Barcelona Conference Minutes

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European Microcredit Conference26-28 October 2005 / Barcelona - Spain

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Minutes of the2nd European Microfinance

Conference 2005 Microfinance for financial and social inclusion Barcelona Spain

26 28 October 2005

In collaboration with :Fundaci Un Sol Mn Caixa Catalunya

Obra Social la Caixa


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Acknowledgements

EMN wishes to thank all panellists at the second European Microcredit Conference for theirvaluable contributions and also for taking the time to re-read the minutes of the Conference.

EMN would particularly like to thank the University of Rennes I (France) and especially ReneMADROLLE, Meline HARDY, Michaella AUDRIN and Pauline CHANCELEE who wrote theminutes of the conference and elaborated this report that we now present to you. We areextremely grateful for their excellent work.

In addition, EMN wishes to express its thanks to the DG for Employment and Social Affairs aswell as to the Levi Strauss Foundation which made the organisation of this conference possible.

EMN would like to thank more particularly Obra Social la Caixa and Fundaci Un Sol Mn deCaixa Catalunya, two of its Spanish members which hosted the conference and contributedgreatly to its success.

This Conference has been organised with the support of the European Commission within the framework of the CommunityAction Programme to Combat Social Exclusion 2002 2006.

EMN is solely responsible for the content of this document. The Commission is not responsible for any use that may be made ofthe information contained therein.

Photo Credits: EMN, Maud Chazeau, Street UK, Geoffroy Lefort

European Microfinance Network. No part of this publication may be reproduced in any manner or form without prior permission from the

publisher and EMN.


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Table of ContentsFOREWORD................................................................................................................ 4

PLENARY SESSION: MICROCREDIT IN SPAIN: RAPID EXPANSION THANKS TO THESAVING BANKS............................................................................................................5

1. CLIENT PROFILE AND ACTIVITY LEVEL .......................................................................................... 52. CLIENT IDENTIFICATION PROCESS AND RISK GUARANTEES ............................................................ 63. PARTNERS AND FINANCING SOCIAL ORGANISATIONS.................................................................... 7

WORKSHOP 1: SCORING OR NOT SCORING YOUR CLIENTS? .................................... 9

WORKSHOP 2: MORE THAN A LOAN: INNOVATIVE WAYS TO INTEGRATE YOURMICRO-ENTREPRENEUR INTO THE BUSINESS WORLD..............................................13

WORKSHOP 3: WORKING WITH IMMIGRANTS IN EUROPE: A NEW CHALLENGE FOMICROFINANCE PROVIDERS .................................................................................... 16

WORKSHOP 4: HOW CAN INTERNATIONAL MFIS REACH A BALANCE BETWEENTHEIR SOCIAL AND FINANCIAL OBJECTIVES? ..........................................................22

PLENARY SESSION: POLICY MEASURES TO PROMOTE MICRO CREDIT IN EUROPEFOR SOCIAL INCLUSION, WHAT CAN WE LEARN FROM EACH OTHER? ................26

WORKSHOP 5: INFORMAL SECTOR: THREAT OR OPPORTUNITY?..........................32

1. DEFINING THE PUBLIC. .............................................................................................................. 322. WHAT ARE THE OBSTACLES? ...................................................................................................... 333. HOW TO LEGALISE THIS SECTOR?A POSSIBLE SOLUTION:MICROCREDIT ? ................................... 334. IMPORTANCE OF THE SOCIAL DIMENSION ................................................................................ 34CONCLUSION...................................................................................................................................... 34

WORKSHOP 6: TRANSPARENCY: AGREEMENT ON BASIC BENCHMARKS INEUROPE? ...................................................................................................................35

WORKSHOP 7: CLOSING THE LENDING GAP: ARE SPECIAL PROGRAMMES NEEDEDFOR EUROPES FEMALE ENTREPRENEURS? ............................................................ 40

1. MODERATOR PRESENTATION.......................................................................................................... 402. PRACTITIONER PRESENTATIONS..................................................................................................... 423. QUESTIONS AND RECOMMENDATIONS ............................................................................................ 44

PARTICIPANTS LIST ..................................................................................................45


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Foreword

The second conference of EMN was organised in Barcelona, the place wherethe network was created in April 2003, with the support of our Spanishmembers, especially la Caixa and Fundaci Un Sol Mn de CaixaCatalunya.

The participation of Queen Sofia, of Pasquall Maragall, President of theGeneralitat, of Narcis Serra, President of Caixa Catalunya, ofXavier Casas,Deputy Major, ofJess Caldera, Minister of Labour and Social Affairs and ofJosep Vilarasau, President of la Caixa at the opening ceremony showed theimportance given to the development of microcredit in Spain.

Introducing these minutes of the conference, I would like to stress three pointspresented in my opening speech:

First, microcredit is a powerful instrument of growthThe first equation we learn in economy is labour+capital= creation of wealth and this equationapplies to all kind of activities including microentreprises, which play a growing part in Europeaneconomy.

Second, microcredit is also a tool of social cohesionIt is not only a financial instrument providing investment and working capital to self-employed andsmall entrepreneurs. By helping the excluded to enter or re-enter the market economy, it restores

also dignity, self-esteem and social links.

Last, but not least, microcredit is one of the foundations of the democracyFinancial exclusion is not only a result but also a reason of economic and social exclusion Openingaccess to credit to all segments of the society, means reducing dependency on the Welfare State,improving equity and decentralising decision-making to all segments of the population.

These are three good reasons to combine efforts of all stake holders: EMN to extend the best practices among its members, European Commission and Governments of the members states, to improve the legal and

regulatory framework Structural funds, banks, local governments and socially responsible enterprises to support

the development of microfinance institutions.

Maria NowakPresident of EMN


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Plenary Session: Microcredit in Spain: Rapidexpansion thanks to the Saving Banks(27 October 2005 10.00 am to 11.00 am at Cosmo Caixa)

The objective of this plenary assembly was to present the microcredit sector in Spain and toexplain why it is so dynamic. Based on three savings bank examples, the session illustratedthe methods of operation and the strong points of the main actors in Spanish microfinance. Asecond aim of the focus on Spain was to highlight methodological tools that may be replicablein other Western European countries.

Facilitator : Jan Evers, (EVERS & JUNG Germany) Panelists: Angel Font, (Fundaci Un Sol Mn de Caixa Catalunya Spain),

Marcel Abbad, (Obra Social la Caixa Spain), Jon Mancisidor, (BBK Spain)

The microcredit sector in Western Europe is growingrapidly and it is particularly dynamic in Spain where thesavings banks have played a major role. Most of thesesavings banks have existed for more than a century.Historically, they are organisations with a social characterthat include charitable activities which operate on thebasis of donations from the middle class.

The evolution of economic and banking systems togetherwith regulatory changes have led the savings banks todevelop purely financial operations. They have thusevolved into competitors with the banks in offeringfinancial products. Nevertheless, they have managed to

maintain their special status as result of their social commitment. In effect, a share of their profitsis allocated to social works.

1.Client profile and activity levelFirst, it is important to be aware of the profile of savings banks clients who are able to benefit from

the microcredits offered and their level of financial activity.

According to Jon Mancisidor from BBK, targeting clients is the key problem. Spain is not ahomogeneous and uniform country. In fact, several different social realities co-exist. During the1970s and 1980s, the Spanish Basque country experienced a very serious industrial crisis which ledto an explosion of unemployment in the region with a rate of up to 60% for those under 30.Although the situation has improved since then, BBK clients remain mainly young men (60% ofclients) who aim to launch a small business in the field of services (20%), trade (20%), publichealth (10%) or building (7%). The remaining 43% include a very wide variety of other incomegenerating activities.

Personal resources average 2000 euros. BBK itself has approved 1,318 microcredit operationsgiving rise to job creation.

A second reality in the Basque Country concerns the problem of severe exclusion, especially amongimmigrant populations. This recent phenomenon has caused BBK to establish a second project in


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which microcredit no longer serves to launch an economic activity but rather to respond to currentconsumer needs.

According to Marcel Abbad of the Obra Social la Caixa, it is alsodifficult to define the profile of microcredit clients since thisdefinition is largely based on subjective concepts (such as poverty orexclusion) Clients in the Canary Islands, for example, have adifferent profile from those in the north of Spain. Thus, rather thandefining a model profile, it is necessary to look at the organisationwhich works with these clients and the level of knowledge that theyhave of their clients.

In 2005, la Caixa doubled its microcredit business compared to2004. To date, the microcredit department of la Caixa hasexamined 1,816 dossiers of which 1,354 have been approved.

La Fundaci Un Sl Mn de Caixa Catalunya, a pioneer in themicrocredit field in Spain, started with the observation that one in fiveSpaniards live below the poverty line. Its vision of labour marketinsertion is based on two main axes, namely access to employment and access to housing.

However, the Foundation is also developing other areas of work such as the promotion ofenterprise insertion and international cooperation, especially with Morocco.

With respect to the level of microcredit activity, the foundation has assisted 800 clients to dateincluding 300 in 2005 (twice as many as in 2004). The investment level is 7 million euros and theaverage loan is 8,000 euros. The latter figures were 13,000 euros and 9,000 euros in 2001 and2002 respectively. This downward trend in the average amount of the loans is an indicator thatneeds to be watched closely since it makes it possible to evaluate the level of success in achievingthe social objectives. In fact, the downward trend is also the outcome of better targeting of clientsneeds since 5,000 euros seems to be adequate to launch an entrepreneurial activity.

Rather than presenting a model client profile for Un Sl Mn, Angel Font preferred to outline theprofile of their most recent client. He is a 20 year old young man of Pakistani origin who has beenliving in Spain for 8 months and who manages a cybercafe sold to him by a compatriot. This man

who had already saved around 1000 euros was able to obtain a loan of 9,000 euros. In thiscontext, Angel Font recalled the words ofMohamad Yunus to the effect that microcredit existsnot only to make business possible but also to enable a destitute person to generate income withmicrocredits from 1000 to 1500 euros.

2.Client identification process and risk guaranteesIn order to better understand the operating and risk management methods of the Spanish savingsbanks, session moderator, Jan Evers, proposed to examine their working methods.

The BBK process of client identification is based on two main entry points. Requests for microcredit

may arrive through the BBK agency network. Alternatively, the social network (associations,foundations) identifies excluded persons likely to need microcredit. In both instances, the

microcredit department at the BBK head office handles the requests. This department firstanalyses the viability of the project. It then sets up a programme of mentoring, training and followup for the person seeking microcredit. Once this has been approved, the project is transferred tothe commercial section of the BBK. The client is thus treated similarly to an ordinary bank client.According to Jon Mancisidor, the main difficulty arises from the financing of mentoring costs andstructural costs.

The methodology ofla Caixa is very similar except that in contrast to BBK, la Caixa coversthe operating costs. Marcel Abbad noted that in effect the foundations which manage the socialworks receive a share of the profits from la Caixa. There is a special committee which is incharge of the approval of microcredits. This brings together employees from the social workdepartments and the bank risk department of la Caixa. The outcome is a collaborativepartnership that enables the raising of awareness among all actors concerning the socialintegration objective of microcredit.


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When Fundaci Un Sl Mn de Caixa Catalunya makes a loan agreement with a client, it ishandled by the savings bank as an internal financial process. After a long trial period, a newmethod of identifying clients has been introduced. The Caixa Catalunya network of socialinstitutions develops close contacts with clients. This proximity (an important vector in largeregions) enables clients to be followed up throughout the insertion process. The new methodconsists of establishing pre-committees known as territorial tables which analyse requests formicrocredit. These committees estimate the project risk and make a social assessment which

functions as an initial filter. Prior to the introductionof this new method, 60% of cases were refused. Now,the proximity working groups have enabled the CaixaCatalunya to develop much closer links to thesituation on the ground. Once the microcredit hasbeen accepted, the borrower also becomes a fullclient of Caixa Catalunya (although in the case ofnon-payment, it is the Fundaci Un Sl Mn itselfwhich follows up). Thus, the second or third loangranted may be an ordinary loan. Caixa Catalunyatherefore prefers not to isolate microcredit clients butrather to re-integrate them into the banking system

over a period of 2, 3, 4 or 5 years.

3.Partners and financing social organisationsAccording to Jan Evers, the territorial approach and the links between social associations andbanking agencies comprise keys to the success of the Spanish savings banks. Therefore it could beinteresting to promote such partnership networks between savings banks and social entities ormore generally with the kinds of social entities that exist in Spain.

According to Jon Mancisidor, BBK works with two kinds of institutions. First, there are thedecentralised institutions such as public bodies and municipal councils which set up development

agencies financed by the State. Secondly, BBK works with a whole series of associations, NGOsand foundations which work for the integration of people, including handicapped people, abusedwomen, one parent families and others. These are the essential link organisations for identifyingneeds, promoting microcredit activities and raising awareness of excluded persons concerningmicrofinance. These organisations are financed by the state, business social responsibilityprogrammes and the savings banks which launch calls for projects. As a result, BBK works with 40local development agents and 150 social organisations which deal with different aspects of socialexclusion. This method of work which is characteristic of the associative sector gives good resultsand assists in maintaining a solid social structure.

In the view ofMarcel Abbad, it is also important to collaborate with the associations who do mostof the close quarters work with excluded people. The banking activities of la Caixa rely on apowerful network of 5,000 territorial agencies and more than 25,000 employees. This assists inpromoting distribution of information and more efficient work. The social commitment that is

characteristic of the Spanish savings banks has also led la Caixa to sign more than 130partnership agreements with different social bodies throughout the country.

In contrast to BBK, la Caixa tends to work more with the central government which eithersubidises NGOs or involves itself directly in social action through the management of public andEuropean funds. For example, La Caixa has signed an agreement with the Institute of theWoman, an organisation attached to the Ministry of Labour and Social Affairs. These agreementsenable three actors to be brought together around the common objective of developing microcreditas a tool of economic and social integration.

Marcel Abbad also insisted on the fact that the NGOs with which they work each have their ownmanagement methods, their own specific form of organisation and a well-defined budget. In termsof operating costs, it should be underlined that these associations depend greatly on the work ofvolunteers, which considerably reduces the operating costs, even if the present trend is towardsprofessionalisation of the sector.


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The management of non-payment risks was one of the main questions posed by the audienceduring this plenary session.

The non-payment rate at Un Sl Mn Foundation is 4% although this may fall to 3%. Moreover,no difference has been noted between the reimbursement rate of men and women. The Foundationview of subsidies for borrowers very negatively. For the first microcredit, the applicable rates ofinterest are 10-11%. This leads many people to believe that microfinance institutions are actingusuriously. However, the fact is that borrowers reimburse their loans and that the demand formicro-loans has increased. At present, the interest rate applicable to microcredits is 6%. Althoughthis is above the market rate, it nevertheless is not sufficient to cover the management costs ofthese loans. Moreover, the Foundation assumes 100% of the risk of non-payment.

The microcredit sector in Spain is thus characterised by asolid associative network that plays a bridging role betweenthe savings banks and persons who are excluded. Accordingto Angel Font, the majority of these persons do not takethe initiative to contact the banks or savings banks. Theyhave closer links to NGOs and other associations whoprovide the essential linkages in the microcredit sector. Thisexcellent social network, however, is financed in large part

by the ESF. In the view ofAngel Font, questions need tobe asked concerning the maintenance and the sustainabilityof this network since certain regions of Spain will no longerbe classed as Objective 1 from 2007. How will theseorganisations be able to meet their costs if European fundsare reduced?

Jan Evers thanked the speakers and concluded that the Spanish example demonstrates verystrongly how micro credit and banking in Western Europe can work hand in hand for mutual profit.However, it also indicates limitations of the models so far: income from interest rates can coverbad debt and potentially the management costs but not the business support given. Thedependency on subsidies is therefore an issue of the future and innovation and research in anadequate and efficient level of business support.


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Workshop 1: Scoring or not scoring your clients?(27 October 2005 2.30 pm to 4.30 pm at Cosmo Caixa)

More and more microfinance institutions in the world are scoring their clients in order tobetter know them, reach them and improve the services they could provide them. Howeffective is this for microfinance institutions? How can it be adapted in Europe? Experiencefrom Finland, Bosnia & Herzegovina and other Eastern European countries were shared with ageneral presentation of the methodology.

Facilitator : Marco Habschick, (EVERS & JUNG Germany) Panelists : Dean Caire, (Bannock Consulting UK), Ilpo Jokinen, (Finnvera

Finland), Ivona Planinic, (Prizma Bosnia and Herzegovina)

Many commercial banks already use scoring to evaluate and mark their clients. However, use ofscoring by MicroFinance Institutions (MFIs) to assist in decision making on loan approvals is morerecent.

Scoring enables the risk profiles of MFI clients to bedetermined on the basis of knowledge of their (financial)history. This involves calculating the relationship betweenthe repayment rate (or to be more precise, the risk of nonor poor repayment) and the various factors that influencethe amount, the length of the loan, the interest rate, the

type of client, the form of guarantee For an MFI, theobjective of scoring is to obtain better understanding andidentification of their clients (poverty level) in order toimprove its services.

Thus, the aim of this workshop was to answer thefollowing question: Is scoring an effective management

tool for improving services to MFI clients?

Do microcredit clients need to be evaluated or not? Given that MFIs have different objectives fromcommercial banks and that they do not focus on the same type of clients, is scoring really anappropriate tool for MFIs?

Session moderator, Marco Habschick from Evers&Jung, began his presentation by posing anumber of questions that the workshop should aim to address:

Is scoring effective? What impact does using it have on clients? How does it work and what are the different steps to be implemented in setting up a

scoring system? Are there any indicators available at present which support the use of scoring systems? What are the mistakes to be avoided? Can scoring methods be adapted for use by Western European MFIs?


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In order to explain its usefulness for evaluating MFI clients, Marco Habschick outlined thefollowing scoring matrix:

Real situation

GOOD BADGOOD OK Error BAD Error OK

This matrix compares the predicted behaviour of a client making loan repayments with his realbehaviour. It highlights two kinds of error. Error arises if a credit agent predicts that a client willbe a bad re-payer or that he will face difficulties in meeting his debts and this does not correspondto the real situation. Similarly, error arises when a good client is predicted but who fails to makeloan repayments. Based on this theoretical framework, the use of a scoring system enables betteridentification of clients, adaptation of financial products to their needs and minimisation of bothkinds of error.

A credit agent needs to make decisions based on the likelihood of future events over which he hasno control. The question is whether a client is capable of repaying the loan or not. He or shetherefore needs to be in a position to make predictions.

Dean Caire is convinced that scoring is a tool that can be applied by MFIs. He gained hisexperience in Eastern European countries where many commercial banks use scoring. Now workingfor Bannock Consulting (United Kingdom), he develops scoring models for public and privateinstitutions, which enable them to achieve greater effectiveness with their clients.

In Dean Caires view, the main advantage of implementing a scoring system for an MFI is tosignificantly reduce decision making time for approval of a microcredit to an average of around oneday. Simply entering the statistics of a client who wishes to obtain a loan into a software scoringprogramme enables a client scorecard or evaluation file to be generated. Depending on theresponse obtained other information may be required. Based on this score, the Credit Committee

makes the decision on whether or not to grant the loan.

Scoring thus improves the effectiveness and the efficiency of an MFI and reduces the subjectivityinherent in a loan approval since the decision is based on a concrete model. It thus also enablesstandardisation of the procedures for granting loans and for facilitating adjustments in terms of thecredit policy. Finally, scoring improves portfolio risk management, especially for MFIs. Dean Caireexplained that any bank is able to implement a scoring system based on its own portfolio historyand on its existing client database.

Two kinds of scoring models are usually distinguished, namely statistical models and judgmentmodels. The first model is based on empirical information for each client. It is therefore necessaryfor the institution to have a reliable database including the financial history of each client. Thesefigures may involve financial balance sheets, repayment history for previous loans, etc. The modelthus enables probabilities to be calculated for the risk potential of the agreed loan, or in other

words, the probability that the client will become insolvent, will be a poor payer or that the loanwill become problematic.

On the other hand, the judgment model is addressed to institutions which have no or littlehistorical or other information concerning their clients. They are based on pre-established decision-making rules such as experience, knowledge of the local market, etc. This model enables loans tobe classified in terms of relative risk. Priority is given later to sharing all the information collectedin order to transform the model into a statistical model.

Other hybrid models also exist that combine the two preceding methods.

These scoring models have provided positive results. In the European Union, they have alreadybeen used for evaluating more than 10,000 transactions. Decision time has been reduced to a day

and the quality of the portfolio is constantly increasing (>2%) for all the institutions that have usedthe models developed by Bannock Consulting.

Predictedsituation


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Based on his experience, Dean Caire makes several recommendations. It is necessary to find ascoring champion who will manage the model and to provide ongoing training in different scoringmethods for this person. He/she will then be able to continue to manage the performance of themodel. It is a dynamic system which needs to be updated continually based on new informationgathered, especially with respect to loans that are declined or the MFI policy on cancellation of acredit.

Ready made models should therefore be avoided. It is better to take the time needed to developa good scoring model that is appropriate to the institution and to collect good data rather thanapplying an existing model which could be inappropriate.

Each different scoring model has its own limits. In effect, they must simplify rather than reflect thetrue complex reality of a situation. The various models have been tested many times and suggestrepayment probabilities based on a non-exhaustive number of factors. In this sense, they can evendistort an analysis. However, they do provide indicative results and thus enable uncertainty to bereduced. Hence, it is important to remain vigilant concerning the evolution of various factors.Scoring thus can improve decision making both for approving and rejecting microcredits.

In Bosnia-Herzegovina, the MFI Prizma, represented by Ivona Planinic, recently introduced ascoring system for its programmes for a number of reasons. First, scoring corresponds perfectly to

the self-sufficiency objective of an organisation. Secondly, Prizmas social objective of improvingthe well-being of poor women and their families exists in parallel with its financial objective of

providing its clientele with sustainable access to quality financial services. As an enterprise with asocial vocation, scoring enables Prizma to increase its effectiveness and efficiency.

Ivona Planinic explained that Prizma works closely withthe Micro Finance Center (MFC) within the framework of theImp-Act programme. This involves developing a system toenable the evaluation of client poverty levels as well theirevolution over time. The aim is to design scorecards orpoverty evaluation files. The next challenge for MFIs will beto implement an integrated scoring system enabling theevaluation of client poverty levels (Poverty scoring), toevaluate the proposed credits (Credit scoring) and to

integrate these results in a single evaluation file. Prizma haschosen to implement a scoring statistical model. In order forthe system to totally operational and usable, some time isrequired to gather client information, lines of credit, etc. that

will enable reliable analyses to be made.

This model is based on many social indicators such as the level of education, training, SPC (Socio-Professional Categories), access to transport, access to food, number of household membersThese indicators enable an appreciation to be made of the client standard of living. The followingstage consists of incorporating the evaluation file into a financial balance sheet for the client thusensuring the overall transparency of the model.

As well as a scoring system, many processes have been developed in order to improve social

performance. The viability of an established scoring system requires carrying out research onexisting clients and on certain groups of the target population. This analysis aims to betterappreciate client needs through interviews and questionnaires. This approach enables us to developleadership within Prizma as well as to develop an enterprise culture and to provide incentives.Finally, ongoing controls provide a continual evaluation of client poverty.

Ivona Planinic believes that establishing a scoring system leads to improvement in the clientloyalty rate, the development of a client statistical database and to the promotion of a client needs-based approach by Prizma.

Ivona Planinic concluded by emphasising that scoring is a risk management tool that reinforcesthe competitiveness of an organisation in an expanding market. In order to improve the likelihoodof success, all staff should be trained to achieve a good understanding of the issues involved insuch a system.

The system developed by Finnvera resembles a rating system more than a scoring system. Theaim is to define a marking system that will measure the reliability as well as the present and future


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profitability and effectiveness of the MFI. Finnvera is a Finnish state company with limited liability.Loans to micro-entrepreneurs represent 10% of its entire vast portfolio of financing activities in itsnetwork of 27,100 clients. Finnvera mainly works with enterprises. Thus the rating consists of ananalysis of the entire enterprise or MFI. Rating, like scoring is a tool to assist in financial decisionmaking and is a risk management tool. Thus, when an MFI wishes to make an investment, it will bethe subject of a detailed analysis that will lead to the preparation of a report. This report will makeconclusions about the viability of the enterprise. The rating uses a marking system that enables theclassification of MFIs according to their level of risk: A, B1, B2, B3, C. Finnvera is granting financeto gategories A to B2 and in special ocassions also to B3, but the maginal of the interest dependson the risk classification so that the weaker rating is the higher is the marginal.

Ilpo Jokinen, risk management manager at Finnvera, explained that this process was chosen inorder to control the risk level of financial portfolios after the recession in Finland at the beginning ofthe 1990s

Evaluation of MFIs is based on many indicators, such as management which includes structuring(composition of the Board of Directors, director, organisational flow chart, key persons), theorganisation of the institution (products, clients, marketing, competitiveness, technology used) andin depth financial analysis of its structure (profitability, cash flows, capital structure). Theseindicators are not exhaustive. All statistics are subsequently integrated into a model and a risk

level is thus obtained for the business analysed.

Ilpo Jokinen considers that a good rating system will enable products to be priced and financialdecisions and follow up of client behaviour to be delegated and measured. IlpoJokinen also notedthat Finnvera was able to build up a privileged relationship with micro-entrepreneurs while usingthis method, especially with those clients who were in the process of launching their businesses.This was very fortunate because it also enabled them to remain in continuous contact with theclient.

The microfinance sector is risky and some form of marking is necessary whether by a scoring orrating process. It all depends on the kind of clientele being served. It is not possible to manage aportfolio without appropriate follow up.

Marco Habschick concluded the workshop by emphasising two points. The first is that any scoring

system needs to be structured. We need to go further in our analysis, he said. The secondillustrates that scoring should not be limited to a view of financial performance. It should also belinked to social objectives as the experience ofPrizma shows.


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Workshop 2: More than a loan: Innovative waysto integrate your micro-entrepreneur into thebusiness world(27 October 2005 2.30 pm to 4.30 pm at Cosmo Caixa)

In the European context, the simple provision of microcredit will not guarantee the success ofa micro-enterprise. The development of specific services or new approaches has proven to benecessary in order to better integrate the micro-entrepreneur in the business world. Thisworkshop presented practitioners with new ideas based on innovative experiences from

Slovakia and France.

Facilitator: Faisel Rahman, (Fair Finance UK) Panelists: Allan Bussard, (Integra Slovakia), Roger Abehassera, (Microsoft

France), Amlie Benais, (Adie France)

Microfinance in less developed countries around the world isgenerally straight and direct: it is just the provision offinance with very little training and support. The EuropeanUnion experience in microfinance shows that this is notenough to ensure sustainability of micro-enterprise in

European countries. The three speakers are presenting theirexperiences in different European countries.

Integra is a foundation working in networking MFIs in 6countries in Eastern Europe and its main office is based inSlovakia. As Integra is working with SMEs, its mainactivities are based on women entrepreneurship with a

program which started in 1999. In July 2003, that program included more than 600 women and 22lending cycles. In 2002, Integra started a new initiative based on market access. The main idea isthat in a country like Slovakia, which economy is within a transition period, the traditional marketfor women clients is changing radically: supermarkets, shopping malls are selling products incompetition with those produced by women locally. The program called market access is treatingof these problems. 3000 women are part of this program. The vision ofIntegra is that microcreditis not the only product for entrepreneurship, but that women also need a wide range of

interventions in order to help their micro-projects being successful and sustainable. Women at riskis the main target group of the program and Integra help them giving credit to help womenproduce things that they can sell on the market very efficiently.

According to Allan Bussard, helping unemployed poor women into the micro-entrepreneurshipdevelopment process is based on community building that means developing social capital whilecreating community groups, networking and mentoring. In fact, this process relies on three mainfactors:

Skills development (communication skills, mentoring, thematic training, etc.) Financial services (microcredit, banking services and public programs) Market access services (brand, consulting, retail and wholesale).

This whole process, used by excluded women in Eastern Europe, is a way to create sustainablecompanies and jobs and to empower clients.


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Integra Foundation created Ten Senses Ltd. based on the market access idea. It is a full profitcompany working on fair trade principles that provides market access to producers to help themsell their products while being a good steward of shareholders investments. Ten Senses Ltd. hasopened shops in different Eastern countries (Slovakia, Romania and Bulgaria).

The business program of this company is based on consulting needs (quality control, design andpackaging issues, costs issues). Allan Bussard underlines that, with a consulting help forproducers, wholesale and stores can be sustainable. He recommends also to provide consulting forothers NGOs.

Lessons learnt by Integras experience are : Exclusion of clients due to globalization Product and design consulting is essential Market access will provide credit access in mature economy A high demand for others MFIs and NGOs to work with those target groups An increasing fair trade market with Southern countries Social capital growth through stable supply chain Advocacy with global retail

Roger Abehassera is presenting the project of

Microsoft, in partnership with Adie, which is based onthe use of new technologies to help micro-entrepreneursstart their business. Microsoft and Adie set up virtualtraining centers to train micro-entrepreneurs oncomputer basis (a three-day training). This course helpspeople using the internet and getting information onadministrative work. At the end of the training session,Microsoft offers the trainees to buy a computer for lessthan a hundred euros! This program has existed for ayear with also the collaboration of Les Restos duCoeur, a French association. It has been going on worldwide under the name of UnlimitedPotential (created by Microsoft International).

Amlie Bnais, working for Adie, underlines that this project has a direct impact on micro-

entrepreneurs because it allows them to do their own administrative papers (bills, orders, etc.), touse the internet and to send mails, to communicate with their clients. This project is giving moreprofessionals skills to micro-entrepreneurs and is using Microsoft computer skills and Adiesmicrofinance knowledge for micro-entrepreneurs. This first experience of the program has allowed,this year, 300 clients to follow the training (Adie is hoping to reach 800 people). Adie is offeringothers services in order to integrate micro-entrepreneurs into the business world. There are threedifferent types of services:

Financial services, outside of credit (insurance) Partnership with big private companies giving access to new markets Administrative services and supply

Amlie Bnais points out the problem of insurance access for micro-entrepreneurs. To solve thisproblem, April group is working on a system of protection which gives guarantees adapted to the

activities at a good price for micro-entrepreneurs.A new model of follow-up and market access is done by Adie in partnership with big French firms: Primagaz is providing help to plumbers (tools, help, networking with contacts with new

clients). Leroy Merlin is employing artisans.

Each partner is taking profit of the partnership becausethe partner company is increasing the quality of itsimage, which is a real advantage.

Adie is also setting up a fair consummation axis withseveral events (like Christmas market, night market) inorder to help small sellers.

The administrative help and supply provided by Adie isreducing costs and expenses during the first few years ofactivity. Micro-entrepreneurs can benefit of a juridical


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consulting help with the participation of Linklaters group (English group of lawyers) which aresolving legal difficulties (problems with landlords or with clients). This help is free of charge. Adieis also giving individual help aside of its partnership with big companies (Adie wishes to buildpartnerships with LOral and EDF in the future).

Why MFIs have decided to provide non-financial services to bring micro-entrepreneurs to market access?

Non-financial services or business development services are seen by Allan Bussard as amission to help and to attract people to develop their own company. Aside of entrepreneurship, awide range of non-financial needs are involved and we have to give help and support to micro-entrepreneurs.

What are the main goals of those types of partnership?

A lot of companies are spending some money in areas not directly related to their activities.Microsoft is spending some money according to its mission which is helping people. RogerAbehassera underlines that the partnership between Microsoft and Adie is seen as a social

help which is very important for the culture and the image of the company. He says that this is avery positive experience which is hoped to last a long time.

Amlie Bnais concludes by saying that this type of partnership is very profitable for the companyand also for Adie and that there is a real need for the micro-entrepreneurs to get tools to becomemore professional.

How to measure the return on investments, working with NGOs for the partnercompany?

Roger Abehassera says that the measurement can be done by probes because jobless people area key European issue. The program handled by Microsoft and Adie will increase people

employability through new technologies. It is also an opportunity for Microsoft to access new clientsbecause trainees may buy Microsoft products in the future and that day they might not needsupport from NGOs.

Allan Bussard underlines that CSR (Corporate Social Responsibility) understand that partnershipis a win-win strategy. Amlie Bnais agrees and says that this may increase company resultsand, in that case, it is a real part of the company strategy.


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Workshop 3: Working with immigrants inEurope: a new challenge fo microfinanceproviders(27 October 2005 2.30 pm to 4.30 pm at Cosmo Caixa)

Microcredit organisations in Western Europe are likely to identify immigrants as potentialclients. Many immigrants find themselves excluded from the labour market as a result ofdiscrimination and because of their difficulties in meeting employers criteria. Having already

proved their capacity for initiative by migrating to a new country, they naturally gravitatetowards self-employment in order to earn their living.

In light of these factors, this workshop set out to consider the involvement of immigrants inWestern European micro-finance programmes and to look at appropriate strategies to meetthe specific needs of these people.

Facilitator: Miriam Guzy (EMN - France) Panelists: Klaas Molenaar (FACET The Netherlands), Unni Beate Sekkesaeter

(NCN - Norway), Maika Sanchez, (Spanish Red Cross - Spain), Catherine Chaze,(Adie - France).

By way of introduction to the debate, Miriam Guzypresented an outline of the study Participation ofimmigrants and ethnic minorities in Western Europeanmicrocredit programmes, which was launched by EMN inJune 2005. This survey forms one part of a larger projectcarried out by EMN with 6 of its members. It was financedas part of the European Commissions DG Justices INTIprogramme with the objective of improving microcreditservices for immigrants and ethnic minorities.

Twenty two organisations from 9 countries1 participated inthe survey. An early finding is that the organisations whotook part were not all able to provide statistics on loans to immigrants. This raises a preliminaryquestion as to the reasons for this lack of information which could indicate either weakness in theinformation systems of the organisations operating in this field or their lack of particular attentionto immigrants. In addition, there are disparities in the way data is collected, e.g. the UnitedKingdom gathers information on ethnic minorities and not on immigrants. For simplicity, the termimmigrants will henceforth be used to designate both groups.

For the period 2002 to 2004 we noted: A significant increase in the number of loans to immigrants both in terms of absolute value

(696 loans in 2002 to 956 loans in 2004, an increase of 46%) and in proportion to the totalnumber of loans (from 11.5% to 13.5%),

An even greater increase in the demand for loans from immigrants (+158%). Nevertheless, the conversion rate (number of loans/number of contacts) for immigrants

remains lower than the overall conversion rate.

1 Germany, Finland, Norway, Spain, Switzerland, France, United Kingdom, Italy, Belgium.


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Questioned on their perception of obstacles confronting immigrants, 62% of microcreditorganisations identified difficulties specific to immigrants at one or more of the following stages:access to loans, business management, loan repayment.

The difficulties noted included: External barriers to gaining access to loans, e.g. legal status of immigrants, lack of training

and/or experience of business management, barriers from microlenders themselves, related to language difficulties, cultural differences,

immigrants access to information, business management issues including government regulations.

57% of respondents suggested measures that would improve immigrant access to micro-loans,especially mentoring during the planning phase of a project.

Few bodies have introduced specific measures for immigrants such as specific financial products orservices, training or individual follow up. Most consider themselves as neutral with respect to theorigin of their clients.

This survey thus illustrated both the utility of microcredit for immigrants as evidenced by thestrong demand, and the existence of specific difficulties of access to microcredit experienced by

immigrants which is reflected in a lower conversion rate. These factors highlight the need to look atthe adequacy of existing microcredit practices for immigrants.

Speaking as an expert on enterprise creation by immigrants in Europe, Klaas Molenaar ofFACETresponded to the introductory remarks. Firstly, microcredit is not necessarily the best service formigrants. There are a wide range of migrants, and migrants should not be assimilated with

micro. Secondly, the survey emphasises limits and obstacles whereas immigrants also have moreresources for starting a business than non-immigrants. They have taken the decision to leave theirhomes to make their lives in a new country, which already indicates a certain level of initiative.They live in an intercultural environment that obliges them to develop their adaptive capacities.They benefit from important family and social networks. FACET has identified difficulties inreaching the Turkish community, for example, because Turkish individuals can also prefer to relyon their own resources. The community functions by a circular flow of money between the countryof origin and the immigrant communities. These financial flows are significant with the result that

immigrants are not interested in what microcredit groups are offering.

Generally speaking, FACET noted that most immigrants prefer to rely on their own funds and donot wish to become indebted. On the other hand, they appreciate training and mentoring.

For FACET, the main issue in working with immigrants was not whether my knowledge isappropriate to the needs of the target group but whether I understand my client group Theyare not small business people, they are business people. Therefore, we need to look at theirconcrete needs.

Drawing on a sharing of experience from Norway, Spain and France, the second objective of thisworkshop consisted in identifying the characteristics and the specific needs of immigrants asmicrocredit clients.

Unni Beate Sekkester from NCN presented several portraits of immigrant entrepreneurs toillustrate the kinds of actions undertaken. NCN has offered microcredit since 1996 and 90% of itsclients are immigrants. NCN services were designed specifically for immigrants although servicesare open to all.

In NCNs experience immigrants starting point for launching any economic activity is their familyfinance followed by assistance from relatives/friends from the country of origin. However, theseresources are often inadequate and the immigrant entrepreneur may require a loan. Work withimmigrants to date has thus been based on a group and individual approach. NCN usually beginswith a survey of the particular individual situation of the immigrant. This takes into account hispast experience, his needs and his professional project. NCN then provides specific training (60-130 hours) covering preparation of the enterprise, budget planning, planning of activities, all ofwhich is done through a series of documents, some available in 15 languages. The loan is then

provided in partnership with the foundation Microinvest and Cultura bank. In addition to technicalassistance, NCN assists its clients in dealing with economic concepts such as cash flow but also


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more general issues such as culture, ethnic difference, rules and regulations, expectations of theNorwegian community, etc.

Contact with NCN as well as loan requests by immigrants are usually initiated by word of mouthwhich also helps explain the high proportion of immigrant clients. This was the case, for example,with a Pakistani immigrant who wanted to start a fashion business. She heard about the activitiesofNCN through another Muslim woman who had previously received a loan. The amount of theloan was only 1200. This was, nevertheless, a large sum for her plus she was also afraid that thegovernment would cut her social welfare benefits. This example illustrates an often identifiedobstacle to starting microbusinesses, namely the absence of a social welfare system appropriate tothe status of microentrepreneur resulting in an inactivity trap. NCN is also lobbying thegovernment for introduction of a transition period for welfare benefits support which will bemaintained during the start up phase of a business.

In another example, an Iranian woman who had been a designer in her home country started outworking in a fashion house after arriving in Norway as a refugee. She took out an NCN loan for9000 to launch her own clothing line and to organise her first fashion show. She now receivesorders from the Norwegian elite and even for dresses used in the royal castle. She also assists intraining for new NCN clients. The most important thing, however, is the strong involvement ofsuch people in the network. They play a very active role in awareness campaigns, as board

members, in group work, in training and mentoring and thus contribute to the success of theseactivities.

Speaking for the Spanish Red Cross, Maika Sanchez confirmed that self-employment andmicrocredit provide a major solution for integrating immigrants into the labour force because of themany barriers they face in becoming hired. Immigrants often have an entrepreneurial backgroundand a spirit of initiative. Their previous professional experience is often not recognised in Spain,due to problems with degrees standardisation. And for those who have been employed in Spain fora long time, self-employment is a way out of precarious jobs that are unrelated with theirqualifications or professional experience.

The immigrant clients of the Spanish Red Cross represent a broad cross-section of thecommunity but they nevertheless share a number of common features.

They find themselves excluded from the financial system. They know little about the local market and face difficulties in managing an economic

activity. They often have little knowledge of the financial and legal system. They have language difficulties. Sometimes they need to simultaneously keep a salaried job while running their business

project. Because of that, they lack time to manage the project. They have difficulties fulfilling legislative requirements or obtaining necessary licenses.

In addition, immigrant entrepreneurs also face the usual difficulties common to allmicroentreprises. First, the market is unpredictable and subject to strong competition. Secondly,there is no system of social welfare for self-employed people as it exists for salaried people. Forexample, unlike salaried workers, self-employed individuals have no right to unemploymentbenefits. More generally, administrative procedures are poorly adapted to micro business and these

procedures are different from one Spanish region to another. The same legislative provisions applyto small businesses with 3 employees as to enterprises with 200 personnel. Public grants are veryfew and they usually are very slow. In addition to these difficulties, immigrants face discrimination.For instance, immigrant people frequently have problems renting business premises.

The Spanish Red Crosss IMPULSA project promotes the integration of immigrant people intothe labour market through self-employment and micro credit. The same approach is followed for allclients regardless of whether they are immigrants or not. The Red Cross provides various servicesunder the IMPULSA framework. It assists immigrants in the preparation of their projects and inthe management of microcredit. It acts as a mediator between financial and social organisations. Itassists with followup of the business project.The overall objective is to give people enough time todevelop their projects and to gain confidence. According to Maika Sanchez, this work should beconsidered as an apprenticeship into the path towards employment and integration in the societyand the labour market, rather than as a way of compensating for difficulties to integrate.

Similarly to the Spanish Red Cross and NCN, Adie pointed out that its classical approach enablesit to reach a large number of immigrants. In 2004, 16% of its clients were foreigners (from outside


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the EU) while 24% were born overseas. This group (immigrants who have retained their originalnationality and naturalised immigrants) is estimated to represent 19% of its contacts which impliesthat there is little discrimination based on immigration status.

Adie confirmed several of the previously mentioned specific characteristics of this group: an oftenhighly developed entrepreneurial spirit, discrimination in the job market and by the banks which isoften worse than for other micro-entrepreneurs, difficulties linked to language, difficulties inobtaining recognition of qualifications, and a complex juridical environment. There are also anumber of specific sectors of activity in which specific communities tend to concentrate, such astrading, construction, certain services All the same, the overall results are similar to those ofother clients in terms of the overall rate of loan repayment and the sustainability of business.

Nevertheless, since 2001 Adie has developed a specific approach targeting the African communityin the Paris region - a group including people whom it may not have otherwise reached. Most ofthem are working poor, often with multiple sources of income, mainly with small trading activities(91%), usually in the informal sector (98%). There are many women (76%), often alone withchildren and with a high rate of illiteracy (65%). At the end of 2004, 275 persons had benefitedfrom this program. The average loan was 1300 with a 96% repayment rate.

The hallmark of this new approach is direct communication with the various communities and local

associations through meetings organised in local neighbourhoods. Normal procedures weresimplified in order to speed up access to credit. Instead of its usual individual loans, Adie offerscollective loans which are granted to three entrepreneurs who each provide guarantee for theothers. Furthermore, Adie established more pro-active follow up methods in order to support legalregistrationof these activities.

Based on the lessons learned from this experience, Adie has identified four major elements forimproving its work with immigrants:

The best point of entry for reaching these communities is through the communitiesthemselves and especially by word of mouth.

Adie is presently developing a training course on intercultural issues for its loan officers. Theobjective is to eliminate all unconscious discrimination based on cultural misunderstandings.

Mentoring tools developed for these populations are to be capitalised by preparing trainingmodules appropriate for an illiterate public as well as a guide to administrative procedures

for enterprise creation by non-French nationals. Lastly, this experience confirms the need for lobbying to obtain a status enabling the

legalisation of activities small supplementary income-generating activities.

Early discussion in the workshop focused on the Dutch assistance program for enterprise creationin the home countries of immigrants. FACET outlined the various stages of the mentoring approachit follows with such projects.

The starting point is the dream, the concept that the immigrant has for the project. At this stage,FACETs work focuses primarily on raising the awareness of the immigrant of the complexity of thereal world. It includes a mirror process in which the immigrant is required to think through thewhole project in order to avoid later frustration. A work plan is then determined. Here again theemphasis is on self education since it is the immigrant who gathers the necessary information.

Consultants are available to assist in this process. Following the analysis, the immigrantentrepreneur must make an objective assessment of his project in order to decide whether or not itis viable. He must then present and defend his project before an external committee who will makevarious recommendations. Finally and most importantly, the immigrant entrepreneur must find thefinance required. FACET provides no financial resources but it does offer assistance during thisprocess and in the various negotiations leading up to the grant of a loan. As an additional part ofthis process, FACET provides technical assistance for the implementation of the project in thecountry of origin.

In the view of Inge Heetvelt (FACET), a distinction needs to be drawn between immigrantentrepreneurs and people who simply want to develop a small complementary economic activity.

In this context, Klaas Molenaar illustrated several levels of economic activity with the followingdiagram. The immigrant community is characterised by a variety of situations and needs. The point

is to identify those situations for which microcredit will be an appropriate tool for the developmentof economic activity. For its part, FACET locates its approach on levels micro to medium. Each


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level requires its own specific approach, independently of the immigrant origin or otherwise of theproject holder.

NCN located its fields of action in the small and medium categories. Here the process requiresadapting to the circumstances of each individual situation. NCN deals with people.

A number of final remarks were also made concerning the need for lobbying, more particularlyregarding measures to avoid the inactivity trap. In Ireland, for example, a measure was passedenabling micro-entrepreneurs to continue receiving unemployment benefits for up to four yearsafter launching an enterprise.

Reaching some conclusions based on these exchanges, in Western Europe it would appear that: Microcredit is an appropriate mechanism for at least some immigrant entrepreneurs, for

projects ranging from small complementary income generation activities to enterprisesgenerating sustainable revenue.

While immigrants face a number of particular difficulties, they also have certain assets inrelation to the rest of the population.

Many of the difficulties confronting immigrant micro-enterprise creators in Western Europeare the same as those that confront micro-entrepreneurs in general (administrative burden,lack of management experience, abrupt cut off of social welfare). These problems arenevertheless exacerbated by additional difficulties including specific administrativecontraints, mastering the language, cultural differences

The products and methods for immigrants do not necessarily need to be different from thoseoffered to other microcredit clients.

Experience shows that supporting self-employment through advising, administrative changesand microcredit, promotes economic integration of immigrant people with a positive effect ontheir social and family situation.

The various interventions also identified various particularities at different stages of the lendingprocess:

Upstream: Experience shows that it is possible to reach immigrants more effectively and toestablish relations of confidence by working with communities and above all by relying onword of mouth (NCN, Adie).

Mentoring in the preparation and planning stage of the project is much easier ifentrepreneurs are able to speak their own language and if their compatriots are involved astrainers (NCN).

Raising credit agents awareness with respect to intercultural issues could assist ineliminating conscious or unconscious discrimination and in facilitating communication withentrepreneurs (Adie project).

The steps to be followed by foreign enterprise creators could be inventoried in an eventualmanual (Adie project).

For the process to be efficient, there must be close cooperation between organisations fromthe social and economic spheres supporting the microentrepreneurs, particularly when the


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social organisation providing the business and development services is different from theeconomical body giving the micro credit (CRE).

A favourable environment for business creation, including legislation issues as well as allforms of support services, are a key and essential factor in order for the microentrepreneursexperience to be successful (CRE).

The regulatory environment for enterprise creation is a major concern. Improvement in thisfield would have significant effects for this population group. Hence pressure on publicauthorities is needed.


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Workshop 4: How can international MFIs reacha balance between their social and financialobjectives?(27 October 2005 2.30 pm to 4.30 pm at Cosmo Caixa)

The objective of this workshop was to understand and reflect on the different experiences ofmicrocredit in countries outside the European Union. The panellists presented the examples ofAMSSF Morocco and Prizma from Bosnia Herzegovina to illustrate how each institution hassucceeded both in reaching out to the poorest and in ensuring their long term viability.

Facilitator: Bernd Balkenhol, (ILO Switzerland) Panelists: Khaddouj Gharbi, (AMSSFMC Morocco); Jure Zigo, (Prizma -Bosnia

Herzegovina)

The workshop began with presentations by AMSSF and Prizma. The panellists then discussedthese experiences with workshop participants.

AMSSF/MC was founded in 1994 and quickly began to specialise in microcredit. Its objective is toenable urban and rural entrepreneurs from economically disadvantaged communities who areexcluded from the classical banking system to gain access to structured finance in order to be ableto develop or stabilise their activ ities.

Its social and financial objectives are as follows:- To contribute to poverty reduction- To contribute to the integration of women in development. Thus, women represent 86% of

AMSSF/MC clients. Moreover, 56% of association employees are women.- To contribute towards job creation (AMSSF/MC has 96 employees).- To achieve social viability by reaching out more to women and to isolated areas,

Morocco being a highly rural country.- To achieve financial sustainability and profitability. This requires the association to be

self-sufficient within the terms of the Law of April 1999 (a law that regulates microcreditin Morocco), namely to achieve viability in 5 years. The financial viability rating ofAMSSF/MC is 104 and its operating viability is 134.

The performance of AMSSF/MC has already beenevaluated twice in 2003 and 2004 by the Moroccangovernment. It was ranked 3rd (of associations supportedby the Moroccan government) among Moroccanmicrocredit associations that are responsible fordeveloping effective action to combat poverty.

The key success factors for AMSSF/MC that areresponsible for its good performance are service qualityand product range as well as the development ofconsumer loyalty and proximity to clients.

Target population and services provided:Micro-entrepreneur craftspeople or traders exercising small sale professions and lacking easy

access to classical financing comprise the main target group. AMSSF/MC clients are distributed as


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follows: 35% in crafts, 40% in trade, 15% in services, 10% in rural activities (animal husbandry).There were 9,000 women comprising 76% of its 12,935 active clients in 2005.

The range of services proposed is very broad with the four principal types of loan as follows:

The Solidarity Loan is essentially financial in nature. It is granted without any materialor formal guarantee to groups of 5-12 people who know each other and guarantee eachother mutually. The loans are repayable on a fixed schedule and range from 50 to 800euros. However, they may reach 3,000 euros (the limit fixed by Law 18-97). The loanperiod may be 3, 9 or 12 months.

The Housing Loan is a personal loan product launched in May 2005 following anamendment to the microcredit law which now allows loans to be made for housing,electrification and water installation in urban and rural areas.

The Rural Tourism Loan was launched in 1994 following a grant from USAID. This is apromising strategic activity.

The Young Graduates Loan, developed by AMSSF/MC in collaboration with the FNAM,aims to provide loans to young unemployed graduates or young beginner entrepreneurswho have been trained in management.

Developing loyalty and proximity

Loyalty and proximity are clearly the second success factor for AMSS/FC. Since the population islargely illiterate, AMSSF has many field agencies which maximise contact with the clients, a factorthat distinguishes AMSSF from the banks. This policy together with the AMSSF policy of promotingclient responsibility mean that loan beneficiaries feel a sense of belonging to the associationand consider themselves as clients rather than as persons receiving assistance.

Finally, an impact study in 2004 commissioned by the FNAM (a federation of 12 Moroccanmicrocredit association including AMSSF) illustrates the positive results achieved by microcredit inMorocco. For example, a microcredit loan of 100 euros results in a 6% increase in householdincome. Moreover, 70% of women estimate that microcredit has enabled them to becomeautonomous as well as to achieve a certain tranquillity of spirit in their everyday lives (56%) (See

The horizons of their lives).

Prizma is an association created in 1997 with the objective of fighting poverty. It has been

registered as a Microfinance Institution since 2001 and since then it has granted 80,000 loans. Itnow has 70 employees from very diverse backgrounds and it has successfully built a network of 37offices all over Bosnia. It now has a presence in more than 80 municipalities. These offices enableit to meet the needs of 14,000 clients. The agency also has strong partnerships with USAID, KFW,UN, IFAD Its financial resources amount to 142% of its capital and its good results have led to itbeing awarded the UNDP prize for transparency and best practice. It was also rated by PlanetRating and classified A- which means excellent with a trend towards stability.

Its mission and objectives are to improve the well-being of the most disadvantaged (women andtheir families above all) by facilitating long term access to quality financial services. The socialobjective thus forms an integral part of its mission.

Its social objectives are:

-

To improve the well-being of clients by reducing their poverty level and vulnerability- To meet the needs of a large number of disadvantaged women and their families- To provide clients with a broader range of services and products (by proposing new

products and services)

Prizma ensures its financial self-sufficiency by:- Continual improvement of its productivity and efficiency- Continual improvement of the quality of services provided- Building respectful long-term relationships with its clients.

Its range of products consists mainly of capital investment products, loan services including threemain kinds of loans: enterprise and agricultural loans (which have a long repayment period andlower rate of interest), housing loans (for restoration and reconstruction), and loans for basicneeds.

Its activities focus mainly on maintaining its social performance by reaching the mostdisadvantaged populations. To achieve this, an evaluation of the conditions of poverty and more


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generally of the target populations is necessary. Different indicators enable the measurement ofsocial performance. These include education, employment conditions, family size or consumptionlevels (meat, transport, etc.). More generally, the poverty scorecard shows the poverty level ofthe actors concerned and enables them to be categorised (4 categories of poverty exist). Thecollection of this information enables Prizma to achieve its social objectives and to contribute tothe drafting of economic reports, marketing policies or to improving communication techniqueswithin the institution. Management of the output and social performance is also ensured within theMFI by providing strong leadership as well as an important system of premiums and bonuses forstaff.

Before opening up the debate, the moderator Bernd Balkenhol, summed up the salient featuresof these two MFIs, their strong and weaker points. Both are good performers in terms of povertyoutreach and financial results. They can capture more scale economies than most European MFIs,thus they are more able to contain and control costs.

In the Q and A period that followed, Antoine Marot (IFBC France) raised the issue of achievinga balance between the financial and social aspects. How can the social aspects such as education(literacy training, professional training, school) and/or health (eradication of illness, vaccination)be taken into account? What financing is possible? Is a global investment based on a

supplementary line of credit required?

According to Khaddouj Gharbi, the main areas of impact of AMSSF are autonomy for women,employment, security Microcredit is very recent in Morocco. Health and education problems areenormous. This has led other organisations to join the SSF to advocate on behalf of its causes.However, AMSSF was unable to achieve its objectives as a result of the 1997 law which requiresmicrocredit associations to restrict their activities to microcredit and technical assistance to clients.In fact, the government wants to closely control microcredit associations because of the fear thatmoney may be used to buy and control populations.

Sylvia Rico (Foro Nantiklum de Microfinanzas) then asked the two speakers about the viability oftheir institutions. The answer was that both institutions have achieved viability. Prizma is totallyself-sufficient from the financial point of view (which is progress compared to the past) and AMSSFis also self-sufficient and financially viable. Five years were needed to achieve financial and

operational viability. Before this, AMSSF/MC depended on grants from the UNDP and USAID.However, given the size of the demand, the organisation now relies on commercial loans. (Theassociation limits its running costs as much as possible.)

Thus, it may be strategic for microcredit institutions to develop commercial activities (question ofMaria Doiciu Microfinance Coalition Romania). According to Jure Zigo, a new law is expected inBosnia which will enable Prizma to establish a division between its commercial and non-commercial activities. The challenge is to meet the social objective. The banking conditions areeconomic performance and profitability but the social objectives are even more important.

According to Bernd Balkenhol, there is nothing wrong with having a diversity of external donorpartners as long as a MFI can manage it; what was intriguing in both cases was the role the legalframework: did it enhance or stifle the MFI development?

According to Jure Zigo, the fact of not being able to mobilise savings is a brake on developmentfor microfinance organisations. At the beginning of its activity in Bosnia, Prizma received manydonations. Now, however, commercial activities provide the main source of financing. Thus, it isnecessary to become self-sufficient and to focus on efficiency (up to 150 commercial clients arerequired for each loan offered with a target efficiency objective of 300 clients). With the newlegislation, Prizma will be able to implement its microcredit operations from savings which will bebetter and more efficient.

According to Khaddouj Gharbi, the Moroccan Law N 18-97 has served to regulate themicrofinance sector and to closely control it. As a result, it is no longer possible to save withAMSSF/MC. However, AMSSF/MC is a founder member of the FNAM (National Federation ofMicrocredit Associations), a federation with 12 microcredit association members. Lobbying by theFNAM federation thus led to the introduction of an amendment to the 1999 law with respect to

housing loans for access to water and electricity.

According to Bernd Balkenhol, it may be necessary to strengthen this lobbying activity.


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The next issue raised concerned mentoring activities within the microcredit framework.

According to Jure Zigo, Prizma officially does not offer non-financial services to clients althoughthe organisation did so in the past. However, it was not a major activity for Prizma.

According to Khaddouj Gharbi, AMSSF/MC has no separately existing non-financial products.However, it does have field agents (each of whom is required to handle around 300 clients) whoare sometimes able to raise peoples awareness of other microcredit related products.

To conclude, the presentations by the two organisations made it possible to pinpoint the principalsuccess factors for a microfinance institution. Belonging to a global microfinance network is aclearly important aspect of success for an MFI. In effect, this favours the capitalisation ofknowledge, an increase in the number of microcredit projects, the sustainability of these MFIs andhas an influence (as was the case in Morocco) on the legislative framework for microcredit.However, it is difficult to define a single and simple model for success. It is necessary to beattentive and to learn from other experiences.


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Plenary Session: Policy measures to promotemicro credit in Europe for social inclusion, whatcan we learn from each other?(28 October 2005 9.00 am to 11.00 am at Caixa Catalunya)

Based on a research conducted by Facet, nef, EVERS & JUNG in collaboration with MFC andEMN, this plenary session presented the main findings in 8 European countries (France, UK,Spain, Sweden, Poland, Romania, Czech Republic, and Germany). It also discussed thevarious barriers and bridges identified in the three main systems (employment, financial and

social welfare) and how these can be overcome in the fight for social inclusion.

Facilitator: Inge Heetvelt, (FACET The Netherlands) Panelists: Maria Doiciu, (Microfinance Coalition Romania Romania), Hugues

Feltesse, (European Union), Bob Brennan, (UK Government)

The study on which this panel was based deals withpolicy measures promoting microcredit that form part ofthe European Unions Community Action Programme tocombat social exclusion. It is based on transnationalcomparisons between seven European Union member

states, namely the Czech Republic, France, Germany,Poland, Spain and Sweden as well as one state,Romania, which is in the process of accession. It involvesidentifying and analysing the most effective policymeasures for promoting access to microcredit and tomentoring services for self-employment projects ormicro-enterprises. These measures particularly target

marginalised, vulnerable people who experience great insecurity. The aim is to make the regulatoryregime more favourable to self-employment and to the creation of micro-enterprises.

This study identifies the linkages and the obstacles between the different social, entrepreneurial,legal and financial elements that comprise the social economy.

The study concludes that microcredit appears to be a valuable tool for facilitating social inclusion

through self-employment, which has been assisted by various policy measures that have beenimplemented.

The objectives of the plenary session were: To present the main results of this study. To understand the linkages and the obstacles that exist between the different elements of

the economy. To identify the most effective or promising policy measures that have been implemented in

various countries. To capitalise the experiences of the various participants and to identify the lessons that can

be drawn. To draft recommendations favouring the future development of the sector.

Session moderator, Inge Heetvelt, began by outlining the main conclusions of the study. Sixfactors determine the existence of a legal regime favourable to self-employment in each country:

The entrepreneurial environment.


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The political context for micro-enterprises: Do measures exist which encourage self-employment particularly for excluded populations?

The social context: Do social linkages exist that could enable unemployed people to gainemployment?

The existence of a legal framework regulating the microfinance sector The financial environment: Do specialised financial products exist for excluded and self-

employed people? Financing and support for MFIs: Are the sources of finance for microcredit direct and

sustainable? Do they provide sustainability for the system?

Each country participating in the study was evaluated on the basis of these factors and the resultsare presented below in the form of a radar graph.

Inge Heetvelt felt that the study has also enabled a number of aspects to be identified:

1. The groups of socially excluded: The persons at risk who are the same in all countries. They include young unemployed

people from 16 to 24 years of age with no qualifications, the unemployed in general,immigrants, gypsies, handicapped people, the elderly, single parent or large families,the homeless and drug addicts.

In Romania beside the above mentioned persons at risk a particular group is formed byyoung entrepreneurs at start and non bankable micro enterprises.

2. The different obstacles that confront each group: Individual obstacles such as entrepreneurial capacity and aptitude, culture, sense of

responsibility, lack of collateral and credit history.


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The obstacles inherent in the different sectors of the economy. The various sectorspursue different objectives and the lack of coordination between them makesadministrative procedures complex. Information for persons desiring to launch their ownbusinesses is thus often incomplete.

3. Channels and good practices: In order to promote an entrepreneurial environment, policy measures need to

favour self-employment and the diffusion of an entrepreneurial culture in the economyand the universities (as in Poland, for example).

Social measures: It is always difficult to launch a project without the benefit of socialwelfare. In Ireland, every new micro-entrepreneur receives assistance for the first fouryears? The micro-entrepreneur receives 100% of social welfare in the first year, then75%, 50% and 25% in the following years. This greatly facilitates the transition to self-employment.

Financial measures: The most important financial measure is the establishment ofpartnerships between MFIs and commercial banks. MFI clients thus become ordinarybank clients and are no longer stigmatised.

Legal framework: The implementation of specialised laws encourages self-employment and the creation of micro-enterprises as well as a coherent legal frameworkfor the micro-crediting activity (as in the Romanian and British examples).

Bob Brennan began his presentation by mentioning that there are four million Small to Mediumsized Enterprises (SMEs) both profit and non-profit in the United Kingdom. Bob represents theAccess to Finance directorate of the Small Business Service (SBS), created five years ago as anagency of the UK Department of Trade and Industry. The agency has a highly relevant slogan,namely to make the United Kingdom the best place to start and grow a business. Improvement inthe regulation and promotion of entrepreneurial activity are the two main poles of action of thisagency, which aims to improve access to finance and business support services.

In November 1999, the Phoenix Fund was launched in response to the report Enterprise andSocial Exclusion report published by one of the UK Treasury Policy Action Teams. This Fund,managed by the SBS, is limited in time and will expire in 2006, and has enabled people in asituation of disadvantage or exclusion to gain better access to enterprise finance and relevantbusiness support services, with the objective of increasing the performance and quality of

enterprises in the more disadvantaged communities (both geographic and thematic) of the UKeconomy. Better access to financial services, in collaboration with the private sector, enables gapsin the market to be filled and to strengthen competition.

The Phoenix Fund was based on the principle of using entrepreneurship as one of the tools totackle social exclusion, and had three main parts: A PhoenixChallenge Fund mainly to provide capital finance to Community Development

Finance Institutions (CDFIs) for on lending to people starting up or running existingenterprises in disadvantaged communities. Usually provided alongside other business supportservices.The Phoenix Challenge Fund also enabled a number of CDFIs, working in partnership with local

job centres, to set up six Advanced Test Trading pilots to provide finance and support fora self-employment option to people who have been on social benefits or unemployed, many

for a long time. These people have often been considered as unemployable or never had theconfidence to think about creating their own business but nevertheless found to have thepotential.

A Phoenix Development Fund to provide business development finance to organisationsseeking to develop innovative business approaches in hard to reach communities. Forexample, ethnic minorities, women (single mothers) and people with disabilities. It has helpedlaunch over 90 projects to promote entrepreneurial growth.

Investment, on an 50/50 basis with private sector investors, in a Community DevelopmentVenture Fund (the Bridges Fund), to provide smaller amounts of equity finance to viableSMEs, with high growth potential, in the 25% most disadvantaged areas of England.

From April 2006 the nine Regional Development Agencies in England will have the devolvedresponsibility for provision of public sector business support to SMEs.

According to Maria Doiciu, it is essential to establish a legal framework to regulate themicrofinance sector. She began by recalling the context in which this sector developed in Romania.

Ten years ago, international funding agencies created a microfinance market by developing


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projects by providing start-up capital and knowledge. There was no real regulation of the marketbut it began to organise itself.

In Romania the socially excluded are referred to as the working poor. There are around 350,000businesses in the country of which 90% are micro-enterprises. Among these, 70% have no accessto traditional banking services. According to a study carried out

Barcelona Conference Minutes

Documents

Transcript of Barcelona Conference Minutes