Microfinance and Employment

According to the International Labour Organization (ILO), financial instruments complement policies that target the labour market. Decent employment and incomes depend critically on accessibility to the financial market; for this reason, microfinance can have a strong and positive impact on employment.

Microcredit targets people who are often unemployed or otherwise excluded from the traditional banking system and who wish to start their own business. Studies show that microcredit significantly contributes to self-employment and job creation, “the fiscal cost per job created is usually below that of alternative labour market instruments and jobs created through microcredit positively contribute to entrepreneurs’ income and self-esteem”(ILO, 2014). Consequently, microfinance plays an increasingly important role as a strategy in labour market policies in Europe.

Employment in the EU

Data on employment in the EU can be found in the EU Joint Employment Report and on the EUROSTAT website, where unemployment figures are periodically updated. In 2014, the unemployment rate exceeded 10% in the EU-28. While no significant differences between men and women’s unemployment rates are recorded, the rate of youth unemployment, 21.6% in September 2014, consistently remains above average. This reflects the difficulties faced by young people to find jobs and/or set up their own business. Self-employment, considered as a key element for achieving smart, sustainable and inclusive growth, accounted for 15.2% of total EU employment in 2014.  

Insufficient job creation, labour market weakness and high youth unemployment rates increase the interest for mechanisms that foster self-employment, such as microfinance. 

The EU Employment Policies

The European Union has been working hard to move decisively beyond the crisis and create the conditions for a more competitive economy with higher employment. In fact, one aim of the Europe 2020 strategy is to employ 75% of the 20-64 year-olds age category. In April 2012, as part of the European Employment Strategy and in response to the high level of unemployment, the European Commission launched a set of measures to boost jobs, the so- called Employment package. One of the tools proposed is the promotion and support of self-employment, social enterprises and business start-ups. Microfinance is explicitly quoted as a mean to reach these goals.  

Recognizing the role of microfinance as a tool for economic growth through the creation and support of self-employment and entrepreneurial activities, the European Progress Microfinance Facility has been included in the EU Programme for Employment and Social Innovation (EaSI). According to the latest European Commission Report, Implementation of the European Progress Microfinance Facility 2013, more than 20,000 entrepreneurs have already benefited from loans and guarantees worth a total of €182 million. In particular, the report finds that Progress Microfinance has significantly contributed to job creation by enabling credit for unemployed or inactive people, who often struggle to borrow money from financial institutions. Difficulty in accessing finance still represents one of the main barriers for aspiring entrepreneurs. The report indicates that 60% of final users were unemployed or inactive when they applied.

Microcredit in France: What impact does it have on employment?

On 18 June 2014, the International Labour Organization, together with France Stratégie and the Caisse des Dépôts et Consignations, launched the results of a survey carried out in 2013 that involved 4,204 beneficiaries of microcredit in France. The survey was conducted three years after they received support from one of the five nationwide microcredit networks in France - l’Association pour le développement et l’initiative économique (ADIE), les Boutiques de Gestion (BGE), France Active, Initiative France et Réseau Entreprendre. The results are presented in the study “Microcredit in France: What impact does it have on employment?” and confirm that the impact of microcredit on employment in France appears to be broadly positive, with nearly 60,000 jobs created or preserved annually. Over the 3-year study, enterprises have recorded, on average, 2,6 new or preserved jobs. Moreover, the survival rate of the financed enterprises is also high, with sustainable integration of the beneficiaries in the labour market. The study finds that professional microcredit and support services helps both potential and existing entrepreneurs who are unemployed or/and excluded from traditional banking system.

Employment: EMN events and publications

On June 19th and 20th 2014, the European Microfinance Network (EMN) held the 11th EMN Annual Conference in Lisbon. The Conference focused on the theme, “Employment: Challenges and Opportunities for Microfinance,” and was attended by more than 275 participants that shared ideas and experiences from the field.

The outcomes of the event are summarized in the EMN Policy Note on the 11th Annual Conference and show that microcredit significantly contributes to self-employment and job creation. Initiatives at the local level, such as credit unions or credit cooperatives, have made a big impact in their communities. Due to growing demand, services diversification will be a key for the development of microfinance. Furthermore, targeted customer groups will need more tailored services. For example, migrant communities (composing a significant percentage of the microfinance clients in Western Europe) require a specific approach combining financial and non-financial services that increase their opportunities for self-employment and entrepreneurship (often developed out of “necessity” rather than “opportunity”).  

The EMN Overview of the Microcredit Sector in the European Union 2012-2013 shows a substantial impact on employment generated by the activities of the microfinance actors in Europe. According to the Survey, in 2013, a minimum of 121,270 micro enterprises and start-ups were supported by the surveyed organizations, resulting in an approximate impact of at least 250,000 jobs throughout Europe. This result mirrors the commitment of the sector towards the reduction of unemployment rates. In fact, according to the Overview Survey, 85% of the surveyed MFIs consider supporting and creating employment as part of their dedicated mission.

To know more:

-     European Employment Policy Observatory

-     EMN Policy Note on the Overview Survey 2012/2013

-   “Microcredit and support to enterprise creation in France and in Europe: which effects on employment?”, Conference Paris, 3th February 2015 (in French)