Microfinance and policymaker objectives are fully aligned. Both seek social betterment, improved economic engagement, social and financial inclusion, reduction of the burden on welfare systems, and positive effects on employment and employability.
To enable microfinance to have this effect across Europe, many improvements are necessary to the regulatory treatment of microfinance institutions and of self-employment more generally. Such changes are needed both at national and European level, and must be backed up by the right kind of public support programmes.
EMN, in close collaboration with the Microfinance Centre (MFC) actively participates in advocacy activities through the organisation of dialogues between policy makers and practitioners. It provides strategic information to its members on EU policy, meetings with political leaders, and represents the sector in public responses to consultations on various issues.
EMN's members have direct input into EMN's advocacy efforts through its advocacy committee. For any questions about EMN's advocacy efforts or committee, please contact Oscar Verlinden (firstname.lastname@example.org). What follows is an overview of EMN's current positions on its priority files.
1. EU definition of microfinance and microcredit.
The EU definition for microfinance sets an important precedent for the member states. Over the past decade, the EU definition has seen strong improvements to be more in line with EMN/MFC suggestions. However, there is more work to be done to reflect the essentially social and inclusive nature of microfinance, and to drive for more harmonisation of national definitions across Europe.
A full account and reasoning behind the EMN/MFC proposed definition can be found in the document below.
- insert_drive_fileEMN/MFC proposal for a revised EU definition of microfinance and microcredit 169.74 KB
2. Regulatory framework for microfinance and Capital Markets Union (CMU).
One of the main issues of the capital markets union is to unlock financing of innovation, enterprises, and especially SMEs and start-ups. In a situation where, 92% of European enterprises are microenterprises of less than 10 employees1 (many of them having no employees) and where start-ups include a growing part of unemployed, it seems important to include these “missing entrepreneurs” in the total demand of the capital market, knowing that many of them are excluded from access to banks. This is the context for development of microcredit in support of growth and employment, which is in itself a social innovation on behalf of an inclusive entrepreneurship.
- insert_drive_fileEMN-MFC Note to DG FISMA 560.87 KB
3. Regulatory framework for the creation of microenterprises and self-employment.
Member states each have their own approaches to how they empower entrepreneurship and self-employment. In some states it is a higher priority than others, and there is a lot of room for improvement across the continent, which also means the European institutions have an opportunity to lead the direction of upward convergence here.
EMN makes a number of suggestions that would be a strong starting point for improving the inclusiveness of entrepreneurship across Europe in its Note to DG GROW below. At the same time, the OECD produces a regular, thorough, report that gives country-specific policy recommendations for identifying and boosting excluded target groups.
- insert_drive_fileNote sent to DG GROW 561.5 KB
4. Pricing of microcredit.
Microcredit providers are not banks, meaning they cannot take deposits. To provide loans, they must themselves borrow this capital from banks, meaning that the interest rates for microcredit will necessarily be equal or higher than banks, despite their social mission. The only respite from this is the public support microcredit providers receive.
This upward pressure on prices has lead to misgivings and accusations of microcredit charging inappropriate interest rates. With this note, EMN explores the issue of cost and pricing in microfinance in more depth.
- insert_drive_fileNote sent to DG EMPL and ECFIN 117.73 KB
5. Pricing of EU financial instruments.
In the framework of the evaluation of the new Helenos fund for microfinance, the issue of risk assessment and pricing of EU financial instruments popped up. In the case of social purpose investment, we would argue that the risk of loss and the consequent return requirement on an equity investment should be balanced with the social impact. Indeed, of the only two equity investments in MFIs made to date, the case of microStart is an example where the social objective of the project is considered by all parties as fully achieved while, at the same time, the equity investment of the EU budget managed by EIF is financially at loss at the time of exit. The question is thus: how to assess the value of social impact versus financial return and how to factor these into the pricing and performance indicators of the project.
- insert_drive_fileEMN Policy Note on Microfinance Pricing and Cost of Funds (Jan 2019) 124.93 KB
- insert_drive_fileEMN Note on Risk assessment and pricing of EU financial instruments for MF (Mar 2017) 295.86 KB
6. Use of European Social Fund (ESF) for microfinance.
Supporting entrepreneurs setting up their own business is one of the objectives of the European Social Fund (ESF). ESF funds are made available to "managing authorities" across Europe, who set up specific regional projects with objectives that align with ESF goals, most notably increasing employment, increasing social inclusion and reducing poverty.
ESF projects support people who may otherwise not get the opportunity to attend training, obtain qualifications and get good jobs. Due to its size (10 billion a year during the period 2014-2020) and scope, the ESF has a big influence on the labour market and society at large. In some countries, around 90 % of the actual expenditure for labour market measures comes from the ESF.
Nevertheless, even when ESF have specific lining with the MF sector in Europe, MFIs are having extraordinary difficulties in order to be instrumental in channelling these funds towards the underserved. The purpose of the study ESF Market Failures for Microfinance in Europe Findings “short mapping” is to identify some of these difficulties in order to promote alternative solutions to the EU institutions. Another study is currently being finalised that identifies some more case studies of ESF-microfinance collaborations, and will be shared here when it is ready.
7. Preparation for the 2021-2027 multiannual financial framework.
The EU organises its financial support programmes in a seven-years multiannual financial framework (MFF). The previous MFF ran from 2014-2020, and comprised such programmes as the Employment and Social Innovation (EaSI) programme and the European Social Fund (ESF).
The next MFF period will run from 2021-2027, and will reorganise and extend the previous plans. Microfinance will benefit most from the programmes that will be called InvestEU (for centralised support) and ESF+ (for decentralised support).
EMN/MFC have been closely following the design and negotiation phases of this programme, and are part of the stakeholder expert group that the EC consults when planning the MFF. Presently the negotiations have almost finished, with a substantial increase in support for microfinance envisaged.
EMN will continue to engage with the EC and its implementing partners to ensure the financial instruments and subsidies are most efficiently designed.
- insert_drive_fileProposals on continued and improved EU instruments to support the European microcredit sector 331.65 KB
- insert_drive_fileConcept note on microfinance sourcing guarantee 163.59 KB
- insert_drive_fileEMN response to GECES consultation on InvestEU 253.42 KB
- insert_drive_fileEMN-MFC response to GECES Investment Guidelines consultation in August 2019 349.81 KB
- insert_drive_fileEMN-MFC response to GECES Sustainability Proofing consultation in August 2019 169.48 KB
8. Close the funding gap for the microfinance sector
Microfinance institutions do not have the resources necessary to serve the existing demand. Though the microfinance industry has been rapidly growing according to the figures of our overview survey (link), a study produced by evers & jung has suggested that the current size of the microfinance industry is still only covering a fraction of the potential demand.
Policymakers, investors and microfinance practitioners must work together to address this gap through a combination of sourcing new funds, and marketing them effectively.
1. The European Microcredit Whitepaper
The European Microcredit Whitepaper is a comprehensive 40-page introduction to the European microcredit sector. It explores its definition, its history, and key figures. It explores the social and economic impact, and sets out in which ways it achieves the policymakers' objectives, and the ways in which the EU supports microcredit. At the end, it sets out a number of policy proposals that could globally improve the framework for microcredit.
The Whitepaper can hopefully help EMN members shape their own stories, to help them demonstrate the context, value, and goals of European microfinance, and help communicate these to policymakers and other stakeholders.
The whitepaper was published in July 2019 by a working group of the Parisian business association EUROPLACE, with EMN playing an active role in the shaping and delivery of the document. The working group included members of the French Central Bank, the banking association, and several financial service providers.
- insert_drive_fileThe European Microcredit Whitepaper (2019) 1.73 MB
2. Demonstrating the social and economic impact of microfinance
In delivering assistance to microfinance, policymakers are faced with a cost-benefit judgement which is hard to quantify. The discussion often goes in a quantitative direction, as financial return is a concrete, numerical indicator of a measure's performance. However, it is very important to remind policymakers that financial returns are not the only indicator, nor is it the most important indicator for the effectiveness of a social-minded initiative such as microfinance. Policymakers must also take into account the social impact that this sector has.
Promoting the benefits of microinsurance can be hard if the social benefit remains intangible. Many stakeholders have set out to try to measure the intangible, secondary or holistic benefits that come from such activity, and their efforts can be used as examples to show to policymakers, or on which to base your own data collection. EMN has collected many such examples here (link).
3. Diagnosing your regulatory environment
In order to create a healthy atmosphere for microfinance, it is essential that it can rely on an enabling environment for entrepreneurship and self-employment. In most jurisdictions there is still work to be done to improve the framework conditions for self-employment.
To determine which regulatory aspects of self-employment are most crucially blocking progress in your country, you can self-evaluate using the following tools:
- OECD "Better Entrepreneurship" self-assessment tool (link). This online self-assessment tool can be used as a starting point for dialogues with government officials, to agree on where improvements can be made in the supporting environment for entrepreneurship.
- OECD "The Missing Entrepreneurs" publication (link) gives country-by-country policy recommendations.
- This Economist Intelligence Unit article (link) sets out a range of influencing conditions.
4. Legislative mapping report
EMN has made a mapping exercise (link) of the regulatory environment for microfinance in most European countries. Members can use these reports as a basis for orienting their own efforts, drawing on neighbouring countries or learning from their challenges.
5. Working with the European Social Fund
We have prepared a practical toolbox for you to discover more about ESF in your country and to start approaching your Managing Authority:
Learn more about what is happening in your country/region with regard to ESF planning and concrete implementation:
Plan ahead for your involvement in future ESF activities:
- Get in contact with your Managing Authority to get relevant information on the preparation of Partnership Agreements in your country (e.g. how to participate in official public consultations ahead of drafting the Partnership Agreements, which body is in charge of the consultation, or what is the timing? etc.) and to create awareness of the potential of microfinance in meeting ESF goals on employment.
- Establish a first contact with the ESF Managing Authority in your country/region.
- Advocate for your Managing Authority to set up a microcredit financial instrument as promoted by fi-compass. Fi-compass also offers several days of technical assistance to managing authorities, to give them tailored training in setting up financial instruments. Make your managing authority aware that this assistance is available for them.
- Prove your impact to policy makers: download examples available in our publications section of studies done by MFIs in Europe to present their social and economic impact.
- Consult examples of communications addressed to national government and regional managing authorities during the preparation of Partnership Agreements and OPs 2014-2020 that can be updated in view of the next ESF programming period.
Here is selection of good practices in advocacy at national level from EMN members. To access the Good Practices, please click on the titles below.
- insert_drive_fileAdvocacy for Microfinance in Serbia: History and Current Situation (RS) 240.5 KB
- insert_drive_fileAdie's advocacy work at national level (FR) 598.58 KB
- insert_drive_fileResponsible Finance’s Advocacy Work at the National Level (UK) 1.31 MB
- insert_drive_fileHow to educate our policy makers about microfinance: Adie (FR) 455.4 KB
- insert_drive_fileAdvocacy good practice methodology CDFA / Responsible Finance (UK) 271.67 KB
- insert_drive_fileSpanish Microfinance Association Advocacy Strategy (ES) 140.56 KB
- insert_drive_fileMicrofinance Norway (NO) 1.25 MB