The fashionable status of microfinance makes it increasingly challenging to define. The European Union announced a new 15 million Euro fund providing 25,000 Euro loans to small businesses in Europe and has labeled it “microfinance.” Traditionally, “micro” has only been used for loans under a few thousand Euros in the poor world, whereas loans to small businesses in the rich world were called “Small Business Loans.” The popularity of microfinance has changed all that.
For a thorough explanation of the difference between rich and poor world microfinance, please see our past story “Microfinance from Paris to Casablanca: What’s the Difference.”
EU Regional Policy Commissioner Danuta Huebner said that the new fund will have approximately EUR 10 to 15 million (USD 15 to 22 million) to “finance the loan activities of non-bank financial institutions.” The funds will be provided by contributions from the European Investment Bank (EIB), the EU’s financing institution, and other sources.
The fund will be part of a larger initiative which aims to make credit more easily available to small businesses and unemployed or marginalized people—including ethnic minorities— who are seeking to become self-employed but lack access to traditional financial services. In Europe, an estimated 91 percent of all businesses are ‘microenterprises,’ defined by the EU as an enterprise which has fewer than 10 employees.
The Commission also recommends the establishment of a microfinance facility to house the new fund. The facility would be managed by the European Investment Fund (EIF) and have the capability to conduct market analyses, establish guidelines and best practices, promote training courses and provide other services to MFIs.
The EIF already works with the Commission in the field of microfinance through JEREMIE, Joint European Resources for Micro and Medium Enterprises. The new initiative would focus on developing the microfinance aspect of JEREMIE’s operations.
The Commission is also encouraging EU Member States to adapt their national institutional, legal and commercial frameworks to promote a more favorable environment for the development of microfinance.
According to estimates based on Eurostat data, the potential demand for microfinance in the EU could amount to 700,000 new loans, worth approximately EUR 6.1 billion (USD 9 billion) in the short term.
Additional Resources:
EU Business: “EU plans European microcredit fund.”
EU Business: “Development of micro-credit in Europe – guide.”
Europa: European Commission
Europa: European Commission: Eurostat
European Investment Bank (EIB)
European Investment Fund (EIF)
EIF: JEREMIE
Bloomberg.com: Currency Calculator
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