Enterprise and Industry

European Commission

Regulating micro-credit in Europe

«SMEs and Entrepreneurship – Successful Local Strategies »

Porto, 7 December 2007

Cindy Fökehrer

Regulating micro-credit in Europe

Structure of presentation:

• Who are the providers?

• How are they regulated?

• What can be done to improve the provision of microcredit?

Terminology

• Micro-credit: a loan up to € 25 000

• Provider: any formal organisation that has as its primary purpose to provide loans up to € 25 000 for entrepreneurial activity

Legal entities involved

• Banks Commercial banks Savings banks Co-operative banks

• Public banks

• Financial co-operatives, credit unions

• NGOs (various forms)

• Government-run and/or government-owned financial service entities

Types of regulation

• Prudential regulation (and supervision) “Banking law” At European level: Capital Requirements Directive

• “deposit-taking”

• Non-prudential regulation Protecting against abusive lending and collection practices Protecting against fraud and financial crimes

• Other “non-prudential regulation” Tax issues In a wider sense:

• social security systems, • regulatory environment related to entrepreneurial activity:

business registration, • etc. …

“Special window”

France Exemption for special organisations to

lend directly to their borrowers• For special target groups

Elimination of usury rate

+ a fund: “Borloo” law on social cohesion

Romania Law on microfinance companies No. 240 Government ordinance 28

“Enabling regulation”

UK• Community Development Finance Institutions

(CDFIs)• Code of Conduct

“Regulation as promotion”• Tax incentives:

UK: Community Investment Tax Relief (CITR) IRL: Seed capital scheme NL: Tante Agaath Regeling

Enterprise and Industry

European Commission

Report 31.04.2007

26 experts from 20 Member States and two European practitioners:

Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Finland, France, Germany, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Portugal, Romania, Slovak Republic, Sweden, Turkey and United Kingdom.

Recommendations of the report

1. Allow for lending by non-banks

2. Avoid setting interest rate caps too low

3. Ensure minimum legislative standards for non-banks

4. Create a favourable general environment for micro-enterprises

The micro-credit initiative

• “A European initiative for the development of micro-credit in support of growth and employment”

COM(2007) 708 final adopted on 13.11.2007

The micro-credit initiative

Four strands:

1.Improving the legal and institutional environment in the Member States

2.Further changing the climate in favour of entrepreneurship

3.Promoting the spread of best practices, including training

4.Providing additional capital for micro-credit institutions

Useful links

• Policies on access to finance europa.eu.int/comm/enterprise/entrepreneurship/financing/ http://europa.eu.int/comm/enterprise/entrepreneurship/financing/publications_documents.htm

• Financial instruments europa.eu.int/comm/enterprise/entrepreneurship/financing/

instruments.htm http://eif.org

• CIP programme: http://europa.eu.int/comm/enterprise/enterprise_policy/cip/

index_en.htm

• JEREMIE programme: http://ec.europa.eu/regional_policy/funds/2007/jjj/jeremie_en.htm

Contact

Cindy FökehrerEnterprise & Industry Directorate-GeneralFinancing SMEs, entrepreneurs & innovatorsEuropean CommissionB-1049 BrusselsFax +32 2 295 21 54

Email: verena.foekehrer@ec.europa.eu