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„Which Business Models for Growth in Europe? “ Silvia Rico – Fundación Nantik Lum „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 European Microfinance Network

Content Structure 1. 2. 3. 4. 5. 6. 7. Economic Situation Legal Framework Mission, Content Structure 1. 2. 3. 4. 5. 6. 7. Economic Situation Legal Framework Mission, Target group and Uncovered Demand Geographical Outreach and Scale Relationship with Banks and Insurance Companies Products 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) European Microfinance Network

Three Countries – three Situations European Microfinance Network Three Countries – three Situations European Microfinance Network

Economic Situations • • • Spain 46. 2 M inhabitants 22% rural population GDP 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% European Microfinance Network • • • 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 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) European Microfinance Network 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 Spain UK Italy To promote selfemployment or economic Mission, Target Groups and Uncovered Demand Spain UK Italy To promote selfemployment or economic activity, to persons at risk of exclusion and without access to the traditional financial system Microfinance part of wider movement of CDFIs Fighting social and financial exclusion, Creation of (self-) employment Ca 10 MFIs (savings banks and one social bank) Ca 38 offer microfinance MF less than 50% of their activity 25 MF over 75% of portfolio 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 data preliminary estimate by RITMI: EUR 4 billion MISSION European Microfinance Network Ca 80 Microfinance Institutions 33 MFIs surveyed

Geographical Outreach and Scale - Spain Aprox. 20 Savings Banks (out of 47) of 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 European Microfinance Network

Geographical Outreach and Scale - Spain Microcredit Supply Distribution in Spain European Microfinance Network Geographical Outreach and Scale - Spain Microcredit Supply Distribution in Spain European Microfinance Network

Geographical Outreach and Scale - UK Nationwide 1 Northern Ireland 1 Scotland 1 England Geographical Outreach and Scale - UK Nationwide 1 Northern Ireland 1 Scotland 1 England 35 England by Region East Anglia 2 East Midlands 2 London 4 North East 4 North West 5 South East 4 South West 4 West Midland 4 Yorkshire 6 Coverage is ok, but can be patchy in certain areas, especially rural ones. European Microfinance Network

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

Relationship with Banks, Insurance companies, Guarantee Funds Spain BANKS UK Italy Savings Banks (Social Relationship with Banks, Insurance companies, Guarantee Funds Spain BANKS UK Italy Savings Banks (Social Work) and Microbank la Caixa are the main MFIs Patchy. Some good local relationships, but not systematic Growing interest from Banks and its Association (ABI) in expanding their involvement in microcredit Minor activity from one commercial bank (Santander-Sodecan) (Market dominated by 4 commercial banks) 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 European Microfinance Network

Products Spain Italy UK • Social microcredit: personal (selfemployment) and small businesses • Personal Products Spain Italy UK • Social microcredit: personal (selfemployment) and small businesses • Personal lending and business microcredit to people rejected by bank • Social microcredit (=personal lending) and business microcredit • • • Average loan: € 9, 900 Min. loans: € 1, 000 Max. loans: € 25, 000 • • • Average loan: £ 8, 500 Min. loans: £ 500 Max loans: for MFIs around £ 15 k Fixed: average interest rate 13. 4% (5. 6 -22%) Variable: ca 5. 8% over base rate (3. 5 -10%) • • • Average loan: € 7, 192 Min. loans: € 1, 800 Max. loans: € 17, 000 • Average interest rate: 5, 8% (from 1. 8% to 12%) • • Average interest rate: 5. 1% European Microfinance Network •

Portfolio Characteristics Spain • • Strong portfolio growth Gross loan portfolio (31/12/2007): € 84. Portfolio Characteristics Spain • • Strong portfolio growth Gross loan portfolio (31/12/2007): € 84. 4 million • Disbursed amount: €: 97, 8 million for 8, 773 loans (2002 -2007) • • Number of active clients (31/12/2007): 6, 922 Retention rate (% of refinanced clients): n/a European Microfinance Network • • UK Stagnating portfolio Outstanding portfolio £ 10. 4 m (1252 loans) • Disbursed amount: £ 25 m for 3691 loans (ca 2003 -2007), av. £ 6773 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 • 2646 clients overall (including non-MFI clients) • Retention rate n/a

Lending Methodology and Collaterals Spain UK Italy Unsecured loans – no collateral: 56% of Lending Methodology and Collaterals Spain UK Italy Unsecured loans – no collateral: 56% of loans Unsecured loans – no collateral: 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 European Microfinance Network over 82% of loans Only 2 MFIs with group lending methodology

Monitoring and Productivity Spain UK Italy Monitoring procedure: repayment record, personal visits, Business Development Monitoring and Productivity Spain UK Italy 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 n/a Average portfolio/CO: n/a Loans/CO: n/a European Microfinance Network

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

Profitability and Sustainability • Spain Operational Selfsufficiency: 100 % (only 1 respondent!) • Financial Profitability and Sustainability • Spain Operational Selfsufficiency: 100 % (only 1 respondent!) • Financial Self- sufficiency: n/a • UK Operational selfsufficiency – average of 8. 5% with one organisation at 40% • Some CDFIs indicate they want to be selfsufficient in 4 -8 years • No data on financial self-sufficiency European Microfinance Network 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 • 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 European Microfinance Network 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 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 European Microfinance Network • • 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 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 European Microfinance Network UK Challenges: • Funds for operational costs • Funds for lending • Institutional capacity (staff) • Very little government support Solutions: • Market segmentation • Alignment with microfinance movement • Revision of insistence on full financial sustainability 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

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