„Which Business Models for Growth in Europe?“ Silvia Rico – Fundación Nantik Lum (Spain) Veronika Thiel – nef (UK) Giampietro Pizzo – Microfinanza (Italy) Moderator: Martin Jung – EVERS & JUNG EMN Conference Milan, 5 th June 2009

Content Structure 1.Economic Situation 2.Legal Framework 3.Mission, Target group and Uncovered Demand 4.Geographical Outreach and Scale 5.Relationship with Banks and Insurance Companies 6.Products 7.Portfolio Characteristics Lending Methodology and Collaterals Monitoring and Productivity Portfolio Quality Indicators 8.Profitability and Sustainability Income and Cost Structure 9.Business Development Services 10.Perspective and Challenges for Growth and how to meet it 11.Conclusion (main Success Factors or Hindrances for Growth)

Three Countries – three Situations

Economic Situations Spain 46.2 M inhabitants 22% rural population GDP per capita: €23,704 GDP growth: 1.2% (2008) Number of SMEs/ 1000 inhabitants: 58 Informal sector in % of GDP: 22.5% UK 61 M inhabitants 19% rural population GDP per capita: €25,700 GDP growth: 0.7% (2008) Number of SMEs/ 1000 inhabitants: 26 Informal sector in % of GDP: 12.5% Italy 60 M inhabitants 32% rural population GDP per capita: €28,057 GDP growth: 1.5% (2008) Number of SMEs/ 1000 inhabitants: 62 Informal sector in % of GDP: 27%

Legal Framework Spain No specific regulation for MFIs Banks, savings banks and credit cooperatives are regulated by the banking law Social entities (Social Microcredit Support Organisations) and Foundations of savings banks (Social Work) are regulated by their specific law (associations and foundations‘ law) UK No specific regulation for MFIs/CDFIs Personal lending MFIs need to have consumer credit license Some forms of incorporation require certain conditions by law and registration with the Financial Services Authority (FSA) Otherwise, MFIs are not regulated by the FSA Italy No specific regulation for MFIs Banking and non banking financial institutions are regulated by the law Some institutions providing non banking microcredit are regulated by banking legislation (TUB art. 106) Foundations and NGOs do not have a specific supervision or legal framework.

Mission, Target Groups and Uncovered Demand SpainUKItaly MISSIONTo promote self- employment or economic activity, to persons at risk of exclusion and without access to the traditional financial system Ca 10 MFIs (savings banks and one social bank) MF less than 50% of their activity Microfinance part of wider movement of CDFIs Ca 38 offer microfinance 25 MF over 75% of portfolio Fighting social and financial exclusion, Creation of (self-) employment Ca 80 Microfinance Institutions 33 MFIs surveyed TARGET GROUPS Vulnerable women, immigrants, youth (more recently), long-term unemployed, single-parent families, persons over 45 years, start-up entreprises Ethnic minorities, women, disabled (no strong orientation holistic movement) Migrant communities, women and start-up enterprises (most of the MFIs have a specific intended target clientele) UNCOVERED DEMAND Ca 840 million Euros (applying European Commission estimates) No datapreliminary estimate by RITMI: EUR 4 billion

Geographical Outreach and Scale - Spain Aprox. 20 Savings Banks (out of 47) of which 10 are most active and one microcredit bank (Microbank la Caixa) Nationwide: 2 (Obra Social Caixa Catalunya and Microbank la Caixa) Regional coverage related to the Savings Banks’ territory Social Microcredit Support Organisations (SMSOs) provide Business development Services

Geographical Outreach and Scale - Spain Microcredit Supply Distribution in Spain

Geographical Outreach and Scale - UK Nationwide 1 Northern Ireland 1 Scotland 1 England 35 England by Region East Anglia2 East Midlands2 London4 North East4 North West5 South East4 South West4 West Midland4 Yorkshire6 Coverage is ok, but can be patchy in certain areas, especially rural ones.

Geographical Outreach and Scale - Italy MFIs: 33 Nationwide 3 Regional 13 Local 17 MFIs: 33 Northern Region: 17 Centre Region: 9 Southern Region: 7

Relationship with Banks, Insurance companies, Guarantee Funds SpainUKItaly BANKSSavings Banks (Social Work) and Microbank la Caixa are the main MFIs Minor activity from one commercial bank (Santander-Sodecan) Patchy. Some good local relationships, but not systematic (Market dominated by 4 commercial banks) Growing interest from Banks and its Association (ABI) in expanding their involvement in microcredit INSURANCE COMPANIES No specific relationship Maybe as part of personal loan programmes No specific relationship GUARANTEE FUNDS None specific related to microcredit (Yes for entrepeneurs in general, e.g. Aval Madrid) 4 MFIs accredited for state guarantee scheme – reforms reduced coverage Confidi Network: 830 active entities with Euro 6.2 billion guarantees granted (2003) but no real cooperation with MFIs

Products Spain Social microcredit: personal (self- employment) and small businesses Average loan: € 9,900 Min. loans: € 1,000 Max. loans: € 25,000 Average interest rate: 5.1% UK Personal lending and business microcredit to people rejected by bank Average loan: £8,500 Min. loans: £500 Max loans: for MFIs around £15k Fixed: average interest rate 13.4% (5.6-22%) Variable: ca 5.8% over base rate (3.5-10%) Italy Social microcredit (=personal lending) and business microcredit Average loan: € 7,192 Min. loans: € 1,800 Max. loans: € 17,000 Average interest rate: 5,8% (from 1.8% to 12%)

Portfolio Characteristics Spain Strong portfolio growth Gross loan portfolio (31/12/2007): € 84.4 million Disbursed amount: €: 97,8 million for 8,773 loans ( ) Number of active clients (31/12/2007): 6,922 Retention rate (% of refinanced clients): n/a UK Stagnating portfolio Outstanding portfolio £10.4m (1252 loans) Disbursed amount: £25m for 3691 loans (ca ), av. £ clients overall (including non-MFI clients) Retention rate n/a Italy Strong portfolio growth Disbursed amount: € 43.7 million for 3223 loans On the 24 surveyed institutions that provided data: disbursed loans € 6.6 million for 923 loans Retention rate n/a

Lending Methodology and Collaterals SpainUKItaly Unsecured loans – no collateral: 56% of loans Unsecured loans – no collateral: over 82% of loans Entrepreneurial Microcredit - no collateral Personal savings: 33% of loans Guarantor: 11% of loans Loans secured against personal guarantee – for some 100% Social Microcredit - reference of a social network and/or personal guarantee Some experiments with peer group lending Individual loans Only 2 MFIs with group lending methodology

Monitoring and Productivity SpainUKItaly Monitoring procedure: repayment record, personal visits, Business Development Services Monitoring: repayment record, personal visits, sometimes coaching programmes Monitoring: repayment record, personal visits, Business Development Services Credit History is checked Credit history will be checked but not exclusionary criteria Credit history is checked Credit officers productivity: n/a Average portfolio/CO: n/a Loans/CO: n/a n/a

Portfolio Quality Indicators Spain Portfolio At Risk at 30 days: 9% (3 respondents) Portfolio At Risk at 90 days: n/a Write off ratio: 5% (5 respondents) Refinancing/ rescheduled ratio: 6% (3 respondents). UK PF at risk (28 responses): 22% (no split 30 days/90 days) Write-offs ca 13% (27 respondents, range 0%-28%) Refinancing and rescheduling – insufficient data Italy Data for 7 MFIs: PAR30: range 0,8% - 72% (average value 25%) Range of Write-offs 0% - 28%; average of 5.9%. Restructured portfolio: n/a

Profitability and Sustainability Spain Operational Self- sufficiency: 100 % (only 1 respondent!) Financial Self- sufficiency: n/a UK Operational self- sufficiency – average of 8.5% with one organisation at 40% Some CDFIs indicate they want to be self- sufficient in 4-8 years No data on financial self-sufficiency Italy p.48 Data for 3 MFIs: Self- sufficiency: ranges from 180% to 14% (average value 98%)

Cost and Income Structure Spain Funding Savings Banks: interest income and Social Work funds Social Microcredit Support Organisations (Business Development Services): private and public subsidies UK very little data for UK Unit cost av. £742 Capital: mostly grants Italy Funding (33 MFIs): private funds: 13 public funds: 6 mixed funds: 4 n/a: 10

Business Development Services Spain BDS are provided by SMSOs acting as partners of the savings banks Services are either compulsory for all borrowers or for some, or on request UK Very few formal Vast majority refers to business advice agencies Some compulsory programmes in house Case-by-case decisions Italy 62% of the Institutions provide training or technical assistance Services are either compulsory for all borrowers or for some, or on request

Perspective and challenges for growth and how to meet it Spain Challenges: Re-evaluate mission Funding Institutional capacity (staff SMSOs) SMSOs to manage directly loan portfolios Measure social performance and impact Solutions: Networking and coordination Training More government support UK Challenges: Funds for operational costs Funds for lending Institutional capacity (staff) Very little government support Italy Challenges: Vision and strategy Funding Lack of scale and difficulties in meeting the demand Solutions: Training and mentoring Networking and merging Public and private partnerships Solutions: Market segmentation Alignment with microfinance movement Revision of insistence on full financial sustainability

Conclusion 1. Lack of data and transparency 2. Lack of market segmentation/alignment 3. Lack of scale (=> capacity building and growth) 4. Lack of financial resources 5. Lack of coordination What are the common ‘Big Issues’?