Main challenges

In Western Europe the need to provide microentrepreneurs with access to microloans is now recognised. However, in order to develop and better respond to the needs of potential clients, the microfinance sector faces a number of challenges:

  • An environment characterised by a highly developed, competitive financial service industry, with a growing number of operators offering high-interest consumer loans leading to over-indebtedness by families;
  • An entrenched welfare system that fails to encourage people to seek self-employment;
  • The lack of an entrepreneurial culture, and moreover the lack of incentives to develop one at various levels of society;
  • Lack of sufficient funding to cover operational costs of microlenders, and the short-term basis on which funding is offered;
  • High dependency on the public sector for operational and capital funding, with little independent revenue due to low interest rates;
  • An unfavourable legal framework resulting from the implementation of usury laws that prohibit development of the sector;
  • The development of best practices among microlenders in order to strengthen their operational and performance capacities.

Nevertheless, while the challenges are great, microlenders have shown a strong desire to meet them in order to build a functional sector. The number of microlenders continues to expand, and performance and best practices continue to improve. Many microlenders have established strong relationships with banks, and the resulting capacity to provide quality business support services encourages sustainability among microenterprises. Innovative strategies have been developed in order to provide appropriate products for more clients. All these factors offer a positive example to other MFIs around the world, especially in transitional economies, which face similar challenges.