Hanse-Passage Project “SUSTAIN”:

„Microcredit –A Tool to support SME”

Thomas König

Agrarsoziale Gesellschaft e. V.

Göttingen

Germanywww.asg-goe.de

Outline:1. Origin of microcredits

2. Experiences from various Hanse-Passage regions

3. Characteristics of the examples selected

4. Applicability of the microcredit approach

5. Conclusions

1. Origin of microcredits

• founded in Bangladesh in the 70s, now spread globally

• dedicated to people with no or limited access to the financial market

• Basic assumption: poor people are able to use loans economically and use borrowed money in a responsible manner

• The loan security system emphasis on social system

Microcredits support poor people to borrow money and use it efficiently; not by donating grants!

2 a. Experiences

• Founded in 1989

• Largest provider in the EU

• Nationally organized

• Target groups: unemployed and recipients of welfare benefits

• Limited loans

• Founded in 2004

• National umbrella organisation supporting microlenders

• Interface between microlenders, banks, borrowers

2 b. Experiences

• Founded in 1976• Charity organisation,

offering loans and grants• working nationally• Target group ‘those who

need it most’, young people, long-term unemployed

• Pay-back rate for loans is relatively low but becomes more important

• Central and Eastern Europe

• Totally different market approach

• Began soon after the fall of the Berlin Wall

• MFI focus more on existing enterprises than on start-ups

• MFI offers loan to bridge a financial gap of the running business

• Both, NGO and banks are involved

2. Overview EU-15

– 75 microfinance providers EU-15. Almost half of the programs were founded in 2000 or later (68 %)

– Biggest microloan schemes: France (ADIE) and Finland (Finnvera); both provide nearly 80% of all microloans in 2003

– Total number of loans made in 2005 15,436 loans (n=75 MFIs).

– 69 % of microlenders made 100 loans or fewer in 2005

Source: Evers & Jung

Switzerland1%

Italy9%

Spanien42%

UK28%

Finland1% France

3%Germany

11 %

Sweden3%

Norwegen3%

Ireland1%

3. Characteristics

• The MFI’s performance strongly depends on the national legal frame

• All MFIs support their financial offers with non-financial services

• Most MFIs work target group oriented• The loan security system differs from

the ‘normal’ bank’s security requirements

4. Applicability

• Numerous examples of good practices do exist!

• Necessity of involving banks, gov., experienced organisations, other local stakeholders

• Assessment of the existing situation (e.g. regulations, target groups, demands and offers) is essential

• Keep in mind the social aspects and the loan security system’s design in this respect

5. Conclusions• Microcredits are a market niche and reach a

relatively small group of clients.• Microlending is more than only a financial

instrument, but is mainly a social oriented approach.• (Local) governments play an important role.• The decreasing availability of public funds urges

new forms to use the public money effectively.

• Learning from the South is a new quality of international know-how transfer.