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Regulating micro-credit in Europe

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?

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Regulating micro-credit in Europe

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  1. Regulating micro-credit in Europe «SMEs and Entrepreneurship – Successful Local Strategies » Porto, 7 December 2007 Cindy Fökehrer

  2. 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?

  3. 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

  4. 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

  5. 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. …

  6. “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

  7. “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

  8. 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.

  9. 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

  10. 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

  11. 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

  12. 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

  13. Contact Cindy FökehrerEnterprise & Industry Directorate-GeneralFinancing SMEs, entrepreneurs & innovatorsEuropean CommissionB-1049 BrusselsFax +32 2 295 21 54 Email: verena.foekehrer@ec.europa.eu

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