaries providing mentoring on the marketmentoring on the market
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Why canWhy can’’t this be left to the traditional t this be left to the traditional banking sector only?banking sector only?
�� Access to finance is a real problem for those who are Access to finance is a real problem for those who are considered nonconsidered non--bankable customersbankable customers
�� Banks usually provide access to finance for existing Banks usually provide access to finance for existing micromicro--enterprises and traditional startenterprises and traditional start--upsups
�� They are reluctant to deal with those who lack They are reluctant to deal with those who lack collateral, steady employment or a verifiable credit collateral, steady employment or a verifiable credit history, although the default rate on microhistory, although the default rate on micro--loans is loans is quite lowquite low
�� Operational costs are not proportionate to the size of Operational costs are not proportionate to the size of the microthe micro--loanloan
�� Not enough microNot enough micro--credit intermediaries providing credit intermediaries providing mentoring on the marketmentoring on the market
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•• BackgroundBackground
•• MicroMicro--creditcredit initiativeinitiative
•• JASMINEJASMINE
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�� Several actions have already been taken at EU level Several actions have already been taken at EU level and in Member States to support microand in Member States to support micro--credit (CIP, credit (CIP, ESF, EQUAL, PHARE, ESF, EQUAL, PHARE, ……), but this is not enough to ), but this is not enough to allow forallow for sustainable sustainable development of microdevelopment of micro--credit in credit in EuropeEurope
�� MicroMicro--credit operations need to be seen in a broad credit operations need to be seen in a broad support framework in line with the principle of support framework in line with the principle of subsidiaritysubsidiarity
�� A more favourable environment is essentialA more favourable environment is essential
=> COM/2007/708 of 13 November 2007=> COM/2007/708 of 13 November 2007
Why a microWhy a micro--credit initiative?credit initiative?
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What is the purpose of the What is the purpose of the micromicro--credit initiative?credit initiative?
�� To promote a favourable legal and institutional To promote a favourable legal and institutional and environment for microand environment for micro--credit in Europecredit in Europe
�� To help nonTo help non--bank financial intermediaries who bank financial intermediaries who want to act on the microwant to act on the micro--credit scene reach a credit scene reach a high standard in terms of governance and high standard in terms of governance and lending practiceslending practices
�� To help them raise funds on the private capital To help them raise funds on the private capital market and attract borrowers in confidencemarket and attract borrowers in confidence
�� To help them grow and reach sustainabilityTo help them grow and reach sustainability
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What is the Commission now What is the Commission now
proposing to do? proposing to do? (1)(1)
1.1. Promote a more favourable legal and institutionalPromote a more favourable legal and institutionalenvironment for microenvironment for micro--creditcredit
�� Invite Member States to adapt national Invite Member States to adapt national institutional and legal frameworks as institutional and legal frameworks as appropriate appropriate
�� Encourage Member States to adopt Encourage Member States to adopt quantitative targets and to report on quantitative targets and to report on implementation in the framework of the annual implementation in the framework of the annual Lisbon cycle.Lisbon cycle.
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ExamplesExamples of of changeschanges to the to the legallegaland and institutionalinstitutional environmentenvironment�� Development of microDevelopment of micro--credit providers/MFIscredit providers/MFIs
�� Relaxing interest caps for microRelaxing interest caps for micro--credit operationscredit operations
�� Allowing MFIs access to borrower databases and Allowing MFIs access to borrower databases and facilitating their evaluation of the risksfacilitating their evaluation of the risks
�� Reducing operating costs applying favourable tax Reducing operating costs applying favourable tax schemesschemes
�� Adapting national regulationAdapting national regulation
�� Ensuring single market rules are applied to microEnsuring single market rules are applied to micro--credit credit
�� Incorporating microIncorporating micro--credit into regulation and credit into regulation and accounting standardsaccounting standards
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What is the Commission now What is the Commission now
proposing to do? proposing to do? (2)(2)
2.2. Encourage Member States to further Encourage Member States to further entrepreneurship.entrepreneurship.
3.3. Set up, in interSet up, in inter--institutional partnership with the institutional partnership with the European Investment Bank group, a European European Investment Bank group, a European facility, to provide technical support and funding facility, to provide technical support and funding to nonto non--bank microbank micro--credit providers/MFIscredit providers/MFIs
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•• BackgroundBackground
•• MicroMicro--creditcredit initiativeinitiative
•• JASMINEJASMINE
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A joint initiative of the European Commission and the EIB A joint initiative of the European Commission and the EIB Group lGroup launched on 10 September 2008 in Niceaunched on 10 September 2008 in Nice
JASMINEJASMINE
(Joint Action to Support Micro(Joint Action to Support Micro--finance INstitutions in Europe) finance INstitutions in Europe)
�� to channel various forms of technical and financial to channel various forms of technical and financial support to selected nonsupport to selected non--bank microbank micro--credit credit providers/Microproviders/Micro--finance Institutions (MFIs)finance Institutions (MFIs)
�� to help MFIs improve the quality of their operations, to to help MFIs improve the quality of their operations, to expand and become sustainableexpand and become sustainable
�� to promote best practices in the field of microto promote best practices in the field of micro--credit credit lendinglending
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Two main issues: Two main issues:
1.1. Providing to MicroProviding to Micro--credit providers/MFIscredit providers/MFIs
•• OperationalOperational technical assistance for capacity for capacity building (mentoring, training, information, toolkits, building (mentoring, training, information, toolkits, etc. ) etc. )
•• General support measures like evaluation and General support measures like evaluation and rating of MFIs, drafting a code of conduct, rating of MFIs, drafting a code of conduct, designing a quality label, etc.designing a quality label, etc.
2.2. ProvidingProviding flexible funding to selected MFIs (equity, to selected MFIs (equity, loans, guarantees or their combination) through a coloans, guarantees or their combination) through a co--financing facility established in the EIF and involving financing facility established in the EIF and involving EIB, European Parliament, Commission, private or EIB, European Parliament, Commission, private or public financial partners, MAspublic financial partners, MAs (+/(+/-- €€ 50 m50 m))
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�� Need for aNeed for a code of good conduct for MFIs to spread for MFIs to spread ethical and customerethical and customer--friendly best practices among MFIs.friendly best practices among MFIs.
�� Specialized rating agencies to swot the potential of MFIs Specialized rating agencies to swot the potential of MFIs by and provideby and provide assessment and rating
� On the ground training by practitioners or networks of by practitioners or networks of practitionerspractitioners
�� Designing aDesigning a quality label for microfor micro--credit which will be credit which will be awarded under strict conditions to MFIs to acknowledge awarded under strict conditions to MFIs to acknowledge their reliabilitytheir reliability
�� Provision ofProvision of start-up equity to help MFIs cover their to help MFIs cover their operational costs and become sustainable.operational costs and become sustainable.
�� Launching aLaunching a pilot project to gain experience in delivering to gain experience in delivering funds and support to nonfunds and support to non--bank microbank micro--credit providerscredit providers
Important practical elementsImportant practical elements
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Purpose :Purpose :
�� CreateCreate a business a business referencereference�� Streamline practicesStreamline practices�� Provide lending securityProvide lending security�� Facilitate quality assessment and refinancing Facilitate quality assessment and refinancing
operationsoperations�� Prepare for ratingPrepare for rating�� ……
Drafting a code of good Drafting a code of good
conduct for MFIsconduct for MFIsin coin co--operation with banking sectoroperation with banking sector
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Elements to be assessed :Elements to be assessed :
�� GovernanceGovernance (e.g. 24%)(e.g. 24%)
�� Information System and data quality (e.g. 10%)Information System and data quality (e.g. 10%)
�� Risk management (e.g. 10%)Risk management (e.g. 10%)
�� Activities : Portfolio management (e.g. 20%)Activities : Portfolio management (e.g. 20%)
�� Funding and liquidity (e.g. 14%)Funding and liquidity (e.g. 14%)
�� EfficiencyEfficiency and and profitabilityprofitability (e.g. 22%)(e.g. 22%)
AssesmentAssesment/rating /rating
methodology (example) methodology (example)
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Criteria :Criteria :
�� Good governanceGood governance
�� Financial performanceFinancial performance
�� Social performanceSocial performance
�� Results compliant with business planResults compliant with business plan
�� Distance to sustainabilityDistance to sustainability
�� RiskRisk managementmanagement
�� Rating (e.g. B onwards)Rating (e.g. B onwards)
�� ……
Designing a quality Designing a quality
label for MFIs label for MFIs
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JASMINE
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A 3 pillar approachA 3 pillar approach ::
�� TechnicalTechnical support (support (capacitycapacity building)building)
�� Seed capitalSeed capital
�� Repayable funding (lending operations)Repayable funding (lending operations)
�� ……
Financing aspectsFinancing aspects
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JASMINE managed by
Mentoring(Technical Assistance)
Microfinance Institutions (MFIs)
Funding(Loans, Guarantees, Equity/quasi equity, Grants, etc...)
EIB, EP, Eurofi, other Banks,Contributors, etc..
JEREMIE,ERDF, ESFDG REGIO T.A.
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Funding at a glanceFunding at a glance
� Method : : CoCo--financingfinancing
� Target : primarily non: primarily non--banking MFIs close to banking MFIs close to sustainability (e.g. : new branches of wellsustainability (e.g. : new branches of well--established established MFIs, young and more mature MFIs)MFIs, young and more mature MFIs)
� Initial phase : 20 : 20 –– 30 MFIs to be funded over 3 years30 MFIs to be funded over 3 years
� Area : 27 Member States: 27 Member States
� 3-year pilot phase funding :: +/+/-- EUR 50 m EUR 50 m
� Financial instruments for MFIs : mainly short: mainly short--term to term to mediummedium--term loans, guarantees, equity / quasiterm loans, guarantees, equity / quasi--equity, equity, technical assistance, nontechnical assistance, non--repayable assistance, repayable assistance, ……
� Investors : (EU, EIB, EP, private and public banks, : (EU, EIB, EP, private and public banks, regions, etc..)regions, etc..)
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�� Practical setPractical set--up of up of JASMINEJASMINE, (implementation in Q3 , (implementation in Q3 2009)2009)
�� Start of a 3Start of a 3--year pilot phase to identify best practices year pilot phase to identify best practices in the field of microin the field of micro--credit with selected credit with selected ““modelmodel”” nonnon--bank microbank micro--credit providers to prepare scaling up of credit providers to prepare scaling up of operationsoperations
�� Finding ways to improve the microFinding ways to improve the micro--credit credit environment in the European Union environment in the European Union
�� Promotion of microPromotion of micro--credit through JEREMIE Holding credit through JEREMIE Holding FundsFunds
NextNext stepssteps
