Official Journal of the European Union

C 77/23

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions — A European initiative for the development of micro-credit in support of growth and employment’

COM(2007) 708 final/2

(2009/C 77/04)

On 13 November 2007 the Commission decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions. A European initiative for the development of micro-credit in support of growth and employment.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 15 July 2008. The rapporteur was Mr Pezzini.

At its 447th plenary session, held on 17 and 18 September 2008 (meeting of 18 September), the European Economic and Social Committee unanimously adopted the following opinion.

1.   Conclusions and recommendations


The Committee welcomes the Commission's moves to increase support for the setting-up and growth of micro-enterprises and fostering the entrepreneurial spirit, so as to expand the Community's production and employment base with a view to greater competitiveness, greater cohesion and a higher-quality knowledge-based economy in line with the renewed Lisbon objectives.


While the Committee welcomes the initiative to set up a new Community support structure for micro-credit, it feels that merely encouraging Member States is not enough, given that the non-bank sector, which is not covered by the EC bank directives, is regulated inadequately in many Member States and by widely differing basic provisions.


The Committee believes that a pilot project for socially responsible micro-investment bringing together bank and non-bank micro-credit institutions in a European network — through the implementation of memorandums of understanding for socially responsible investment with individual institutions and support from trade associations — should target in particular those unlikely to obtain bank credit:

to develop projects for genuine, productive, decent work;

to enhance and expand the production, cooperation and employment base;

to reactivate individuals' ‘empowerment’ capacity, building processes for integrating, supporting and enhancing the abilities of people in danger of economic and social exclusion.


The Committee is convinced that an innovative use of new technologies in the field of micro-credit could help extend the reach of micro-finance, by means of a network, while also increasing competition and reducing costs for users.


In addition, the Committee feels that support for micro-credit must go hand in hand with training credits for applicants, facilitating their development and success on the market, to prevent social exclusion and continually enhance the implementation of the Lisbon Strategy.


The Committee accepts that any changes to the institutional and legal frameworks supporting micro-credit are primarily a matter for the Member States, to be implemented by means of the annual Lisbon governance cycle. Nevertheless, action is needed to boost the European reference system, particularly by:

establishing a network of agreements on socially responsible investment (MOUs), between the European micro-credit fund to be set up and individual micro-credit institutions on the ground, so that the micro-credit network is based on compatible standards of soundness, solvency, portfolio diversification (1), transparency and combating usury;

establishing an EU rating system for bank and non-bank MFIs, to increase their quality and reliability, as well as the availability of information on risk and performance, by adopting a common format to enable dialogue and best-practice exchange, as well as the provisional awarding of an EU MFI quality label that will help to attract funds and increase the confidence of potential micro-credit recipients;

launching EU information and training measures for micro-credit stakeholders on the available options and means of operation and, from the point of view of potential beneficiaries, on the requirements and method of preparing a draft business plan — using a simplified, standardised format;

introducing EU measures aimed at the ongoing training and capacity building of management and staff of bank and non-bank MFIs, based on common technical expertise, and as a way of dealing with changes in micro-finance, new customer requirements and the need for a common basis to facilitate EU-wide dialogue and best-practice-exchange; and

establishing an EU data base network on the basis of harmonised criteria, enabling the collation and processing of standardised data on transactions and related risk, inter alia to reduce the cost of risk assessment inherent in individual micro-credit transactions.


The Committee has misgivings about the proposal to set up a dedicated Community support structure within the Jeremie department of the EIF. It would not give the initiative optimal visibility and would limit the scope it ought to have for coordinating other existing initiatives, while also preventing it from taking on activities other than technical assistance. The Committee therefore thinks that an independent department should be set up, which could act as a micro-credit fund.


The funding and technical assistance provided by the new support structure should not be directed solely at new non-bank MFIs, but rather should cover all such institutions so as not to distort competition.


The EU MFI initiative should include measures to increase social dialogue, as well as dialogue between the various civil society players and to make optimum use of EU best-practice-exchange networks, such as the European Microfinance Network, the Microfinance Centre and the European Microfinance Platform.


The Committee feels that the MFI initiative should enhance the role of employers' associations in ascertaining the reliability and competence of applicants, building up strong relationship and trust potential and providing training, advice and other kinds of support, to bring out the autonomous capacities of beneficiaries and cut red tape, particularly as regards drawing up business plans.


Setting up a micro-credit fund, operating in conjunction with financial institutions, state administrations (2), trade associations and guarantee cooperatives and credit consortia could play a major role in directing financial engineering towards forms of ‘social credit management’.


A social view of credit, which could also be the basis for setting up a micro-credit fund, ties in closely with corporate social responsibility principles and the values of better, more widespread employment.


Support for EMAS environmental certification can provide an excellent means to encourage social growth of businesses and facilitate informed dissemination of a micro-credit fund.

2.   Introduction


In April 2007 the SME Observatory noted that the greatest barrier to more product and process innovation lay for European SMEs in gaining access to credit, followed by the difficulty of finding skilled human resources, while for larger businesses human resources were the main problem.


The market's main shortcomings are insufficient seed capital, available funds and demand. These issues are addressed by the Commission Communication Implementing the Community Lisbon Programme: Financing SME Growth — Adding European Value (3), on which the Committee has commented on several occasions (4).


In particular, the Committee noted that ‘Policies to assist businesses to start up and develop should be intensified including quicker, lower-cost start-ups, measures to improve access to risk capital, more entrepreneurial training programmes, measures to improve access to public networks and utility services and a denser network of support services for small enterprises’ (5).


The Committee stresses, as in previous opinions (6), that ‘Cooperatives, consortia, mutuals, innovative start-ups and microenterprises can also help boost competitiveness and innovative capacity within the EU’.


It has also noted that ‘A main issue is to ease access to finance markets’ and that ‘banks and other financial stakeholders, such as venture capital funds, should be encouraged to adopt a more positive attitude to risk-taking’ (7).


In autumn 2007 the Commission announced that a set of initiatives for SMEs was being discussed, including a European initiative setting up a new support structure for micro-credit (8).


Micro-credit is generally acknowledged to be a financial instrument which has great impact on entrepreneurship, economic development and productive social inclusion but where there are still many shortcomings and much room for improvement. This relates to difficulties in obtaining seed capital investment, especially when the applicant is unemployed, has recently immigrated, belongs to an ethnic minority, or is based in a convergence region.


Another problem arises from the fact that for financial institutions economies of scale come into play, linked to fixed transaction costs such as information-gathering, assessment, and the follow-up to loans. This is particularly the case with micro-loans to the self-employed and to SMEs that are insufficiently transparent, with a limited capacity for providing the necessary information to financial institutions.


The international definition of micro-credit is ‘making small loans — below EUR 25 000 in Europe (9) and below USD 100 000 in the United States — to low-income earners who usually have no access to bank loans because they are insufficiently solvent and/or because the cost of managing such loans is considered too high’ (10). The definition of micro-credit does not include consumer credit.


The Committee agrees with the Commission that micro-credit has an important role to play in implementing the Lisbon Strategy for growth and jobs and promoting social inclusion. It is essential that micro-credit preserves its main role of encouraging growth of self-employment and development of micro-enterprises, and is not reduced to mere social aid.


The Committee believes that micro-credit should be used in the EU to address problems revealed by market failures, giving entrepreneurs access to credit, which is necessary to start up or expand economically viable activities, including in the area of development aid and cooperation policy (11).


At Community level, the EIF's (12) CIP — Micro-Credit Guarantee provides a set of guarantees for micro-credit financing granted by local institutions to microenterprises (13). However, there is currently no specific Community legislation on micro-credit apart from that governing the bank micro-credit sector, which is subject to European banking regulations (14), and the references to micro-credit included in various Community programmes and initiatives (15).


Furthermore, the micro-credit sector is regulated and managed differently according to the Member State. Only two Member States have specific legislation governing the non-bank microfinance sector (16), although four other Member States do have anti-usury legislation (17).


The Spring European Council pointed out, inter alia, the urgent need for ‘further facilitation of access to finance, including through existing EU financial instruments’ (18) and to ‘promote higher overall labour force participation and tackle segmentation in order to ensure active social inclusion’.


The Committee believes that a broader legal and support framework could help to provide greater stimulus to set up new production businesses and facilitate their consolidation, preventing risks of marginalisation and exclusion from the production system which can exacerbate social and criminal scourges such as usury.

3.   The Commission proposal


The Commission sets forth two lines of action:

launch of a programme of reform by the Member States, aimed at improving the conditions for micro-credit according to national circumstances and priorities, with the possibility of Community assistance in establishing quantitative targets and good practices;

setting-up of a new Community support structure for micro-credit within Jeremie, to develop technical assistance and support for consolidation of micro-credit bodies/institutions, and appropriate publicity and communication measures.

4.   Framework for the development of micro-credit in support of growth and employment


Micro-credit can be a lever for social inclusion and enable less well-off people and businesses that are excluded from the conventional banking system to gain access to the crucial funds needed to start up and develop income-generating activities.


At EU level, the Small Business Act for Europe  (19) — whose explicit objective is to establish concrete measures and principles for improving the European SME environment — should make it possible to identify and remove the barriers to unlocking the potential of small businesses, by stepping up the drive for simplification, increasing access to credit, and framing appropriate rules on energy and the environment.


The Committee feels that there should be better coordination of the array of relevant existing instruments, taking on board the experience of past and present instruments pertaining to micro-credit, as pointed out in the Commission Communication itself (20), i.e.:

the Jeremie initiative;

the CIP Micro-credit Guarantee (21); the EMN and MFC (22) under the Community action programme to combat social exclusion;

the European Social Fund's initiatives;

the rural development programmes under the EAFRD (23).


The Committee believes that when devising new Community micro-credit initiatives, the successes achieved in the development and practical implementation over several years of DG Europaid's EU-ACP Microfinance Framework Programme should be taken into due account.

4.4   Financial engineering and the European micro-credit fund


Since the early 1980s (24), and particularly as a result of the ideas and proposals arising from discussions during the European Conferences of Crafts and Small Businesses  (25), European financial institutions have promoted and supported a culture of financial engineering in the Member States (26).


The need to take practical steps to ease access to credit and help establish financial engineering prompted the Commission and the EIB, under pressure from European small business organisations, to set up the EIF (27). After an initial, brief diversion into supporting communications networks (28), the EIF turned its attention to providing various forms of guarantee to support measures assisting micro-businesses and SMEs, often involving financial engineering.


By means of the Commission's multi-annual programmes for micro-businesses, SMEs, cooperation and, latterly, through Axis 1 of the CIP (29), financial engineering has been developed through:

guarantees for loans granted to SME cooperatives and credit consortia;

securitisation (30) of the risk capital of credit consortia;

capital guarantees through mezzanine credit  (31);

venture capital investments, support for eco-innovation, technology transfer;

business angels.


On several occasions, the Committee has welcomed the action taken by the Commission, EIB and EIF, particularly in the last fifteen years, to support small businesses. The Committee acknowledged the broadening and modernisation of the EIB group financial support to SMEs (32) but it believes that efforts could be stepped up, inter alia through programmes agreed jointly with:

the EIB as regards capital, and the EIF as regards guarantees;

the financial institutions in the individual Member States;

micro-business and SME representative bodies; and

credit consortia already engaged in financial engineering, acting as guarantors for between 50 and 80 % of business loans.


A micro-credit fund network could be set up at Member State level, drawing on EIB rotating funds and with additional EIF guarantees operating at various levels. At regional (NUTS II) and provincial (NUTS III) levels, credit consortia (where they exist) (33) could provide the structure for granting the loans. Credit consortia have already gained considerable experience in the area of seed capital and, with sufficient risk capital, counter-guaranteed by the EIF, could provide the loan guarantees.

This new proposal should be clarified with respect to the creation of the micro-fund by the EIB group and the Commission. The aim of this initiative is to support micro-finance institutions across Europe through the provision of funding (grants, loans, mezzanine or equity instruments) as well as technical assistance. This micro-fund is being established by the EIF with an initial capital of around EUR 40 million for support activities (of which EUR 20 m from the EIB). The Committee believes that the EIF should also, in future, administer the fund.


A micro-loan could be sufficient to cover the purchase of the supplies and basic equipment needed to start up a business, or to replace equipment, which is always necessary in a micro-business (34).

The Committee thinks that particular attention should be paid to micro-credit for women entrepreneurs. Here there needs to be greater attention to flexibility and to the practical arrangements and criteria for granting loans, in order to be responsive to situations where social or psychological difficulties come into play; these can be aggravated if the person:

is a member of a minority,

faces a difficult family situation,

or is being pushed into social self-exclusion.

When designing and managing microcredit in support of female entrepreneurship, one must keep in mind the priority need to enable women to take on or resume a productive socio-economic role in society, with a view to boosting their self-esteem, building a culture of entrepreneurship and helping them to assume greater responsibilities and risks.


Micro-loans should also provide an opportunity for young people wishing to set up their own business, who have sufficient professional training but lack the financial wherewithal.

The initial guarantee for the loan, which in any case must be granted by a financial institution (which may or may not be a bank), consists of the equipment purchased. However, the existence of a European micro-credit fund would encourage financial institutions to be less stringent in offering loans (35): as well as having its own funding and expertise and the ability to intervene from time to time, via the EIF, credit consortia and trade associations, to help pay off any debts, the Fund should also be willing and able to promote exacting standards of soundness, production enhancement and diversification, transparency, and combating usury (36).


Studies on micro and small-business insolvency have found that in the major EU countries over the last ten years, loan-related insolvencies have not exceeded 4 % (37). Thus, with a rate of less than 5 %, a multiplier of 20 can be used to guarantee the loan granted by the financial institution.


With a multiplier of 20 and a guarantee covering 50 % of the insolvency of each individual debtor, a credit consortium with risk capital of EUR 1 million could guarantee loans to a large number of entrepreneurs (38) for a total of up to EUR 40 million.

By granting guarantees, the credit consortium system enabled some EUR 6 billion to be loaned to Italian craft firms in 2007.


There are approximately 500 000 business start-ups per annum in the EU-27. The number of businesses that fail is slightly lower (39). SMEs account for 99 % of each year's business start-ups and, of these, at least 240 000 are one-person businesses (40).


Using the example in point 4.4.9, EUR 1 million of risk capital coupled with financial engineering could guarantee loans amounting to EUR 25 000, via a European micro-credit fund, to 1 600 small businesses.

4.5   Social credit management


As has already been stated, credit is a key instrument for economic and social development and building a ‘social market economy’.


That is why new concepts of credit have gradually emerged and gained ground, with credit no longer being seen merely as a relationship between client and financial institution but as an instrument with high social value because of its connection with better-quality, more secure jobs and with economic development.


In this new, wider perspective, the risks related to granting credit need to be spread more widely.


Sharing credit risk between a number of bodies:

increases guarantees for financial institutions;

lowers interest rates on the credit granted;

makes it easier to grant loans to applicants.


In keeping with the inherent social value, granting loans must increasingly be made subject to corporate social responsibility and employers must adjust and adhere to sustainable development values.


EMAS environmental certification would be the most appropriate certification to require in a financial engineering process in connection with the social role of credit (41).


In recent years, only a few tens of thousands of businesses have been able to use Community financial instruments (42), revealing the yawning gap between the way the issue is presented and the practical results. This prompts consideration of the practical possibilities of intervening with systems which can boost the involvement of financial institutions and amplify the results.


On 20 and 21 November 1997, the Luxembourg Extraordinary European Council, whose agenda contained a single item — employment — launched three practical initiatives to help businesses stay competitive in the markets, and called upon the Commission to put forward proposals that would boost the business sector and promote employment in that field. The three initiatives were: the ETF Start-Up Facility, the JEV (Joint European Venture) and SME-Guarantee Facility. Two of these initiatives — the ETF Start-Up Facility and SME-Guarantee Facility — were aimed at easing access to credit.

Over 277 000 SMEs had availed of the growth and employment programme and MAP (multiannual programme) facilities by the end of 2005 (43).

The SME Guarantee Facility is one of the key European programmes for SMEs (44).


There are around 23 million micro enterprises and 1.1 million small businesses in the EU of which 90 % are sole traders or partnerships. Only 5 or 6 % of them make use of venture capital.


The Committee therefore believes that new forms of support for credit must be devised, aimed also at partnerships, as has been the case with financial engineering tools. Failing this, take-up will continue to be negligible, thus creating a barrier to the financial growth of micro and small enterprises.

Brussels, 18 September 2008.

The President

of the European Economic and Social Committee


(1)  Cf. the studies by the Nobel prize-winner Harry Markowitz on the relationship between portfolio diversification, risk reduction and compensation in fluctuations in investment return (efficiency curve) stabilising the economic cycle.

(2)  In many Member States, regional and local administrations support the development of SMEs by providing funding for credit consortia.

(3)  COM(2006) 349 final of 29.6.2006.

(4)  Opinion CESE 599/2007, OJ C 168/1 of 20.7.2007 — rapporteurs: Mr Van Iersel and Mr Gibellieri.

(5)  Opinion CESE 982/2007, OJ C 256/8 of 27.10.2007 — rapporteur: Ms Faes.

(6)  Opinion CESE 1485/2005 on the Competitiveness and Innovation Framework Programme (2007-2013); rapporteurs: Mr Welschke and Ms Fusco.

(7)  Cf. footnotes 4 and 5.

(8)  Back in 1997, the Commission provided support for micro-credit, in conjunction with the EIF, through the SME-Guarantee facility.

(9)  SEC(2004) 1156; Competitiveness and Innovation Framework Programme, 1639/2006/EC.

(10)  Cf. Eurofi Francia website: eurofi.net.

(11)  Cf. Regulation No 1905/2006 of the Parliament and of the Council establishing a financing instrument for development cooperation.

(12)  EIF, European Investment Fund.

(13)  For the definition of microenterprises see Recommendation 2003/361/EC.

(14)  Directive 2006/48/EC — CRD (Capital Requirement Directive).

(15)  Cf. the Jeremie initiative; the Growth and Employment Initiative (Decision 98/347/EC); the Multiannual Programme for SMEs; the Competitiveness and Innovation Framework Programme (Decision 1639/2006/EC); the EAFRD (Regulation 1698/2005/EC); the European Globalisation Adjustment Fund (1927/2006/EC).

(16)  France and Romania. In addition, the legal systems of the United Kingdom and Finland provide for some exemptions on the subject, although there is no specific legislation.

(17)  Belgium, Germany, Italy and Poland.

(18)  13-14 March 2008, point 11.

(19)  Cf. also in this regard Opinion CESE 977/2008; rapporteur Mr Cappellini.

(20)  Cf. COM(2007) 708, Annex 3.

(21)  CIP, Competitiveness and Innovation Programme 2007-2013.

(22)  EMN: European Microfinance Network; MFC: Microfinance Centre for Central and Eastern Europe.

(23)  EAFRD: European Agricultural Fund for Rural Development.

(24)  1982: European Year of SMEs and the Craft Industry.

(25)  Held in Avignon in 1990, Berlin in 1994 and Milan in 1997.

(26)  Financial engineering is based on the principle that financial support to a small-scale entrepreneur who wishes to start up a new business or invest in new products or processes should extend beyond the relationship between the small entrepreneur and the financial institution, but — given the social function of the business — must involve other parties, absorbing various degrees of liability and sharing part of the risk and cost.

(27)  EIF: European Investment Fund, established in 1994, driven by the then DG XXIII (the directorate-general set up to support small business and the craft sector, which was behind the related European conferences …), and by DG II (Economy and finance). The EIF had an original budget of ECU 1 billion from the EIB, ECU 800 million from the Commission and ECU 200 million, made up of shares of ECU 2 million each, from European financial institutions. More than fifty such institutions signed up to the initiative from the outset.

(28)  Cf. Lille metropolitan area.

(29)  CIP, Axis 1: support for entrepreneurship; Axis 2: support for ICT; Axis 3: support for Intelligent Energy Europe.

(30)  Debt securitisation works by ceding part or all of the amount owed to a credit consortium (or bank) to specialised financial institutions in order to enable credit consortia in particular to boost the credit guarantees they can offer to undertakings.

(31)  Mezzanine credit is based more on beneficiary companies' expected cash flow than on real guarantees. It can work in two ways: (1) subordinate debt (loans at a fixed rate or index-linked rate); (2) equity kicker (the lender/investor is entitled to a percentage share of the increased worth of the property to which the loan refers). Mezzanine finance matures at between four and eight years.

(32)  http://www.eib.org/projects/publications/sme-consultation-2007-2008.htm.

(33)  The credit consortia system is well-established in many European countries and has an active European federation.

(34)  Micro-businesses account for 94 % of all non-agricultural private companies in Europe.

(35)  By removing a significant proportion of their risk, financial engineering makes it easier and less costly for financial institutions to grant loans, especially to new and little-known entrepreneurs.

(36)  Joint measures implemented by banks and trade associations to improve financial management of microenterprises were referred to in the documents of the first European Crafts Conference, held in Avignon in 1990, and in the second conference, held in Berlin in 1994. They were developed in particular by the network of Raiffeisen-Volksbank (German people's banks) together with trade associations (German Confederation of Skilled Crafts — ZDH).

(37)  Cf. FedartFidi UE, European federation of craft-sector credit consortia (of the States in which the credit consortium system operates).

(38)  5 % of EUR 40 million is EUR 2 million; however, as credit consortia are responsible for only 50 % of a defaulted loan, only EUR 1 million of risk capital is required. Securitisation of this risk fund could allow credit consortia to grant new loans up to a new ceiling of EUR 40 million.

(39)  Source: Corporate Europe Observatory.

(40)  In the EU, 49 % of micro-businesses have no employees and are thus one-person businesses.

(41)  Cf. Regulation 1836/93/EEC and Regulation 761/2001/EC.

(42)  Consultation document on the Community programme on enterprise and competitiveness, 2006/2010, DG Enterprise, 2004, point 118.

(43)  Source: COM(2007) 235 — Report to the Council and the European Parliament on the financial instruments of the multiannual programme for enterprise and entrepreneurship, and in particular for small and medium-sized enterprises (SMEs) (2001-2006).

(44)  At 31.12.2005, the average utilisation reached 67 % for the Loan Guarantee window, 66 % for the Micro-credit window and 65 % for the Equity window.