2 Development of micro-credit
| (29180)
10215/1/07
COM(07) 708
| Commission Communication: A European initiative for the development of micro-credit in support of growth and employment
|
| Legal base | — |
| Document originated | 20 December 2007
|
| Deposited in Parliament | 28 December 2007
|
| Department | Business, Enterprise and Regulatory Reform
|
| Basis of consideration | EM of 12 December 2007, and Minister's letter of 5 February 2009
|
| Previous Committee Report | None, but see footnote 8
|
| To be discussed in Council | See para 2.12 below
|
| Committee's assessment | Politically important
|
| Committee's decision | Not cleared
|
Background
2.1 According to the Commission, there is in many Member States
an active micro-credit sector, providing loans of less than €25,000,
and a number of actions have been taken at Community
level to reinforce the growth of the sector. However, it points
out that, in its Communication[8]
on the financing of small and medium-sized enterprises (SMEs)
in 2006, it noted that more needed to be done to develop this
area, which it sees as an important way of encouraging entrepreneurship
and thus helping to achieve the objectives of the Lisbon Strategy.
It has therefore sought in this further Communication
to propose ways in which various obstacles might be overcome.
The current document
2.2 The Commission notes that micro-credit concerns
two main groups —
micro-enterprises employing fewer than 10 people, and "disadvantaged"
persons,[9] who wish to
become self-employed, but who do not have access to traditional
banking services —
adding that it can be particularly important in rural areas, and
for ethnic minorities and immigrants. It also points out that
demand has increased as a result of the evolution of small businesses,
and is likely to increase, but says that, because banks do not
keep specific records, and the differences of interpretation which
exist over what constitutes micro-credit, it is difficult to assess
its availability (although a typical loan appears to be around
€7,000-8,000).
It also says that micro-credit operations need to be seen in a
broader legal, financial and social context, not least because
they differ according to the policy framework in individual Member
States, but that a number of further steps are possible, building
on the action which has already been taken, and based on two broad
"principles".
PROMOTING MICRO-CREDIT AND MICRO-ENTERPRISES AT A
NATIONAL LEVEL
2.3 The first would invite Member States to adapt
as appropriate the national institutional, legal and commercial
frameworks needed to promote the development of micro-credit,
and would involve the following two strands.
Improving the legal and institutional environment
in the Member States
2.4 The Commission suggests that, since micro-credit
is self-sustaining in the longer term, its growth does not require
a major investment of scarce public resources, and that the key
is to improve the relevant legal and institutional framework by:
- allowing the development of
micro-finance institutions (MFIs), covering all segments, with
a wider provision of loan guarantees and the involvement of credit
unions or similar institutions;
- helping micro-credit to become sustainable by
relaxing interest caps whilst ensuring that these are at a level
sufficient to allow lenders to cover costs;
- allowing MFIs access to borrower database such
as credit bureaux, thus enabling them to evaluate risk, supported
by common data bases at Community level on default and losses
related to micro-finance;
- reducing operating costs through favourable tax
schemes for MFIs or individuals or enterprises which invest in
them;
- adapting national regulation and supervision
to the specific needs of micro-finance, for example by ensuring
that when Member States apply prudential rules to institutions
which do not take customer deposits, this is done in a way which
is proportionate to the cost and risks involved;
- ensuring that single market rules are applied
to micro-finance by examining whether provisions allowing banks
authorised in one Member State to operate elsewhere in the Community
could be extended to providers of micro-credit;
- incorporating micro-credit into regulation and
accounting standards.
Changing the climate in favour of entrepreneurship
2.5 The Commission says that the shift towards knowledge,
services and new technology under the Lisbon Strategy could be
boosted by greater emphasis on three factors in the link between
micro-credit and business generation, namely:
- improving the institutional
framework for self-employment and micro-enterprises by raising
awareness of issues relating to self-employment and micro-enterprises,
by measures to reduce legal, taxation and administrative barriers,
and by simplified registration procedures for new enterprises;
- designing solutions to enable unemployed people
and welfare recipients to make the transition to self-employment,
perhaps through temporary public income support, combined with
a return to unemployment benefit or social welfare assistance
in case of failure;
- training, mentoring and business development
services, providing competences which entrepreneurs themselves
might not.
DEDICATED SUPPORT STRUCTURE FOR MICRO-CREDIT
2.6 The second broad principle put forward by the
Commission would involve the establishment of a new facility with
dedicated staff to provide technical assistance, information and
publicity, guidance to encourage the adoption of best practice,
and greater access to finance for selected MFIs. This would again
involve two strands.
Promoting the spread of best practices
2.7 The Commission suggests that the best approach
would be to support the development of banking services and non-bank
MFIs, and to encourage them to share experience and best practice,
with each sector learning from the other. More specifically, it
proposes:
— The
establishment of a central body with micro-finance expertise
The Commission says that there is a need for oversight
and coordination by a central body with the necessary expertise,
and it points out that the European Investment Fund, which is
already involved in JEREMIE[10]
and in micro-credit guarantee schemes, has a proven operational
capacity.
— A
micro-credit specific label
The Commission suggests that, by analogy with "green"
investment funds, such a label would improve the visibility of
funds dedicated to micro-credit, and steer resources towards MFIs
with the best social and financial performance.
— A
code of conduct for MFIs
The Commission suggests that this would increase
confidence in a micro-credit label.
Providing additional financial capital for new
and non-bank MFIs
2.8 The Commission suggests that fostering the development
of micro-credit requires a complex set of initiatives, with action
at Community
level capable of providing a major impulse. It says that it intends
to strengthen its own contribution by setting up within the framework
of EU cohesion policy a specific micro-credit facility providing
funding and technical assistance to new and non-bank MFIs, and
which would ideally be mobilised from various sources, such as
the structural funds, the EIB, the EUROFI network, banks and donors.
The Government's view
2.9 In his Explanatory Memorandum
of 12 December 2007, the then Minister of State for Competitiveness
at the Department for Business, Enterprise and Regulatory Reform
(Mr Stephen Timms) said that the UK supported the Commission's
commitment to help Member States create an environment which encourages
micro-credit, noting that the Commission accepted the differences
which currently existed between European
finance markets. He believed this would enable the UK to build
upon its current domestic provision, through commercial banks
and by such means as the Small Firms Loan Guarantee, Credit Unions,
Community
Development Finance Institutions, and Community
Interest Tax Relief. He also said that the Government
was already considering how to improve the visibility and accessibility
of its MFIs through the Business Support Simplification Programme.
2.10 However, he said that it was unclear how the
Commission intended to develop these initiatives, and he expressed
some concern about the link which the Commission had made with
the Lisbon Strategy, suggesting that the UK and other Member States
might wish to question whether Community-level action and resource
was appropriate for this type of activity, and whether this should
be a priority area, given the Strategy's stated focus on growth.
He also said that the Government was likely to seek clarification
from the Commission about the extent to which resources allocated
for growth oriented access to finance will be diverted to fund
these initiatives, and how they relate to proposals on access
to finance being developed within the proposed EU Small Business
Act. Finally, he said that the UK would require more detail as
to what was envisaged before it could consider any mandatory code
of practice for MFIs.
Minister's letter of 5 February 2009
2.11 When we first considered this Communication
on 9 January 2008, we felt that it would be difficult to assess
its real significance without an indication of whether (or when)
it was likely to be discussed by the Council, or the extent of
support among Member States for what had been proposed. Our Chairman
therefore wrote to the Government, asking for guidance on these
points, and subsequently received replies, including one from
the present Minister (Baroness Vadera) on 13 March 2008, saying
that there had not yet been any indication of this, but that the
Government
would continue to press for information and to keep us informed.
2.12 The Minister has now sent us a letter of 5 February
2009, in which she says that the Communication has still not been
put to the Council, and that, in view of the time which has elapsed,
she does not anticipate that it will be. However, she points out
that the Commission and EIB launched in September 2008 a new pilot
initiative (JASMINE),[11]
commencing in early 2009 and lasting for three years, to address
the fourth aim in the Communication of providing additional financial
capital for MFIs. The initiative has an overall budget of €50
million, to be financed jointly by the EIB and potential partner
banks, though the Minister points out that finance would not be
provided direct to micro-enterprises, and that this initiative
is separate from measures announced recently by the EIB to make
funding available to SMEs to help mitigate the effects of the
economic downturn. She also says that she will update us at regular
intervals on further developments.
Conclusion
2.13 We are grateful to the Minister for this
update, and we have noted that the pilot initiative launched in
September 2008 is intended to meet the need identified in this
Communication
to provide additional financial capital for micro-finance institutions.
We have also noted her view that the Communication
itself is now unlikely to be put to the Council,
and we have considered carefully whether we should clear it, bearing
in mind that much has changed as regards the provision of credit
since the document was prepared in December 2007. However, given
the importance of the subject, we think it would be premature
to do so, and, in the light of the Minister's offer to keep us
informed of developments, we propose to keep it under scrutiny,
at least for the time being. In the meantime, we are drawing the
document to the attention of the House.
8 (27673) 11216/06: see HC 34-xxxvii (2005-06), chapter
46 (11 October 2006) Back
9
For example, the unemployed, those receiving social assistance,
and immigrants. Back
10
Joint European Resources for Micro and Medium Enterprises. Back
11
Joint Action to support Microfinance institutions in Europe) Back
|
