Big Payoff for Micro-Financing Initiative
Eastern Europe, October, 28 2014 -
European Progress Microfinance Facility has given out loans totaling tens of millions of euros to entrepreneurs.
A report released by the European Commission has revealed that more than 20,000 entrepreneurs have benefited from micro-financing facility funding to launch companies and expand existing enterprises.
Under the European Progress Microfinance Facility, loans totaling 182 million euros have been distributed, which the commission says has contributed significantly to job creation. The progress facility finances loans of less than 25,000 euros to the unemployed, or those who are from disadvantaged groups, as well as employees who feel their jobs are at risk.
Aspiring entrepreneurs have often complained that the barriers to access for finance have severely hampered their ambitions. The commission’s report states 60 percent of final users were unemployed or inactive when they initially applied for capital injections.
The commission also says micro-financing is contributing to the reduction in youth unemployment, which remains a huge problem across the European Union, as 5.9 percent of applicants were under the age of 25.
“The micro finance scheme is a really interesting and important tool, as since 2008 financing for new business has been difficult unless its in the IT sector, where there is lots of funding available,” said Patrick Kovács, the president of the Young Entrepreneurs’ Organization of the European Union. “Micro-finance could be a huge source of support for young and unemployed people; other examples of help are also available. Here in Hungary, there is an initiative that has received 23.5 million euros in funding from partners such as the European Social Fund. Some 3.5 million people under the age of 35 are receiving training and mentoring for entering into entrepreneurship, which may need micro-finance.”
“I think people should be made more aware of micro-financing schemes, and it should become less bureaucratized and have the capacity to make a strong contribution to the SME sector,” he said
Minority groups such as the Roma have also received loans due to the proliferation of micro-finance, especially for Roma communities who live in France and Bulgaria.
Agriculture and trade were the two sectors in the economy that received the most help, as they accounted for more than half the enterprises that were accepted for funding.
After lending the money, the aim of the commission is that a leverage effect take place, with a total investment of around 500 million euros being targeted, through partners such as the European Investment Bank.
The goal is to accomplish this through the revolving nature of the funds and the attraction of the product that is on offer.
For example, intermediaries in micro-finance can have a portfolio guarantee from the micro-finance facility to ensure that it is easier to raise capital from market investors and use it for micro-loan provision.
The facility is operated by the European Investment Fund, which works through micro-credit providers at national, regional or local level. In 2013, there were 40 micro-credit providers in 18 member states.
"By helping people to become entrepreneurs, the European Progress Microfinance Facility is an effective instrument to support people from disadvantaged groups in their efforts to get back to work and integrate into society,” said European Commissioner for Employment, Social Affairs and Inclusion László Andor.
“Raising the money needed to start new businesses can be difficult for the unemployed, young people and minorities, but small loans such as the ones Progress Microfinance is providing can make a big difference for would-be entrepreneurs who might otherwise never be able to put their creativity at work,” Andor added
An external study that complemented the report also suggested that EU member states should encourage more participation in micro-finance schemes, as there was evidence that there is still slack in the European micro-finance market (currently worth around 2.7 billion euros) that needs to be taken up by more budding entrepreneurs.
After an agreement in June last year between the European Parliament and the European Council, a total of 815 million euros will be allocated as part of the 2014–20 budget, to extend the European Progress Microfinance Facility, via support from the Employment and Social Innovation program.