1. György Molnár Kiútprogram – A Social Microcredit Program for the Roma in Hungary With support from the EU A Way Out – and a Possible Way Forward Social Microcredit, Financial Inclusion and Self-Employment Kiútprogram Closing Conference 4 September, 2012 Brussels

2. Motto With adequate social opportunities, individuals can effectively shape their own destiny and help each other. They need not be seen primarily as passive recipients of the benefits of cunning development programs. Amartya Sen: Development as freedom

3. The vision of the program  Enable people living in deep poverty, primarily Roma, to become self-employed, by providing social assistance and financial services  Promote social mobility and Roma inclusion  Microcredit as a tool  Social impact vs. business profit  Benchmark: job creation, employment expansion programs  Aim: to create sustainable micro-enterprises 3

4. Why we choose microcredit?  High employment level before system change, also for Roma  The Roma are the main losers of system change  Low education and employment level  Social exclusion, strong prejudice against Roma, segregated Roma areas  No investment in underdeveloped areas and for poorly educated  Failure of state initiated job creation programs  Low share of services and micro-enterprises in the whole economy, especially in underdeveloped areas  In this situation development of micro- and small businesses could be a viable step  national Roma strategies 4

5. The subject of the pilot – what can we learn?  To test the adaptation possibilities of the Grameen Bank model  Significant differences in the environment: Premature welfare state The capital demand of a new business is higher High level of taxes High level of bureaucracy Lower density of the poor Distrust in lending financial institutions 5

6. The launch of Kiútprogram  Initiated by Polgár Foundation in 2008  Feasibility study in 2009  Contracts with the Hungarian government  Kiútprogram became a pilot project of Pan-European Coordination of Roma integration Methods – Roma inclusion: self-employment and microcredit, EU DG Regio, 2010-2012.  Field workers’ training started at the beginning of 2010  Three areas collapsed heavy industry agricultural crisis area of Budapest  First loans: September 2010 6

7. KIÚTPROGRAM PLC RAIFFEISEN BANK EXPERTS, SHAREHOLDERS Government POLGAR Foundation Loans and savings Loan guarantee IT system Advocacy Feedback Networking Field work Accepting business plans Client and program administration Loan agency Monitoring & evaluation Quality control EU connections Main owner Civil connections Analysing social impact Financing welfare bridge and other related costs Regulation, laws World Bank/UNDP Impact evaluation Monitoring support Advocacy EU DG Region Roma integration pilot project Finance (1.43 mill. Euros) Control Institutional structure 7

8. Main features of the Kiútprogram model  Unsecured loans of relatively small amounts (max. 3500 EUR)  Real interest rate around 10% (yearly), weekly repayment, 1 year loan period  Encouraging saving  Groups of 5 loan recipients, sequential lending (2 – 2 – 1)  In the formal economy: sole proprietors or licensed primary producers. Important difference from other models in the region.  Field workers play a much bigger role than in the original model –Support in preparing business plans, administration. –Support in the bureaucratic process  reduces discrimination –Support in debt management. Financial and business education.  Free of cost book-keeping  Welfare bridge We provide not only financial, but also social capital. The role of trust. 8

9. The correction of the model  Target group more attention to entrepreneurial capabilities ("entrepreneurial dream") previous informal business acitivities social connections more self-confident and optimistic clients  More flexible group formation  Shorter waiting time in sequential lending  More flexible loan period – but not enough, institutional constrains by the bank  Decrease in the amount of the loans  Introduce network building activities  good examples 9

10. Base performance indicators Settlements screened202 Persons screened (personal connection with field workers)900 Number of intake questionnaires447 Pre-groups60 Groups formed44 Settlements with formed groups38 Group-members192 Number of loan recipients (clients)138 Entrepreneurs75 Licensed primary producers63 Number of loan disbursements a 153 Value of total portfolio252 000 EUR 10

11. Performance indicators by batch 1st batch2nd batch3rd batchTotal/average Groups formed1226644 Loan recipients417423138 Still operates as entrepreneur 13592395 Loan disbursements 498123153 Average loan per person 2 528 EUR1 832 EUR550 EUR1 825 EUR Average duration52 weeks43 weeks26 weeks 11

12. Repayment indicators for clients who received the loans before March 2012 Arrears per payments due, % Persons Still operates as entrepreneur Currently At the 120 th day after borrowing At the 180 th day after borrowing 1st batch4113622833 2nd batch3931391220 Total8044 (95) a 522027 12 a All clients of the 2 nd batch not listed here and clients of the 3 rd batch still operate their businesses. Estimated survival rate: 60-70%

13. Estimated costs in the case of continuous operation o 300 clients o 20 field agenst and 5 other staff members o continuous tranining, legal support, external communications o bookkeeping for the clients o transportation, communication, etc.  gross operation costs: 210 euros per month per client  net operation costs (without taxes): 130 euros/month/client o estimated lending loss 30%, average loan 1800 euros  total net cost of continuous operation: 175 euros/month/client The cost per client is basically equal to the cost per person in the public work programmes. 13

14. Thank you for your attention! molnar@econ.core.hu 20