A little bit of history
Microcredit was born in Bangladesh in 1976 by Grameen Bank, the so-called bank of the poor founded by Muhammad Yunus with the aim of offering opportunities to most of the population that did not have access to traditional financial services. At the end of the last century, it expanded through developing countries in Southeast Asia, Latin America, the Maghreb and Sub-Saharan Africa.
Microcredit
landed in Europe in 1989 thanks to the
Association pour le Droit a l’Initiative Económique, ADIE, which got the French legislation to recognize the right to financial inclusion and promoted the creation in 2003 of the European
Microfinance Network to promote microcredit in the European Union and encourage the exchange of good practices. In 2007, the European Commission launched the
European Microcredit Development Initiative in Support of Growth and Jobs, laying the foundations for a sector that has grown steadily in recent years.
In our country, the joint initiative of the Un Sol Món Foundation of Caixa Catalunya and
Autoocupació was a pioneer and was followed by many saving banks and other social entities. The
creation of Microbank in 2008 meant the professionalization of the sector.
But…what is a microcredit?
According to the definition of the European Commission, a microcredit is a
loan of up to 25,000 euros aimed at financing self-employment projects and microenterprises led by groups of entrepreneurs in situations of vulnerability and financial exclusion, which is usually accompanied by training services.
Thus, microcredit is defined by:
- Its objectives, which combine the generation of employment through the growth of professional or business activities with the social inclusion of the recipients.
- Its recipients, groups in vulnerable situations such as women, young people, the unemployed, migrants or the rural population, who do not have access to traditional bank financing due to lack of guarantees or credit history.
- Its offer of services, which accompany a financial product such as the loan with actions aimed at developing the skills of the recipients: financial education, training in business management, advice to evaluate the viability of the project, or mentoring.
The European microfinance sector today
The report of the Survey on Microfinance in Europe made by the MNE in 2022, based on the analysis of the activity of 156 microfinance institutions in 30 countries, is the best analysis of the characteristics and potential of the sector:
- 94% of microcredit providers are non-banking institutions: non-governmental entities, cooperatives, non-bank financial institutions and public administrations.
- 84% of microfinance institutions have digital solutions that help customers apply, manage or return a microcredit online.
- 76% of these institutions provide training services as a complement to funding services.
- The number of active borrowers at the end of 2021 is 1,400,000 and the aggregate amount of the gross microcredit portfolio is 4,300 million euros.
- The quality of the portfolio, measured in terms of portfolio at risk greater than 30 days, is 9%.
- 71% of these institutions are self-sufficient, meaning they generate sufficient income to meet their expenses.
And what about the impact?
- In Belgium, a Microstart study showed that 78% of microcredit recipients continued to operate from 1.5 to 4.5 years after the microcredit and that each microcredit of €20,000 generated 1.87 jobs.
- In France, research by Adie found that 63% of beneficiaries were still active from 2 to 3 years after the microcredit and that the social return on investment in microcredits was 2.38 euros for every euro invested.
- In Italy, a Permicro report revealed that 90% of microcredit financed businesses maintained their activity after between 2 and 9 years and that 38% had gained access to bank financing.
- In Spain, the latest annual report of Microbank indicated that entrepreneurs and microenterprises generated 0.87 direct jobs for each microcredit granted and that 57% of them expected new hires during the next year.
The data highlights the
potential of microcredit in job creation and social inclusion of people with fewer opportunities.
This impact would not be possible without the committed participation of many public and private entities that, often without adequate financing, accompany the beneficiaries of microcredits in their self-employment itineraries.
It is time to strengthen
mechanisms of collaboration between microcredit institutions and institutions that provide training services to their recipients, bringing access to financing closer to participation in competency development programs, and to provide both activities with the necessary public resources to exploit their full potential, helping more people to say “I am what I want to be”.
