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Cooperation for Affordable Personal Inclusive Credit

Cooperation for Affordable Personal Inclusive Credit . International seminar “ Affordable personal credit: sustainable long-term strategy ” Liverpool John Moores University October 12th 2012 Cristian Bevacqua Microfinance Program Manager Un Raggio di Luce Foundation .

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Cooperation for Affordable Personal Inclusive Credit

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  1. Cooperation for Affordable Personal Inclusive Credit International seminar “Affordable personal credit: sustainable long-term strategy” Liverpool John Moores University October 12th 2012 Cristian Bevacqua Microfinance Program Manager Un Raggio di Luce Foundation

  2. Description of the Microcredit project in Pistoia

  3. Wherewe are..

  4. Objective and characteristics Provisionof affordable personal credits and micro-enterprise loans to low income people living in Pistoia province. The project is promoted by a diversifiedrange of local partners (3 not for profit institutions, 6 cooperative banks, 1 local bank, 1 bank foundation, 1 provincial administration).

  5. Evolution of the microcredit experience in Pistoia to “Microcredit System in the Province of Pistoia» March 2009– undetermined • Foundation “Un Raggio di Luce” • Arciconfraternita Misericordia di Pistoia • Bank of Pistoia • Foundation Bank of Pistoia • 6 Local cooperative banks in Pistoia Province from “Mi fido di te” project January 2007 – February 2009 Foundation “Un Raggio di Luce” Arciconfraternita Misericordia di Pistoia Bank of Pistoia

  6. Actors and activities • Not for profit organizations : (i) provision of guarantee funds; (ii) human resources contributed on a volunteer basis to the project implementation; • For profit organization: provision of legal guarantee; • Local banking system: assumptionof 50% of credit risk, provision and following of microcredits; • Public administration: provision of legal guarantee for credits approved for beneficiaries identified by the provincial social service department.

  7. Structure of the project 4 Outreach offices (information points) where beneficiaries are received, microcredit applications are analyzed, interviews are carried out. An Evaluation Committeedecides whether the microcredit demands are funded or not. The banks provide and follow the approved microcredits.

  8. Project state of the art (Feb 2012) 564 credit applications received and processed; 722 interviews conducted at the outreach offices; 304 applications sent to the Evaluation Committee; 223 microcredits approved for a total amount disbursed equal to 1,049,200 Euro Purposes of the microcredits provided:19microcredits for micro enterprises (106,000 Euros); 204social microcredits (880,000 Euros); Insolvency rate: 7,1%

  9. Long-term sustainability strategy

  10. No presence of a clear financial sustainability strategy. Initiative largely based on volunteer work. Long-term commitment of promoters.

  11. Sustainability and Social approach “Social assistance” microcredit approach: microcredit as instrument of social promotion and consumption smoothing for vulnerable people. Sustainability is an issue: no presence of efficiency criteria typical of enterprises. External subsidies and support are essential for the existence of the project. No presence of an income statement (costsare shared among promoters).

  12. Strength points Funds provided by promoters. Volunteer people offer their special contribution at zero cost. Outreach offices are hosted in spaces made available for free. Presence of a “parallel” welfare system that mobilizes a large number of professionals volunteering their time and skills in social initiatives. Favorable local context: similar small microcredits initiatives and new strategic partners with the same social mission can join the initiative.

  13. How to reach sustainability? According to the European Commission, one way to achieve self-sustainability is to charge an above market interest ratecovering all the costs and loan losses. However, in Italy usury rate ceiling discourages financial institutions from embarking in the long term provision of microcredits. A higher interest rate would provoke the clients’ cultural resistance even assuming that access to financial resources is what is important for them.

  14. Steps forward New initiative promoted by Un Raggio di Luce Foundation: Establishment of a new financial institution specialized in financing microcredits and social business initiatives in Tuscany region. ↓ Tentative of multiplying the effects of the microcredit programme on a larger scale and on a financially sustainable basis.

  15. Further developments in favour of sustainability The Italian legal framework will favourite microcredit initiatives. Self-sustainability will be considered as a major objective of a microcredit activity. The intensity of external support to microcredit becomes digressive, based on achieved performance. Monitoring and mentoring services are reinforced.

  16. Thankyou for yourattention Cristian Bevacqua Un Raggio di Luce Foundation cristian.bevacqua@unraggiodiluce.org Tel. 0039 0573 31291

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