Portugal

Microfinance in Portugal

When speaking of microfinance it is important to clarify what we mean: are we speaking of small allowances and loans, destined for any sort of public or do we mean small allowances and loans specifically aimed at socially excluded groups or in risk of becoming so. This is not, as is generally perceived, a minor detail. It is, therefore, important to establish the difference between small financing loans, mainly aimed at small companies and micro financing directed at socially excluded groups in regions that may also suffer from exclusion.

Microcredit is not only the most visible side of microfinancing and of its evolution in Portugal, but also the part that has triggered greater awareness and fuelled reflection on this issue over the last years.

1. Microcredit in Portugal

Microcredit has evolved very positively in Portugal, particularly in the past two years. What was initially regarded with some distrust is now beginning to spark the interest of several organizations, in a very particular way, that of financial institutions.

1.1. Associação Nacional de Direito ao Crédito (ANDC)

Microcredit, not just as an experiment, but as an economic concept and as an instrument for integration through economy, was introduced and implemented in Portugal, in 1999, by the Associação Nacional de Direito ao Crédito (the foundation of ANDC dates back to 14th December, 1998), a non-profit private association. Aimed at people excluded from the banking system, due to lack of guarantees, in particular unemployed people or precarious workers, ANDC searched for partners that would enable them to answer the financing needs of these people, namely the granting of small loans that would allow them to start a small business or create their own employment. Millennium bcp was the first financial institution – and the only until December 2005 – to sign a protocol with ANDC, with the objective of providing small loans to socially and economically excluded people. Besides Millennium bcp, ANDC has, presently, signed protocols with Caixa Geral de Depósitos and Banco Espirito Santo. These are the three largest financial institutions in Portugal.

Another partner of ANDC is IEFP- Instituto de Emprego e Formação Profissional (Institute for Employment and Vocational Training), a public organization under the tutelage of the Ministry of Labour and Social Solidarity, which financially supports ANDC’s activities while also acting as an institution that promotes employment, based on the number of enterprises that are generated.

Besides the institutional partners ANDC has formal and informal agreements with different entities that work locally and on site with its target audience.

Loans granted through ANDC are of a minimum of 1,000 Euros and a maximum of 5,000 Euros, repayable in monthly instalments at an interest rate indexed to the 6 months Euribor rate with a spread of 2%. The possibility of increasing the amount to a maximum of 10,000 Euros is, at present, being studied, subject to the introduction of a system of loans in batches.

1.2. Millennium bcp

With their experience of the ANDC partnership as reference, Millennium bcp, one of the largest commercial banks, decided, at the end of 2005, to create its own credit line. This credit line, with a maximum amount of 15,000 euros and an interest rate varying according to the risk involved in the project, is mainly aimed at an audience that, using the more restrictive criteria, may not be considered excluded, with above average academic qualifications and training. For this purpose Millennium bcp has opened branches in Braga, Lisbon and Porto.

1.3. Santa Casa da Misericórdia de Lisboa

At the beginning of 2006, Santa Casa da Misericórdia de Lisboa also created a microcredit office, by means of a protocol signed with the financial institution “Montepio Geral”, as a response to certain situations arising in the communities of the city of Lisbon, which they assist with social support services and subsidies.

2. Support and incentives to the creation of employment and microenterprises

In Portugal, poverty and exclusion have always been looked at from a charitable point of view and not with the perspective of alleviation, much less with the objective of integrating people in the economic system based on their capacity to produce wealth.

Social policies have changed significantly, especially since 1996, with the introduction of the Minimum Guaranteed Income (Rendimento Mínimo Garantido) now called the Social Integration Income (Rendimento Social de Inserção), but also due to changes in allocation of EU funds.

2.1. Public Entities

In relation to public entities dealing with the creation of employment, micro and small enterprises, it is important to mention Instituto de IEFP-Emprego e Formação Profissional (Institute for Employment and Vocational Training) and IAPMEI- Instituto de Apoio às Pequenas e Médias Empresas (Institute for Support to Small and Medium-Sized Enterprises).

The Instituto de Emprego e Formação Profissional (IEFP), an entity working under the tutelage of the Ministry of Labour and Social Solidarity, with a network of employment centres at national level, has its own incentives and instruments for creation of employment and micro-enterprises, of which the following should be highlighted:

Disbursement in one payment of the total unemployment benefits due; the amount paid may be increased according to criteria related to number of jobs created and whether these are given to long-term unemployed people.

There is also an increase for unemployed people over 45 years old.

ILE – Iniciativas Locais de Emprego (Local Employment Initiatives): specifically aimed at young people seeking their first employment and at people in the process of becoming unemployed; it is mandatory that the jobs created must be occupied by people who are unemployed; investment must not exceed 150,000, requiring 5% of own capital with 40% being paid in the form of a grant and the remainder to be reimbursed.

IAPMEI, the institute supporting entrepreneurship, also has its own instruments to help micro-enterprises, such as SIPIE-Sistema de Incentivos a Pequenas Iniciativas Empresariais (Incentive System for Small Enterprise Initiatives). Projects are eligible for this subsidy if within a minimum of 15,000 euros and a maximum of 150,000 euros. IAPMEI has recently launched the FENICIA program for promotion of access to risk capital. One of its axles, “Emerging Businesses of a Small Scale”, focuses on two areas: microcredit and micro risk capital for initiatives which promote the entrepreneurial spirit. Microcredit considers investment projects of up to 15,000 euros with up to 75% collateral being supplied by Mutual Guarantee Societies. The second area is mainly directed at initiatives originated in academic circles, “whose investment does not exceed, at start up, 50,000 euros”.

2.2. Other Initiatives

Other initiatives have also emerged from the civil society involving partnerships at local and regional levels, namely with the participation of municipalities and financial institutions. Of these initiatives, it is important to emphasize the role of FAME-Fundo de Apoio às Micro-empresas (Micro-enterprise Support Fund), which developed from a partnership between a Development Agency (ADRAL), the Local Councils and a Financial Institution (BES). The fund is managed by ADRAL and its value varies according to the municipality as there is a specific fund for each. For the support of new initiatives 50% of own capital is required, with 25% of the remainder being interest free and 25% at a preferential interest rate ( Euribor +2.5%). This fund started in the Alentejo region but the intention is for it to spread to other regions of the country.

During the year 2005 numerous other initiatives were developed, most of them benefiting from EU funds. This resulted in the formation of partnerships between local entities (Local Councils), civil society organizations and financial institutions.

In the Azores, legislation was approved by the Legislative Assembly of the Autonomous Region regarding the system of support for banking microcredit (Regional Legislative Decree no.25/2006/A). Its implementation is based on agreements established between Regional Government and financial institutions

3. History

Finally, in order to better understand the evolution of microfinance in Portugal and to obtain a clearer perception of the accomplishments that microfinance has made, it is first necessary to obtain a brief account on the history of microfinance in the area and on the paths that others have travelled.

One can say that micro financing experiments, driven by solidarity reasons, have a long history in Portugal dating back to the 15th century with the Misericórdias (Portuguese charity organisation). The first loans to farmers can be traced back to the 18th century. It is also worth mentioning the “Common Granary” experience, which was created in the second half of the 16th century with the main purpose of lending seeds to farmers in years of poorer yields. Reimbursement, namely of interest, was also made in commodities. In the second half of the 19th century some of these Misericórdias were transformed into agricultural and industrial credit institutions, which are where the Caixas de Crédito Agrícola Mútuo originated from in the beginning of the 20th century; others remained as fraternities with a strong social purpose.

As small local banks with a relationship of proximity, the Caixas de Crédito Agrícola plaayed and still continue to play a very important role in support of small farmers, granting them small loans to face the needs inherent to their activity.

Of the most recent experiments in micro financing, UMAR and PROBARROSO are two that are worthy of note. UMAR is a women’s organization that has developed a social and cultural intervention project, aimed at women, in a neglected neighbourhood south of the river Tagus (Almada). During their 12 month training session some business ideas took shape, but financing was a problem as the subsidies these women were entitled to for their state of poverty were insufficient for the start up of a business. It was then that, inspired by the French Cigales experience, they created, at the end of the 90s, the “CILAS”, Círculo Local de Aforradores Solidários (Local Circle of Solidarity Savers). For various reasons, particularly legal impediments, this initiative did not succeed.

Probarroso-Associação de Promoção e Desenvolvimento do Barroso (Association for the Promotion and Development of Barroso) in Trás os Montes, was founded in 1994 and defined as one of its objectives; the mobilisation of Caixa de Crédito Agrícola Mútuo for the opening of a solidarity savings account and an investment fund for local micro projects. The savings of emigrants were essential for the take off of this project. In between hesitations and retractions this effort also failed.

Lastly, it is also important to highlight the role played by Caritas - a humanitarian organization of the Catholic Church - at the end of the 70's, in providing small loans to Portuguese people returning from the former colonies to help with their social and economic integration.

4. Conclusion

There has been a slow but positive evolution of micro financing in Portugal, in particular in the last decade. This is largely due to better awareness of the issue and its complexity with respect to the entities more directly involved, whether they are public or from civil society. In spite of the existing incentives and the progress of the last years, there are still obstacles that remain in the path, which is a possible explanation for results not having met expectations. There are, for example, gaps in the legal framing of both the initiatives and the organizations that promote them, as well as in relation to the role each of them should play.

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