15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors Financing of SMEs in Europe Multi-country workshop, Budapest, 21st March 2007 Micro Credits to SMEs Serge AUBERT French National Institute of Certified Public Accountants French National Institute of statutory Auditors

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors TABLE OF CONTENTS 1 - DEFINITION 2 - BACKGROUND AND ACTORS 3 - BUSINESS SUPPORT SERVICES 4 - MICRODREDIT PRODUCT DESIGNING 5 - RECENT DEVELOPMENTS 6 - RISK ASSESSING,SCORING AND AWARDING DECISION 7 - IMPACT ON SMEs 8 - PERFORMANCE ASSESSMENTS 9 - CONCLUSIONS AND RECOMMANDATIONS

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors 1 - DEFINITION - Recognition as an issue by several EU’s Councils of Ministers European multi-annual programme for enterprise and entrepreneurship (MAP) - Microfinance is taken into account in the European multi-annual programme for enterprise and entrepreneurship (MAP) Micro Credit guarantee window - SMEs > Micro Credit guarantee window

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors new and existing small companies - new and existing small companies (less than 9 employees) loan below € loan below € for enterprise fixed capital investments and working capital with guarantee (co- and counter-guarantee) schemes business creations for : - business creations for : unemployed persons women form part of ethnic minorities

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors 2 million 2 million of enterprises created per year 90 % 90 % of which are micro-enterprises 3 years, 30 % within the first 3 years, 30 % of new enterprises do not survive 5 years, 50 % within the first 5 years, 50 % do not survive

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors LOAN FINANCE IN THE EU NORTH SOUTH GAP NORTH SOUTH GAP (access to debt finance is easier in northern countries) EAST WEST GAP EAST WEST GAP (strong development on non banking Institutions in the majority of candidates countries) CREDIT INSTITUTIONS PREFER OFFERING CREDIT LINES OR OVERDRAFTS (with substantial interest rates) RATHER THAN SHORT OR MEDIUM TERMS LOANS (with normal interest rates)

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors GUARANTEE Micro-credit provision is difficult : high risk of failures high handling costs but it may be a marketing strategy to support enterprises creators, who could later be good clients. Outside of public-private schemes credit institutions ask for : personal guarantee mortgage on real estate (up to 150 % of the loan in certain countries)

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors 2 - BACKGROUND Most micro-credit operations generally involve: public banks public banks (legal framework : European banking directive & national legislation on credit institutions) State-owned promotional banks State-owned promotional banks (under public supervision or receiving specific treatments) Micro-finance institutions Micro-finance institutions (under civil code) NGOs primarily for social inclusion purposes NGOs primarily for social inclusion purposes (under national legislations and traditions)

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors Micro-credit providers handling costs estimates by countries (€): UNITED KINGDOM1 335 GERMANY1 100 FINLAND700 – SWEDEN700 CZECH REPUBLIC ESTONIA590 POLAND LATVIA135

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors Percentage of handling costs estimates by countries (€): UNITED KINGDOM6 GERMANY7.3 FINLAND4.6/5.4 SWEDEN7.5 CZECH REPUBLIC2.1/3.2 ESTONIA4.4 POLAND6.7/11 LATVIA4 Lack of sufficient collateral High risks

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors EUROPEAN INCENTIVES 2 main financial programmes: EIF guarantee schemes: EIF guarantee schemes: specific window for Micro-credit guarantee within the multi- annual programme (MAP) for the promotion of entrepreneurship and enterprise PHARE SMEs finance facility : PHARE SMEs finance facility : co-financed by international financial institutions

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors NATION-WIDE MICRO-CREDIT PROGRAMMES National schemes: Spain : ICO SMEs Programme France: Prêt à la creation d’entreprise (PCE) Germany : Mikro-darlehen United Kingdom : Tax Incentive

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors NATION-WIDE MICRO-CREDIT PROGRAMMES National and Regional Guarantee Schemes: Estonia: Credit and export guarantee fund Italy: CONFIDI France: SOCAMA Spain : CESGAR

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors TRADITIONAL AND NEW MICROCREDIT INSTITUTIONS Saving banks and co-operatives banks in the EU Saving banks and co-operatives banks in the EU - Banques Populaires in France - Caixa Catalunya in Spain Recent initiatives in Candidates Country Recent initiatives in Candidates Country - Precredit Bank in Bulgaria - Funduz Mikro ltd in Poland

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors TRADITIONAL AND NEW MICRO-CREDIT INSTITUTIONS Micro-credit by NGOs : Micro-credit by NGOs : United Kingdom : the prince’s trust - Interest rate limited to 3 % - Loan repayable over a period of 3 years - No collateral required

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors TRADITIONAL AND NEW MICROCREDIT INSTITUTIONS Micro-credit by NGOs :Micro-credit by NGOs : France : ADIE - Current default rate 6,5 % - The borrower needs to provide 50 % of the loan amount as guarantee (caution solidaire)

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors 3 - BUSINESS SUPPORT SERVICES IMPACT ON SURVIVAL CHANCE Slovenia : the Programme of Voucher Counselling (PVC) Sweden : ALMIS annual survey Belgium: Fonds de participation

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors INTEGRATION OF LENDING AND BUSINESS SUPPORT SERVICE WITHIN A SINGLE BODY (“one stop shop”) Hungary : Hungarian Foundation for Enterprise Promotion (MVA)

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors 4 - MICROCREDIT PRODUCT DESIGNING Below market interest rate product Below market interest rate product Reasons for decreasing the interest rate Above market interest rate product Above market interest rate product Reasons for increasing the interest rate Step by step approach Step by step approach United Kingdom : ASPIRE micro-loans for business limited

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors 5 - RECENT DEVELOPMENTS IN MICROCREDIT SUPPLY Basic lessons learned : Basic lessons learned : - On the public-private partnership side - On the micro credit provider side - On the micro enterprise side Milestones toward sustainability Milestones toward sustainability

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors Fee Policy : Fee Policy : - EIF fee policy - Germany : Mikro-Darlehen policy - Belgium : Fonds de Participation fee policy Networking : Networking : - NEFI : - EUROPEAN MICROFINANCE NETWORK (EMN) : - MICROFINANCE CENTER (MFC) :

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors 6 - RISK ASSESSING, SCORING and AWARDING DECISION Micro-credit award decision making : Micro-credit award decision making : - France : PCE of BDPME - Denmark : VAEKSTKAUTION Loan guarantee programme

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors 7 - IMPACT ON SMEs Survival rate (after 5 years of creation) Survival rate (after 5 years of creation) - Germany : 80 % - Belgium : 75 % - Finland : 75 % - Poland : 70 % - UK / Denmark : 40 % Creation of additional jobs Creation of additional jobs - Germany : France : Belgium : Latvia : UK : 2

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors 8 - PERFORMANCE ASSESSMENT Public-Private Partnership Public-Private Partnership Greater Leverage Effect Greater Leverage Effect Performance Indicators Performance Indicators

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors 9 - CONCLUSIONS Promoting entrepreneurship Promoting entrepreneurship Market failure Market failure Public promotional banks Public promotional banks Associated guarantee schemes Associated guarantee schemes Interest pricing policy Interest pricing policy Business support services Business support services

15/03/2007 French National Institute of Certified Public Accountants - French National Institute of Statutory Auditors 9 - RECOMMANDATIONS Strengthening European and national partnership Strengthening European and national partnership in micro finance Enabling environment and public support Enabling environment and public support Assessing micro-credit institutions performance Assessing micro-credit institutions performance and management quality