„Which Business Models for Growth in Europe?“

1. „Which Business Models for Growth in Europe?“ Silvia Rico – Fundación Nantik Lum (Spain) Veronika Thiel – nef (UK) Giampietro Pizzo – Microfinanza (Italy) Moderator: Martin Jung – EVERS & JUNG EMN Conference Milan, 5th June 2009

2. Content Structure • Economic Situation • Legal Framework • Mission, Target group and Uncovered Demand • Geographical Outreach and Scale • Relationship with Banks and Insurance Companies • Products • Portfolio Characteristics • Lending Methodology and Collaterals • Monitoring and Productivity • Portfolio Quality Indicators • Profitability and Sustainability • Income and Cost Structure • Business Development Services • Perspective and Challenges for Growth and how to meet it • Conclusion (main Success Factors or Hindrances for Growth)

3. Three Countries – three Situations

4. Economic Situations • Spain • 46.2M inhabitants • 22% rural population • GDP per capita: €23,704 • GDP growth:1.2%(2008) • Number of SMEs/ 1000 inhabitants: 58 • Informal sector in % of GDP: 22.5% • UK • 61 M inhabitants • 19% rural population • GDP per capita: €25,700 • GDP growth: 0.7% (2008) • Number of SMEs/ 1000 inhabitants: 26 • Informal sector in % of GDP: 12.5% • Italy • 60 M inhabitants • 32% rural population • GDP per capita: €28,057 • GDP growth: 1.5% (2008) • Number of SMEs/ 1000 inhabitants: 62 • Informal sector in % of GDP: 27%

5. Legal Framework • Spain • No specific regulation for MFIs • Banks, savings banks and credit cooperatives are regulated by the banking law • Social entities (Social Microcredit Support Organisations) and Foundations of savings banks (Social Work) are regulated by their specific law (associations and foundations‘ law) • UK • No specific regulation for MFIs/CDFIs • Personal lending MFIs need to have consumer credit license • Some forms of incorporation require certain conditions by law and registration with the Financial Services Authority (FSA) • Otherwise, MFIs are not regulated by the FSA • Italy • No specific regulation for MFIs • Banking and non banking financial institutions are regulated by the law • Some institutions providing non banking microcredit are regulated by banking legislation (TUB art. 106) • Foundations and NGOs do not have a specific supervision or legal framework.

6. Mission, Target Groups and Uncovered Demand

7. Geographical Outreach and Scale - Spain Aprox. 20 Savings Banks (out of 47) of which 10 are most active and one microcredit bank (Microbank la Caixa) Nationwide: 2 (Obra Social Caixa Catalunya and Microbank la Caixa) Regional coverage related to the Savings Banks’ territory Social Microcredit Support Organisations (SMSOs) provide Business development Services

8. Geographical Outreach and Scale - Spain Microcredit Supply Distribution in Spain

9. Geographical Outreach and Scale - UK England by Region East Anglia 2 East Midlands 2 London 4 North East 4 North West 5 South East 4 South West 4 West Midland 4 Yorkshire 6 Nationwide 1 Northern Ireland 1 Scotland 1 England 35 Coverage is ok, but can be patchy in certain areas, especially rural ones.

10. Geographical Outreach and Scale - Italy MFIs: 33 Nationwide 3 Regional 13 Local 17 MFIs: 33 Northern Region: 17 Centre Region: 9 Southern Region: 7

11. Relationship with Banks, Insurance companies, Guarantee Funds

12. Products • Italy • Social microcredit (=personal lending) and business microcredit • Average loan: € 7,192 • Min. loans: € 1,800 • Max. loans: € 17,000 • Average interest rate: 5,8% (from 1.8% to 12%) • Spain • Social microcredit: personal (self-employment) and small businesses • Average loan: € 9,900 • Min. loans: € 1,000 • Max. loans: € 25,000 • Average interest rate: 5.1% • UK • Personal lending and business microcredit to people rejected by bank • Average loan: £8,500 • Min. loans: £500 • Max loans: for MFIs around £15k • Fixed: average interest rate 13.4% (5.6-22%) • Variable: ca 5.8% over base rate (3.5-10%)

13. Portfolio Characteristics • Spain • Strong portfolio growth • Gross loan portfolio (31/12/2007): € 84.4 million • Disbursed amount: €: 97,8 million for 8,773 loans (2002-2007) • Number of active clients (31/12/2007): 6,922 • Retention rate (% of refinanced clients): n/a • UK • Stagnating portfolio • Outstanding portfolio £10.4m (1252 loans) • Disbursed amount: £25m for 3691 loans (ca 2003-2007), av. £6773 • 2646 clients overall (including non-MFI clients) • Retention rate n/a • Italy • Strong portfolio growth • Disbursed amount: € 43.7 million for 3223 loans • On the 24 surveyed institutions that provided data: disbursed loans € 6.6 million for 923 loans • Retention rate n/a

14. Lending Methodology and Collaterals

15. Monitoring and Productivity

16. Portfolio Quality Indicators • Spain • Portfolio At Risk at 30 days: 9% (3 respondents) • Portfolio At Risk at 90 days: n/a • Write off ratio: 5% (5 respondents) • Refinancing/ rescheduled ratio: 6% (3 respondents). • UK • PF at risk (28 responses): 22% (no split 30 days/90 days) • Write-offs ca 13% (27 respondents, range 0%-28%) • Refinancing and rescheduling – insufficient data • Italy • Data for 7 MFIs: • PAR30: range 0,8% - 72% (average value 25%) • Range of Write-offs 0% - 28%; average of 5.9%. • Restructured portfolio: n/a

17. Profitability and Sustainability • Spain • Operational Self-sufficiency: 100 % (only 1 respondent!) • Financial Self-sufficiency: n/a • UK • Operational self-sufficiency – average of 8.5% with one organisation at 40% • Some CDFIs indicate they want to be self-sufficient in 4-8 years • No data on financial self-sufficiency • Italy p.48 • Data for 3 MFIs: • Self- sufficiency: ranges from 180% to 14% (average value 98%)

18. Cost and Income Structure • Spain • Funding Savings Banks: interest income and Social Work funds • Social Microcredit Support Organisations (Business Development Services): private and public subsidies • Italy • Funding (33 MFIs): • private funds: 13 • public funds: 6 • mixed funds: 4 • n/a: 10 • UK • very little data for UK • Unit cost av. £742 • Capital: mostly grants

19. Business Development Services • Spain • BDS are provided by SMSOs acting as partners of the savings banks • Services are either compulsory for all borrowers or forsome, or on request • UK • Very few formal • Vast majority refers to business advice agencies • Some compulsory programmes in house • Case-by-case decisions • Italy • 62% of the Institutions provide training or technical assistance • Services are either compulsory for all borrowers or for some, or on request

20. Perspective and challenges for growth and how to meet it • Spain • Challenges: • Re-evaluate mission • Funding • Institutional capacity (staff SMSOs) • SMSOs to manage directly loan portfolios • Measure social performance and impact • Solutions: • Networking and coordination • Training • More government support • UK • Challenges: • Funds for operational costs • Funds for lending • Institutional capacity (staff) • Very little government support • Italy • Challenges: • Vision and strategy • Funding • Lack of scale and difficulties in meeting the demand • Solutions: • Training and mentoring • Networking and merging • Public and private partnerships • Solutions: • Market segmentation • Alignment with microfinance movement • Revision of insistence on full financial sustainability

21. Conclusion • What are the common ‘Big Issues’? Lack of data and transparency Lack of market segmentation/alignment Lack of scale (=> capacity building and growth) Lack of financial resources Lack of coordination