CICERO FOUNDATION March, 11 2005

1. JOB CREATION BY BOOSTING ENTREPRENEURSHIPHOW TO STIMULATE AND FINANCE THE CREATION OF MICROENTERPRISES ? CICERO FOUNDATION March, 11 2005

2. A - Why is it so difficult to stimulate the creation of micro enterprises in Europe ? « It is not easy to find a black cat in a black room, especially if the cat is not there » (Confucius)

3. In spite of their importance, micro enterprises are not recognized in a « wage labour » and a « welfare state » culture 36 163 1084 7447 9320 Informal sector 250 + employees 50 to 249 employees 10 to 49 employees 1 to 9 employees No employees Thousands of enterprises Source : EUROSTAT Cicero Foundation

4. The real problem is not lack of entrepreneurship but a hostile institutional environment Complexity of the regulatory and administrative framework • creates high fixed costs for small enterprises • increases need for administrative and business advice Cicero Foundation

5. High national insurance contributions and difficult administrative transition from unemployment to enterprise creation Insurance contributions Micro enterprise A Annual income : 4 600 € Family allowances 2 339 € (51% of the income) Micro enterprise B Annual income : 13 850 € 5 622 € (42% of the income) Health insurance Micro enterprise C Annual income : 12 290 € 7 427 € (41% of the income) Pensions • results in an « informal sector trap » Cicero Foundation

6. Access to credit and risk capital limited Banking sector regulations set a « usury rate ceiling » and give the right of borrowing and on-lending to the banks only Banking sector is reluctant to develop micro credit because of high operational costs, lack of collateral, lack of experience as regards a low-income clientele Majority of micro enterprises and especially micro enterprises created by unemployed have no equity Majority of micro enterprises are sole traders not eligible to risk capital Cicero Foundation

7. B - How to develop micro enterprises ?Lessons from ADIE’s experience 3 success 'factors

8. A demand-driven, bottom-up approach Association created in 1988 by three volunteers, without any capital, inspired by the Grameen bank experience Adie’s mission : help unemployed to create their own job A 5 years pilot phase allows to find clients, identify obstacles to self-employment, work out methods and control risk Initiative and entrepreneurship of the unemployed are the engine of the programme. ADIE provides access to financial and non financial services. Cicero Foundation

9. 2) - Partnership with banks Under the banking law an association can lend only out of its own funds. The banks are keen to extend their clientele and improve their social image if the association takes in charge all social and financial intermediation, controls the risk and externalizes the additional costs. The partnership with Credit Mutuel (1994) is extended to other cooperative banks and some commercial banks. The French Association of Banks helped ADIE to pass a law authorizing associations financing the micro enterprises created by unemployed to borrow and on-lend. The Government tries to eliminate the « usury rate ceiling » but faces the opposition of the Parliament. Cicero Foundation

10. 3) - Public support The additional costs of front-office, business training and advice are taken in charge by the Government, the European Social Fund and the Local Governments. The risk (6,5%) is shared between the banks (30%) and ADIE (70%). ADIE is counter-guaranteed by a public Guarantee Fund (FGIE) and the European Investment Fund. United Nations have chosen 2005 to be the International Year for Micro Finance: a true recognition Cicero Foundation

11. C - Results and lessons to be drawn

12. Target population : qualifications Cicero Foundation

13. Target population : social status Cicero Foundation

14. Types of activities • Examples : • Carpenter • Painter • Market seller • Grocery shop • Beauty shop • Hair dresser • Multi-services • Mechanics • Massage • Tattoo shop Cicero Foundation

15. Loans Granted Cicero Foundation

16. A well developed local network • 22 regional delegations • 104 offices • 300 rep offices • 6 initiative shops • 287 employees • 700 volunteers Cicero Foundation

17. Diversity of financial products Loans for the creation and development of micro businesses 5 000 euros maximum Market interest rates (currently 5,2 %) + Solidarity contribution (0.1% per month) Term 24 months maximum Personal guarantees from friends or family cover 50% of the loan Progressive loan amounts and solidarity groups for income generating activities in deprived areas Complementary products Quasi-equity funds : interest-free subordinated loans Regional grants associated with ADIE loans Equipment loans to test the projects Cicero Foundation

18. Other services Business training sessions Marketing and legal advice Administrative, support Micro business circles Internet forum and micro-entrepreneurs’ virtual association aimed at : Exchange of experience Mutualisation of certain services Information and training Proposals to the government Cicero Foundation

19. Operational results Active clients : 10010 Outstanding loans : 23,6 million euros Number of loans disbursed : 30 000 Recovery rate : 94% Number of micro enterprises created : 25 500 Number of jobs created : 30 614 Cost of creating a micro business (risk and operational costs, including business support) : 2000 euros = 1/10 annual cost of an unemployed Survival rate (2 Years): 64% Success Rate: 75% Cicero Foundation

20. Why we exist? Samira Street Shop Vincent Internet Pierre Electricity Amir Open Market seller Cicero Foundation