The European Progress Microfinance Facility

Why the Facility? Rising unemployment Credit crunch Funding needs of non banking providers of microcredit (regulatory environment and inter-banking market) Need for quick and direct action

Objective of the Facility Increase access to, and availability of, microfinance for: vulnerable groups (unemployed, disadvantaged people, young people, etc.) wanting to set up or further develop a micro enterprise (including self-employment). Micro-enterprises, especially those in the social economy

Budget Union contribution: € 100 M (2010-2013 from Progress programme and margins) + EIB contribution (€ up to 100 M) Expected leverage 5 times 1% maximum for support measures Re-investment within 6 years After end of Facility: surpluses back to Community budget

Products Under discussion with EIF/EIB: Guarantees (June) SICAV / Specialised investment fund (September) for: debt instruments; equity

GUARANTEES AND RISK SHARING INSTRUMENTS EC EIF Guarantee MFI Loan portfolio of target beneficiaries Micro- loans FIs (banks) for MFIs / NGOs for target Debt Instrument Micro loans - Counter Guarantees - Guarantees to cover losses of Banks/MFIs which provide micro-loans to final beneficiaries

special vehicle and MFI Shareholding in special vehicle Agreement between special vehicle and MFI Micro-credit to final beneficiaries FB=Final Beneficiaries

How can the individual benefit from the Facility? Public employment service or NGO Microfinance provider (bank or NGO) 4. Training, coaching (ESF) Interest rebate (ESF) Micro- enterprise 1 2 3 1 The unemployed or disadvantaged person is informed about the possibilities offered by the Facility through the public employment service or by NGOs. He/she is directed towards a micro-finance provider. 2 The application is made to the microfinance provider (bank or NGO) 3 A contract is signed between the beneficiary and the provider. The individual can benefit from the interest rebate offered by the ESF 4 From the information phase until the actual running of the business the beneficiary is supported by the European Social Fund through training and coaching, guidance and mentoring. How can the individual benefit from the Facility? Individual Micro entrepreneur loan Information Support

Loan interest rate rebates Art. 11 of ESF Regulation The rebate covers the fee charged by a lender to a borrower for the use of the borrowed money The principal of the loan is not concerned Forms of rebate : a return of part of a payment a deduction from a sum before payment

Loan interest rate rebates Two operational options Specific rebate support : in combination with Progress General rebate support : irrespective of Progress Common requirement : alignement with the ESF scope and specific objectives of the operational programme The eligibility test for the micro-borrowers (Progress decision) is a duty of the financial intermediaries

Loan interest rate rebates Specific rebate support granted to borrowers: - Granted for loans not exceeding €25000 obtained from intermediaries backed by Progress - Partial or full coverage of interest due on the basis of real costs approach - Simplified costs option : a package with weighting of components

Loan interest rate support General rebate support granted to borrowers / intermediaries (limitation of art. 54(5) of 1083/2006) : - Granted for loans that may exceed €25000 irrespective of the Progress facility - Partial or full coverage of interest due on the basis of real costs approach Simplified costs option : a package with weighting of components - Possibility of a ‘deduction of a sum before payment’ via the intermediaries

Next steps start up Facility by mid 2010 Accompanying and promotional measures through ESF technical assistance : preparatory study Launching event: October 2010 Annual reporting to Council/EP starting in 2011

www.ec.europa.eu/epmf EMPL-MICROFINANCE@ec.europa.eu