Creating opportunity. Supporting inclusion

The EU definition of microfinance is a microcredit, or loan, that is capped at €25,000. In many of the CEB’s member states, microfinance offers a new chance to unemployed people – opening the door to entrepreneurship for some of Europe’s most disadvantaged groups, including young people, refugees and people of migrant origin. The CEB considers the provision of lasting professional and economic opportunity to migrants, refugees and other vulnerable population groups as a way of building cohesion and fighting inequality, exclusion and marginalisation. It recognises the vital role that microfinance plays in fostering labour market integration, and has, for years, been financing microcredit institutions or banks providing special lines to marginalised population groups.

The CEB’s role in microfinancing 

Since 2008 the CEB has approved loans amounting to more than €300 million to microfinance providers in six countries. 

The CEB has provided €280 million in loans to MicroBank in Spain, the only bank in the country that specialises in microfinance. In January 2017, the CEB approved a further €100 million loan to MicroBank, supporting an ambitious and highly social initiative designed to promote entrepreneurship, foster economic growth, create employment and help individuals and their families to overcome temporary financial difficulties and access the formal banking system. 

“The significant financial support received from the CEB between 2008 and 2011, when the risk premium of the Spanish financial system was particularly high, has contributed enormously to the sustainability of our activity and has allowed us to quickly gain scale while at the same time being able to offer highly competitive conditions to our customers,” says a spokesperson from MicroBank. 

In Italy, a country facing similar economic challenges as Spain, the CEB supported PerMicro with a €6 million loan in 2013. PerMicro was established in 2007 with the goal of fostering the financial inclusion of people excluded from traditional banking channels because of a lack of guarantees or credit history, or because of their precarious working position. Today PerMicro operates across Italy, combining a business management approach with social goals.

Creating opportunities for the young 

Despite considerable recovery after the economic crisis, Europe continues to be plagued by chronic youth unemployment, which threatens the economic and societal prospects of an entire generation. Entrepreneurship can be a powerful tool to fight unemployment but difficulties in accessing finance represent one of the main barriers for aspiring entrepreneurs. Young people are in a disadvantaged position: they have low personal savings and their lack of credit history makes it difficult to obtain external finance.

A vital source of financing for refugees and migrants 

The microfinance sector serves people from a migrant background, who cannot access regular banking channels. These clients are often not able to meet banking requirements and microcredit is practically the only source of financing available to them. Vardan Babayan fled Armenia during a period of internal strife. He passed through Russia, Ukraine and Austria before reaching Italy in 2012. Rejected by local banks and unemployed for a year in Florence, he finally found PerMicro. Thanks to a business microcredit, he opened ‘Ararat Le Bracerie’, a café selling traditional Armenian foods. 

“It was my chance to open a little corner of Armenia in Italy and to feel at home,” says Babayan. “I had no other option. I had no Plan B.” 

Boosting jobs and employability 

Microfinance has great potential to boost job creation and help maintain jobs. 

• In the past 10 years, MicroBank’s microloans helped create 185,000 jobs.
  
• 125,000 entrepreneurs, many of them selfemployed, benefited from a microloan.  
  
• 69% of MicroBank’s clients say they could not have put their project into effect with their own resources. 
  

The impact of microfinance also goes further by helping to improve employability. 

• According to MicroBank, 29% of entrepreneurs who are currently working as employees, think that their experience with their own businesses has helped them to get their current job. 
  
• What’s more, 14% of those currently unemployed are thinking of opening a new business. 
  

Far reaching benefits 

According to PerMicro, thanks to their microloans, more than 500 entrepreneurs and 1,600 families changed their status from non-bankable to bankable in six years. 

Access to the formal financial system goes hand in hand with integration as financial inclusion is a key precondition for inclusion in society, not only for migrants and young people but for any member of the society. 

“It is important to highlight further impacts on Italian public administration,” says Andrea Limone, CEO at PerMicro, “such as the increase of governmental income that is around €12 million per year and the reduction of public expenses of around €3 million per year thanks to business microcredits.” 

A boost for target countries 

Microfinance is gaining popularity in some of the CEB’s target countries, which face high unemployment rates and rigid and costly credit systems. In such conditions, few existing companies and almost no start-ups can afford the interest rates offered in the market.