This paper provides an overview of the legislative environment for non-bank microfinance institutions (MFIs) in 24 countries in Europe. These institutions are not regulated in the same way as traditional banks, and the applicable legal frameworks vary significantly among countries. For example, there is no consistent maximum loan size. The term “microcredit” is used broadly, sometimes in conjunction with small equity investments and support mechanisms such as guarantees and technical assistance. Half of European MFIs include personal microcredit in their product portfolios. The authors estimate that almost 90 percent of European microcredit providers are NGOs, non-bank MFIs or cooperatives. There are also banks offering microcredit as a commercial or corporate social responsibility activity.
The authors classify the legal frameworks for microfinance into three “scenarios.” In the first scenario are nine countries that adopted specific legislation for microcredit, including Albania, Bosnia and Herzegovina, Kosovo, and Montenegro. These laws outline how to establish and operate non-bank MFIs, such as what entity types are allowed, minimum capitalization, funding options and permissible products. In the second scenario, microcredit legislation does not exist, but non-bank lenders may operate, although they may not accept deposits. This is the case in 12 countries, including Bulgaria and North Macedonia. In the third scenario, microcredit legislation does not exist, and lending is the prerogative of banks. In these three countries, including Serbia, microfinance services can only be offered by banks or in partnership with them.
The authors note that the wide range of regulatory environments may allow for progress in the sector or hinder its development, depending on the locality in question. They conclude that further analysis is required to assess the benefits and limitations of each approach.
This is a summary of a paper by Cristina Ruesta and Nicola Benaglio, published by the European Microfinance Network, January 2021, 21 pages, available at https://www.european-microfinance.org/sites/default/files/document/file/mr_2021_FP.pdf
Additional Resources
European Microfinance Network homepage
https://www.european-microfinance.org
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