Access to finance for inclusive entrepreneurship businesses: COPIE’s microfinance practices in Germany, Lithuania, Flanders, and the Czech Republic

COPIE Story of the month

This October was a crucial month for future policy action on microfinance in Europe: as part of the draft legislative package for the EU Cohesion Policy 2014-2020, the EU Commission has announced a new Programme for Social Change and Innovation which refers to microfinance and combines the three previous initiatives of Progress, EURES and the European Progress Microfinance Facility (EPMF). At the same time, the Commission published the proposals for the new ESF and ERDF regulations. Details of the current status of the EPMF are now available in the 2010 Implementation report; and finally, DG Enterprise issued a new European Code of Good Conduct for Microfinance Provision.

COPIE’s 3rd COPIE Access to Finance peer review meeting in Berlin last month, and the partners’ work on a joint Manual on Access to Finance for ESF Managing Authorities are thus extremely timely.

COPIE’s work in context...

Access to finance is one of the five key areas of work within the COPIE network. Together they form the basis for an integrated regional and national system of inclusive entrepreneurship policy.  As outlined in the 2009 COPIE baseline study on Access to Finance, ‘microfinance is gaining growing recognition as a cost-effective tool for both social inclusion and regional economic growth in Europe’. In 2007, the European Commission has estimated the potential demand for microfinance by entrepreneurs from at-risk groups at 712,900 loans representing 6,145 million EUR. With the financial crisis taking place, it is assumed that this demand is even higher.

European Structural Funds can serve as an effective mechanism to unlock financial opportunities for small scale entrepreneurs from disadvantaged backgrounds. As, in fact, confirmed in the baseline study, ‘microfinance lies at the intersection of at least two structural funds’ scope: the European Social Fund (ESF) and the European Regional Development Fund (ERDF)’. Due to the variety in the regulatory environment between regions and Member States, individual models of using European Funds for microfinance however differ.

The aim of COPIE’s Thematic Working Group on Access to Finance is to share experience between the partners in setting up and implementing regional and national ESF- and ERDF-funded microfinance support structures. Led by the ESF Managing Authority of Flanders in collaboration with ESF unit of the Ministry of Labour and Social Affairs in the Czech Republic, in a series of four peer review workshops, COPIE partners assess practices from Lithuania, Flanders, Germany and the Czech Republic based on a standard peer review methodology. A particular emphasis is put on the aspects of institutional frameworks, stakeholder environments, outreach strategies, client monitoring, risk management and sustainability strategies.

The COPIE practices...

In Lithuania, key stakeholders within the microfinance sector are the Ministry of Economy, the Ministry of Social Security and Labour, and the Ministry of Finance; the state-owned company Investment & Business Guarantee Ltd (INVEGA); the Lithuanian Central Credit Union (LCCU) and a few private banks. Mandated by the Ministry of Economy, INVEGA manages an ERDF financed holding fund and financial engineering instruments to promote the development and competitiveness of SMEs in Lithuania.

In 2009, the Ministry of Social Security and Labour and the Ministry of Finance set up the ‘Entrepreneurship Promotion Fund’. The Fund is financed through the ESF to promote start-ups, social entrepreneurship and self-employment. With a volume of 14.48 million EUR, the Fund focuses on people from specific social target groups (unemployed, disabled, youth, persons over 50).  The microcrediting is implemented by LCCU through a network of 57 regional credit unions. In parallel to microfinance specific training on entrepreneurship and business management is provided. As of 30thSeptember 2011, 3.332 people have taken advantage of consultation and training services, and 129 loans with a total volume of EUR 2,1million have been issued.

COPIE partners highlighted stakeholder collaboration, skills optimization and original financial engineering as key positive aspects of the Lithuanian model (Peer Review Lithuania).

The microfinance sector environment in Flanders operates under challenging framework conditions. With an average of 15.000 EUR in 2007, loan amounts are high in Belgium, there is no welfare bridge between unemployed and self-employed, and the regulatory framework for credits and investments is not particularly favourable for microfinance (COPIE baseline study on Access to Finance).

The principal microfinance provider is the national public ‘Fonds de Participation’. In Flanders, the distribution of their Solidarity Loan programme with credits up 12.500 EUR is managed by a private non-for-profit network company Hefboom. They provide technical assistance and pre-start up coaching services. As, by the end of 2011, the Solidarity Loan will cease nationally, Hefboom will increase their loan portfolio in Flanders in 2012 and launch new microfinance lines backed by own and private foundation capital. The Flemish ESF has mainly been used to finance business start-up advice and coaching services through targeted support programmes.

Discussions during the Peer Review in May 2011 revolved around the importance of linking start-up advice and microfinance programmes and the regulatory and financial conditions that are required to promote growth and dynamic development of microfinance institutions.

In Germany, the Federal Ministry of Labour and Social Affairs and the Federal Ministry of Economy and Technology have set up two joint initiatives: the ‘German Microcredit Fund’ which aims to institutionalise a nationwide offer of microcredits; and the ‘Start-Up Coaching Germany’ programme which offers business starters a grant for obtaining specific coaching.

The German Microcredit Fund has a total size of 100 million EUR, with 60 million provided by German ESF funds and 40 million provided by the German government. The Fund’s implementation is assigned to the GLS Bank with the main task being the establishment of a national network of microfinance institutions (MFIs) who channel the microcredits. Up to now, there are 51 MFIs currently operating in Germany, and, since 2010, 4598 credits with a total volume of more than 24.8 million EUR were issued. As for the Start Up Coaching Germany programme, the total ESF budget for this programme is 470 million EUR; representing the biggest share of ESF funding at the Federal level in Germany.

In the peer review session last month, COPIE partners were specifically interested in the technical details of MFI-Fund cooperation, client monitoring processes and risk management. As the service provider for German MFIs, the German Microfinance Institut (DMI) underlined the increasingly important role of networks in microfinance concerning capacity building, quality and risk management.

The 4th Peer Review meeting on microfinance support programmes in the Czech Republic is scheduled to take place in Prague on December 15-16, 2011.

COPIE partners will gather their experience and provide recommendations for future programming in the upcoming Manual on Access to Finance for ESF Managing Authorities. This will be published in early 2012 and will be presented by the partners at the COPIE Policy Forum in March 2012.

For more information on COPIE’s work on joint action planning, please go the following sections of this website: