MICROFINANCE IN EUROPE

1
MICROFINANCE IN EUROPE

• GIORDANO DELLAMORE FOUNDATION
• EUROPEAN FOUNDATION GUIDO VENOSTA
• L. Bonomo, L. Viganò, P. Vitali
• Sponsored by Pirelli s.p.a.

Presentation prepared for the international
conference Access to Finance Brussels, 28-29
October 2004 WSBI and WB
2
WHY THIS RESEARCH?

• Because the demand for financial services
  expressed by marginal segments
• is increasing in Europe

3
Who are marginal customers in Europe?
Those that find it difficult to be effectively
served by the traditional banking sector Micro
4
AIMS OF THE STUDY

• To investigate the European situation in light of
  some commonly shared paradigms of microfinance
  literature and practice
• To remark the main characteristics of the
  realities analysed in EU
• To provide some guidelines for the development of
  an MFI and its activities

5
Behind all these aspects
- good management of MFIs - understanding of the
market - attention to the customer - appropriate
products (individual vs. group lending, role of
guarantees, ) - market conditions - importance
of savings mobilization
Fondazione Giordano DellAmore
6
STRUCTURE OF THE STUDY

• First Part some paradigms on microfinance
  (experiences in LDCs)
• Second Part description of the European context
  and main experiences
• Analysis of a sample of these experiences

7
WHY MICROFINANCE IN EUROPE?

• To increase the availability of financial
• services
• To develop and support microenterprises

• To contribute to the reduction of poverty

8
TWO DIFFERENT FRAMEWORKS LDCs vs EUROPE

• In LDCs
• The exclusion from the formal financial market
  concerns large portions of people
• The environment is suitable to the establishment
  and development of microenterprises (no
  regulation)
• Poverty is a more spread out phenomenon

9
TWO DIFFERENT FRAMEWORKS LDCs vs EUROPE

• In Europe
• Microfinance has strong historical roots
• Inaccessibility to financial market is one of the
  main constraints for microenterprises development
• Some individuals are still excluded from
  financial market

10
APPROCHES TO MICROFINANCE
INSTITUTIONAL TYPE BANK
AIM FINANCIAL SELF SUFFICIENCY
MINIMALIST APPROACH
INSTITUTIONAL TYPE ASSOCIATIONS
FOUNDATIONS AND NGO
AIM TO REACH A SPECIFIC TARGET OF
CLIENTS (poverty alleviation paradigm)
MAXIMALIST APPROACH
11
THE EMPIRICAL ANALYSIS

• Descriptive analysis
• (a synthetic picture of the sample)
• Multi-dimensional analysis
• (a cross analysis of some key variables)
• Results and Conclusions

12
METHODOLOGY

• Identification of microfinance experiences in the
  EU countries
• Submission of the questionnaire to the
  institutions
• 41 institutions returned a properly filled
  questionnaire
• Definition of a sample made of 32 institutions (9
  countries)

13
DESCRIPTIVE ANALISYS

• 56 of the MFIs offer financial services only
• 44 of the MFIs offer credit and non financial
  services
• 7 are Banks 43 NGOs, Foundations and
  Associations 50 Non-bank Financial institutions
  and co-operatives
• Average loan amount is about 13.000
• 53 of the loans are lower than 10.000
• Average interest rate 5.5
• Average repayment rate 89.7
• Average longevity of programs 95 months

14
MULTI-DIMENSIONAL ANALYSIS I

• Identification of three typologies of MFI
• Financial Institutions (FIs)
• Co-operative societies (COOP)
• NGOs, Associations, Foundations (NAF)
• Dimensions of analysis
• - SUSTAINABILITY (proxies) interest rate,
  repayment rate, n of clients handled by a staff
  member
• - OUTREACH (proxies) n clients, n products,
  longevity MF program depth of outreach (av. loan
  size/average per-head GDP)

15
MULTI DIMENIONAL ANALYSIS II

• Cross-analysis with the two dimensions and the
  three types of MFIs
• Interpretation of the cross analysis findings
  through the introduction of some complementary
  variables those are
• There is a Focus on clients
• There is an organized system of information
  collection on risky clients
• There is a marketing strategy
• There are types of collateral securities
  requested to collateralise the loans granted

16
Results
17
CONCLUSIONS

• Repayment rate vs. longevity of MFs programs
• Repayment rate vs. presence of an organized
  system to collect information
• Repayment rate interest rate vs. collateral
  required
• Existence of a marketing strategy vs. number of
  clients served
• Interest rate vs. the supply of financial
  services only
• N of clients vs. N of products offered by the
  institution

18
THE IDEAL MFI in EUROPE

• Tends to specialization (economies of scale)
• Mainly uses an individual lending technology
  
• (group lending to serve specific targets
  only)
• Prices products so to cover its operational and
  financial expenses gt financial sustainability gt
  gt
  long term growth
• Uses subsidiaries funds only in the short run
• Considers innovation a crucial element for
  institutional development
• Develops and implements specific technologies
  tailored to supply services in the long run being
  sustainable and producing positive external
  effects

19
Thanks for your attention!