JURISDICTION SUMMARY: AUSTRIA
Source: EMN (+AWS and ÖSB Consulting)
Types of vehicles
available for
microenterprises
and selfemployment
Costs and
Procedures
-
One-person-companies with a trading licence: individual enterprises
without employees. The trading licence is connected with an
obligatory membership of the Austrian Chamber of Commerce.
-
New self-employment: The Austrian law defines the legal form of
new self-employment in the contract of manufacture only.
-
A dependent form of self-employment is given when a contractor is
dependent from only one contract awarder and has little autonomy
concerning his work, contract, working place and time or payment.
Franchising is seen on the border of this type of dependent selfemployment.
-
Limited liability company (GMbH)
All self-employed persons need a trading license (some professions such
as lawyers and doctors are exempt).
The Austrian law for supporting the foundation of new businesses
(Neugründungs-Förderungsgesetz, NEUFÖG) is part of the taxation
reforms of 2000 and can free from diverse costs connected to starting and
taking over a company as well as supplements to wages and salaries in
the first year, independent from a foundation as trade company,
freelancer or farmer
Financial support
programs during
the transition
period
Business
Development
Services
-
Self-employed persons are in most cases not entitled to receive
unemployment benefits
-
Exception: Periods of unemployment insurance, which can be
achieved by extending the framework period before the claimant
became self-employed
-
This insurance usually contains health-, accident- and pension
insurance. Contributions to unemployment insurance are not
considered.
A variety of support mechanisms to promote self-employment and the
viability and growth of business start ups exist. Support programmes are
initiated by the Federal government and its institutions and by the
Chamber of Commerce, but not specific for microenterprises
Entrepreneurship is especially enhanced through training and coaching
programs and public loans. Basically those instruments are open for
potential entrepreneurs no matter if they are employed or unemployed
PA\619426.6
JURISDICTION SUMMARY: AUSTRIA
Source: EMN (+AWS and ÖSB Consulting)
ÖSB Consulting has a specific business support programme for
microentrepreneurs carried out in the frame of the public business startup programme of the Austrian public employment service (AMS). It
provides advice, coaching and networking possibilities
Specific laws &
regulations
applicable to
microenterprises,
self-employment
and microcredit
General corporate rules apply for microenterprises
Sources of
funding for
microcredit
institutions
Commercial loans: banks
Banking monopoly
There is no special legislation concerning microcredit.
Public sources:
-
Government (Ministry of Economics and Labour, Ministry of
Finance) with EIF counter-guarantee
-
Local government
-
European funds through ESF
Operational /
financial
autonomy
So far microcredit projects in Austria have not achieved sustainability
and depend on public subsidies.
Usury rule
(interest caps)
No interest caps
Tax incentives
N.A.
Access to
guarantee
schemes for banks
and non bank
institutions
providing
microcredit
AWS provides a guarantee scheme
Database
recording
borrowers’
history
N.A.
2
PA\619426.6
JURISDICTION SUMMARY: AUSTRIA
Source: EMN (+AWS and ÖSB Consulting)
Ability of non
bank microcredit
institutions to
access such
databases
N.A.
Obligation for non No obligation
bank microcredit
institutions to
provide their
borrowers' credit
history to such
databases
Significant
initiatives taken to
develop
microcredit
In 2005 three EQUAL-Projects were started in Austria – one in
Tirol, one in the eastern part of Austria and one in Styria. Each was
focussing on different microcredit models. The pilot project in Styria
ESCAPE was based on the existing national framework concerning
the legal system and banking, and concentrated on women and
migrants. microcredits are granted by an official bank (Raiffeisen
Landesbanken). Liability / Security was taken over by the AWS
(public security bank). The project reached around 450 people
interested in the project. The microcredit-concept in ESCAPE was
developed and realised by the ÖSB Consulting GmbH, one of the
leading consulting firms in Austria and ended in 2007.
-
The project “Alternative Selbstständigkeit” (carried out by “ibw”) in
Vienna and the project “Initiative Frauen gründen” in Innsbruck”
have a similar procedure and similar conditions but focus especially
on women who want to start a business.
-
The Austrian government has adopted in April 2006 a promotion
package for micro and small enterprises. It is being implemented
since July 2006 through austria wirtschaftsservice (aws).
-
Since 2007 the Austrian public employment service (AMS) provides
microcredit in 5 provinces in the frame of the public business start up
programme (Unternehmensgründungsprogramm UGP) with support
from ÖSB Consulting.
3
PA\619426.6
JURISDICTION SUMMARY: AUSTRIA
Source: EMN (+AWS and ÖSB Consulting)
Suggested
measures to
improve existing /
create a new
framework for
microenterprises
and microcredit
For microenterprises/self-employment:
-
Include businesses without employees into statistics
-
Improve legislation on self-employment, i.e. include definition of
self-employment in the Austrian law
-
Simplify administrative procedures (tax declaration etc.)
-
Improve technical and business development services
For microcredit:
-
Promote partnerships between MFIs and banks
-
Authorise non bank institutions to borrow for on-lending
-
Build on the lessons of the EQUAL projects carried out in the field of
microfinance
4
PA\619426.6
JURISDICTION SUMMARY: BELGIUM
Source: Latham & Watkins Brussels & EMN with Fonds de Participation
Types of vehicles
available for
microcredit and
self-employment
Any natural person may start a business in Belgium either as a selfemployed person or through a business.
Costs and
procedures
Cost of incorporation of a company includes registration duties,
publication in the Official Gazette of company’s articles of
incorporation and fixed notary fees. In total, cost amounts to €1,000 for
"SPRL" and €1,500 for "SA".
Main types of corporate vehicles which can be used by microenterprises
and self-employment: Société Anonyme (SA), Société Privée à
Responsabilité Limitée (SPRL) and Société coopérative à responsabilité
limitée (SCRL).
Incorporation of a company in Belgium requires formalities such as
enactment of articles of incorporation before a Belgian notary,
registration with the National Office for Social Security in case staff is
employed in Belgium and, if needed, administrative authorization to
access a regulated profession and registration with VAT. Initial capital
is required to set up a company. For SA, minimum capital required is
€61,500 to be fully subscribed. For SPRL and SCRL, law requires a
minimum capital of €18,550 of which at least €6,200 must be paid upon
constitution (€12,400 in case of incorporation of a SPRL by one
shareholder only).
Self-employed persons and companies are required to register with a
central corporate database: "Crossroads Bank for Enterprises".
Created in 2003, there are ten registered business one-stop-shops in
Belgium.
Financial support
programs during
transition period
As a general rule, an unemployed person ceases to benefit from
allowances as soon as he/she starts running a business either as selfemployed or through a company. However, prior to the incorporation,
potential financial advantages received during training are not
considered as wages and may be as such cumulated with unemployment
benefits.
Business
Development
Services
-
Business development training for unemployed people (beneficiaries
can continue to receive unemployment allowances during some
trainings)
-
Business employment cooperative (e.g. Azimut and Debu(u)t)
5
PA\619426.6
JURISDICTION SUMMARY: BELGIUM
Source: Latham & Watkins Brussels & EMN with Fonds de Participation
-
Various programmes offered by MFIs: “Fonds de Participation” has
developed a "Plan for young self-employed" which provides
accompanying measures for persons under 30 and “Crédal” has a
programme focused on women entrepreneurship
-
Credal and Hefboom offer a 2 year business support for the
entrepreneurs who are granted with microcredit
Specific laws &
regulations
applicable to
microcredit, selfemployment and
microfinance
No specific rules
Types of
institutions
providing
microcredit
MFIs:
-
Fonds de participation (Federal public company under supervision
of Ministry of Economy, Ministry of Finance and Ministry of
Employment)
-
Crédal (cooperative microfinance institution operating in Wallonia
and the Brussels Region)
-
Brusoc (a subsidiary of the partly state-owned venture capital
company BRIC operating in former "Objective 2" part of Brussels
Region)
-
Hefboom (private MFI operating in Flanders and Brussels Region)
Commercial banks do not offer their own microcredit products, they
only act through partnerships with microfinance institutions (MFIs).1
1 The “Fonds de participation” has partnership agreements with several commercial banks in Belgium so that borrowers
may apply for a loan directly to their usual commercial bank. Crédal has a partnership with the Bank of the BelgianPost for
the granting of low rate consumption loans. The loans are granted directly by the Bank of the Belgian Post to which
repayments are paid. The main feature of those consumption loans is that Crédal will intervene in case of failure to repay in
order to find a settlement. In addition, Crédal has partnership with some commercial banks for its funding.
6
PA\619426.6
JURISDICTION SUMMARY: BELGIUM
Source: Latham & Watkins Brussels & EMN with Fonds de Participation
Sources of
funding for
microcredit
providers
- MFIs receive financing mainly from public sources either at national,
regional or European (European Social Fund, European Investment
Fund and European Regional Development Fund) level.
- Public MFIs (Fonds de participation and Brusoc) are financed mainly
by public authorities: Federal Government and Brussels Region.
- Crédal, private MFI, is financed by public and private sources. 2 As
cooperative it receives financial support from their members.
- Hefboom, private MFI, is financed by private sources. It is a
cooperative which receives financial support from its members.
Operational /
financial
autonomy
Financial autonomy of public MFIs (i.e. Fonds de participation and
Brusoc) is difficult to assess since they are financed mainly through
public resources. Interest rates set by Brusoc and Fonds de participation
do not allow them to reach sustainability.
The private MFIs (Crédal& Hefboom) are not financially autonomous:
their operational costs for microcredit activities are covered by private
donations.
Usury rules
(interest caps)
Usury rules only apply to consumer loans.
Tax incentives
Private MFIs operating as authorized cooperatives, such as Crédal, may
deduct dividends paid to their members up to €160/annum. However,
there is no reduction of corporate tax.
However, the Fonds de Participation for its “prêt lancement” (business
start-up loan) which makes up 85-90 % of the Belgian microcredit
market fixes its interest rate following general objective criteria and the
market evolution of rates - the gap between the applied rate and the
market rate may not exceed 5% and not fall below 3%.
Tax deduction to natural persons upon donation to MFIs.
2 For example, part of the entry fees of a mutual fund (SICAV) of the commercial bank “Dexia” supports Crédal. Crédal is
also supported by Trios Bank, an ethical bank that invests in projects promoting sustainable economic development.
7
PA\619426.6
JURISDICTION SUMMARY: BELGIUM
Source: Latham & Watkins Brussels & EMN with Fonds de Participation
Access to
guarantee
schemes for banks
and non bank
microcredit
institutions
The regional government of Wallonia has set up a guarantee scheme for
people who are granted a commercial bank loan < €25,000 from a
traditional commercial bank.
Database
recording
borrowers’
history
Databases on mortgage and consumer loans administrated by National
Bank of Belgium
Access to such
databases
No direct access available for MFIs
Obligation for non
bank microcredit
institutions to
provide their
borrowers' credit
history to such
databases
MFIs have to report the granting of any consumer credit to "Central
database for loans to private individuals".
Sowalfin, the Walloon Company of Financing and Guarantee for SMEs
(Société Wallonne de Financement et de Garantie des Petites et
Moyennes Entreprises).
No information on investment loans
MFIs can however require that applicants for micro-loans communicate
their credit history.
Banks have to report granting of loans to microenterprises > €25,000 to
"Central database for loans to enterprises".
- Creation of MFIs
Significant
initiatives taken to
- Lower regulatory requirements to issue securities
develop
microcredit
Suggested
measures to
improve existing
framework/create
a new framework
for microcredit
and
microenterprises
For microenterprises/self-employment:
- Maintain unemployment benefits during transition period from
unemployment to self-employment or setting up a microenterprise
For microcredit:
- Implement specific regulations applicable to MFIs
- Set up tax incentives for investment into MFIs.
- Widen the scope of sources of funding available to MFIs acting
8
PA\619426.6
JURISDICTION SUMMARY: BELGIUM
Source: Latham & Watkins Brussels & EMN with Fonds de Participation
through partnership with banks
- Foster guarantee schemes for MFIs
- Carry out more studies on the impact of microcredit
9
PA\619426.6
JURISDICTION SUMMARY: BULGARIA
Source: EMN with Nachala
Types of vehicles
available for
microenterprises
and selfemployment
- “Free professions” - lawyers, doctors, dentists, farmers. While in the
past there was no obligation to register a company, now there are
different requirements, for instance the farmers have to register in the
municipality where they own a land;
- “One man company or trader” - this still is the lowest level of
registration;
- “Sole limited liability company” - there is fixed capital which is the
level of responsibility of the company to third party;
- “Limited liability company” - formed from more than one owner;
there is also fixed capital which is the level of responsibility of the
company to third party but it is higher than the above one;
Costs and
Procedures
There are too many requirements and procedures and the process is very
slow.
There is no simplified status or procedure for self-employment or
microentreprises.
There is no system of “one-stop-shop”.
Financial support
programs during
the transition
period
There is no financial income support during the transition for
unemployed or welfare recipients who set up a business and no
provisions to allow a return to unemployment benefits or welfare in case
of failure.
Business
Development
Services
N/A
Specific laws &
regulations
applicable to
microcredit, selfemployment and
microenterprises
There is no special law supporting microcredit
Banking monopoly - The central bank gives very strong support to all
trade banks, but does not accept MFIs in the country as normal financial
players in the field of microfinance
MFIs are registered either under the Cooperative Act, the Law for credit
institutions or the Commercial Law
MFIs do not have right to collect deposits
10
PA\619426.6
JURISDICTION SUMMARY: BULGARIA
Source: EMN with Nachala
Types of
institutions
providing
microcredit
Commercial banks: They grant a small number of small size loans but for
consumer purposes and not for small business (i.e. Procredit bank)
Specialised microcredit banks: Procredit bank - Their average loan size is
much higher than the loans given from the MFIs - that means that the
bank supports SMEs but not microentrepreneurs
Credit cooperatives: Cooperative Union of Popular Funds; Cooperative
Union “Association of Popular Savings Societies on the Internet”;
National Cooperative Union (NCU) Evrostart; Federation of PMRCAs
(Private Mutual Rural Credit Associations)
MFIs (joint stock companies): Nachala 2007 EAD; Ustoi; Mikrofond
EAD
Sources of
funding for
microcredit
institutions
Main sources of funding available to (non-bank) microcredit institutions
– for the cooperatives – are fees and loans from members and loans from
creditors as well as grants from donors.
For the other type of MFIs there are grants from donors, shares from
shareholders and loans from different investors, creditors.
Commercial loans – trade banks and funds from abroad and trade banks
from the country
Equity investments – foreign investors (very rare cases)
Soft loans - It is difficult to find sources for soft loans; in Bulgaria the
MFIs do not have experience with such loans.
Subsidies and donations from international aid: USAID and other similar
organisations from developed counties
There is only one State programme supported with funds from the State
budget
Operational /
financial
autonomy
Some of the non-bank microcredit institutions (the biggest ones such as
Nachala, Mikrofond, Cooperative Union of Popular Funds and Ustoi)
achieve operational and financial sustainability.
Usury rules
(interest caps)
There is no limitation on the interest rates.
11
PA\619426.6
JURISDICTION SUMMARY: BULGARIA
Source: EMN with Nachala
The interest rate level depends on the market.
Because of the mentality and lack of experience, the MFIs in the country
have to compete with the interest rate of the trade banks. It is not possible
to implement the world-wide experience for microloan interest rates. On
the other side MFIs are not allowed to mobilise deposits and the funds
they work with are with high cost. This is why for MFIs is not easy to be
financially sustainable.
Different MFIs have different targets and missions. Some of them have
social targets and their own evaluation systems, but there is no common
one.
Tax incentives
N/A
Access to
guarantee
schemes for banks
and non bank
institutions
providing
microcredit
There are no national guarantee schemes for banks and non-banks
institutions providing microcredit.
Database
recording
borrower history
There is a credit bureau only for the trade banks. The central bank does
not allow MFIs to have access and to share their own database in the
credit bureau.
Access by nonbank microcredit
institutions to
such databases
Since recently private bureaus have started and maybe it is a question of
time (year or more) to start to operate efficient. Hopefully they will not
ignore the MFIs.
Some of the MFIs received guarantees from the mission of USAID in the
country, but no Bulgarian bank accepted them and gave better loan
conditions to the MFIs.
Obligation for non The major MFIs wish to share their data, but the central bank does not
bank microcredit accept it.
institutions to
provide their
borrowers' credit
history to such
databases
If the MFIs can have some support from the EU commission, there will
Significant
initiatives taken to be a chance for the Bulgarian MFIs to participate in the competition for
12
PA\619426.6
JURISDICTION SUMMARY: BULGARIA
Source: EMN with Nachala
develop
microcredit
the EU funds. (i.e. Jeremie funds)
Suggested
measures to
improve existing
framework/create
a framework (as
applicable) for
microcredit and
microenterprises
For microenterprises/self-employment:
- Reduce procedures for registration and many requirements to start any
small business.
- Reduce taxes (there are no simplifications for new entrepreneurs)
- Facilitate access to credit
- Promote business development services as population lacks business
experience
- Tackle the following issues: availability of proper workers (high level
of emigration); difficult market; illegal import of goods which
destroys the national producers; disloyal competition; high level of
inflation
For microcredit:
- Create a special law for MFIs with their participation in the process.
The MFIs should be regulated and widen their scope of finance in
order to have cheap funds and have a chance to grow, to be
sustainable ad to serve more poor clients and people from rural areas
where the population is underserved by banks.
- Reserved EU funds to Bulgarian MFIs only as they cannot compete
with banks. The funds from the EU programmes and projects are
provided only to the trade banks. The justification is that the funds are
only given to regulated institutions (understand: banks). This means
that MFIs will be excluded from EU funding as long as they are not
regulated. However, the trade banks do not serve the socially excluded
small entrepreneurs and self-employed persons. The banks give only
mortgage and consumer loans, but not for start-up businesses.
- Authorise access to credit bureau for MFIs
13
PA\619426.6
JURISDICTION SUMMARY: DENMARK
Source: EMN
Types of vehicles
available for
microenterprises
and selfemployment
- Sole proprietorship
Costs and
Procedures
According to World Bank Going Business Denmark ranks high when
business friendliness is measured by the time and cost needed to start up
a business: It requires 4 procedures, takes 6 days, and costs 0.00% GNI
per capita to start a business in Denmark.
- Limited liability: ApS Company (anpartsselskaber) or A/S Company
(aktieselselskaber)
Denmark has very little regulation of hiring and dismissal and is,
together with U.K. and Ireland, the country in Europe with the most
gentle rules concerning employment protection.
The business administration has been facilitated by the creation of a
business portal Virk.dk, which provides the entrepreneurs a one point
access to the public sector
Financial support Today there seems to be no allowance for new entrepreneurs starting out
of unemployment.
programs during
the transition
period (from
unemployment to
self-employment)?
Business
Development
Services
Not specifically for microenterprises.
In 1997 an offer was introduced that provides a maximum of 12 hours
of free consultancy before the initiation of the business. This offer
changes from region to region. The consultancy has to be finished
before the actual creation of the business.
There are five regional business counselling centres, providing
support and free counselling - for SMEs. The centres also create
business networks, run incubators for new entrepreneurs and organise
workshops and courses in business related topics. The centres receive
funding from the regional municipalities, the Danish Ministry of
Economic and Business Affairs and the European Social Fund.
14
PA\619426.6
JURISDICTION SUMMARY: DENMARK
Source: EMN
Denmarks biggest business counselling centre is EVU: Erhvervscenter
for Etablering, Vækst og Udvikling. The EVU established a
Knowledge Centre for Ethnic Entrepreneurship (”Videnscenter for
Etnisk Erhvervsfremme”) funded by the City of Copenhagen and EU.
It aims to collect and distribute information concerning the various
possibilities and challenges characteristic to ethnic entrepreneurs
through research and outreaching business support.
In 2005, the Danish government set up a new loan structure: “Kom-igang-lån” loans are distributed through regular banks. The loans are
granted through a public guarantee, covering 75% of the possible loss of
the banks. Together with the loan, the entrepreneur is given access to
business support and counselling. The banks provide these services
together with local partners.
Specific laws &
regulations
applicable to
microenterprises,
self-employment
and microcredit?
No specific laws regarding sole proprietorship/ microbusiness nor
microcredit.
Types of
institutions
providing
microcredit
There are no registered microcredit institutions specifically targeting
excluded people and/or immigrants in Denmark.
Commercial banks provide business loans in the frame of the new “Komi-gang-lån” loan structure.
Savings Banks: JAK
Sources of
funding for
microcredit
institutions
Commercial loans
Do non bank
microfinance
providers achieve
operational /
financial
autonomy?
No non bank microfinance providers in Denmerk
Usury rules
N.A.
Government funding
15
PA\619426.6
JURISDICTION SUMMARY: DENMARK
Source: EMN
(interest caps)
Tax incentives for
microenterprises/
investment in
MFIs?
N.A.
Access to
guarantee
schemes for banks
and non bank
institutions
providing
microcredit?
Vaekstkaution is a national loan guarantee scheme.
Existence of
database
recording credit
history?
Only private credit bureaus exist
Obligation for non No non-bank microcredit institutions in Denmark
bank microcredit
institutions to
provide their
borrowers' credit
history to such
databases?
None regarding microcredit
Significant
initiatives taken to
The government aims to develop entrepreneurial educational
develop
programmes, and is creating accessible and competent advice centres.
microcredit
It is also promoting access to capital by supporting private venture
capital structures and new financial instruments, among them
microfinance.
Measures aiming to reduce the administrative burdens through easier
registration and electronic governance, as well as tax-reductions, are
being planned and implemented. The government aims to reduce the
administrative burdens up to 25% by 2010.
From January 1st of 2008, the current EVU is replaced by a Business
Contact Centre (Erhvervskontaktcenter) administered by the
Copenhagen municipality. This can be seen as an acknowledgement
16
PA\619426.6
JURISDICTION SUMMARY: DENMARK
Source: EMN
that EVU projects have been successful.
Suggested
measures to
improve existing
framework/create
a framework for
microcredit and
microenterprises
For microenterprises/self-development:
- Include microenterprises and self-employment into political
programmes; do not focus on high-growth business start ups only
- Simplify administrative procedures: these are difficult for people with
lower education, and especially for immigrant entrepreneurs
- Established public loan guarantees which - in a better way than the
present “starting up loans” - take into consideration the financial
conditions of specific target groups. The “starting up loans” are
criticised because they are too expensive - as the interest is too high,
and because these loans require security in terms of capital, residence
or the proof (for immigrant women) that the husband has a job.
- Set incentives for formal business start up, i.e. through financial
support during transition from unemployment to self-employment.
- Promote business incubators and business development services,
especially for long-term unemployed keeping in mind the needs of
specific target groups
For microcredit:
- Foster collaboration between banks, business-advice centres and the
interested firms in order to ensure that cheap, risk-oriented loans are
available
17
PA\619426.6
JURISDICTION SUMMARY: FINLAND
Source: EMN with Finnvera
Types of vehicles
available for
microenterprises/
self-employment
All existing company forms are usable.
Costs and
procedures
Registration with Trade Registry administered by National Board of
Patents and Registration of Finland (NBPR).
Most simple company form: "company name" (registration as "private
entrepreneur"). Other forms: “unlimited partnership company”, “limited
partnership company” and “limited company”.
Registering a company in terms of a private entrepreneur is relatively
easy. Information registered is automatically communicated to tax
authorities. Official announcement of the registration will take in
general about two weeks. Registration cost varies by company form: €
65 - € 330.
Financial support Existence of start-up grants
programs during
transition period
Business
development
services
Finland Employment and Development Centres; Job and Society
Agencies; Women Enterprise Agencies; services provided by Finnvera
Enterprises can also have help and assistance for questions concerning
registration on the web site of “Enterprise Finland”.
Specific laws &
regulations
applicable to
microcredit, selfemployment and
microenterprises
For microenterprises:
Types of
institutions
providing
microcredit
- Cooperative banks (OP)-bank group provide their customers with
small loans against collateral
No specific rules exist, general corporate rules apply
For microcredit:
Finnvera´s operations are governed by its own special legislation: In the
domestic financing the Act on the State-owned Specialised Financing
company (443/1998) dictates the purpose of Finnvera. The Act on
Credits and Guarantees provided by Finnvera (445/1998) further targets
the operations. Finnvera does not collect deposits.
- Local co-operative banks
- Savings banks
18
PA\619426.6
JURISDICTION SUMMARY: FINLAND
Source: EMN with Finnvera
- Promotional bank: Finnvera (state-owned)
Sources of
funding for
microcredit
providers
- Commercial loans: international financial markets
Do non-bank
microcredit
providers achieve
operational /
financial
autonomy?
As a result of the income tax exemption (see “tax incentives”), it will be
easier for Finnvera to achieve the self-sufficiency target set for it by the
State, its owner.
Usury rules
(Interest caps)
No usury rate
Tax incentives
Since beginning of 2008 income tax exemption is granted to Finnvera
- Equity investments: The State of Finland (owner of Finnvera plc)
- European sources: European Investment Fund, European Regional
Development Fund
No tax relief for individuals or companies that invest in MFIs
Access to
guarantee
schemes for
banks and non
bank institutions
providing
microcredit
All commercial banks can have access to Finnvera’s Small Enterprise
Guarantee Scheme. Most commercial banks participate in the Small
Enterprise Guarantee function.
Database
recording
borrower history
Various commercial credit bureaus which trade such information
Access of nonbank microcredit
providers to such
databases
Obligation for
non bank
microcredit
institutions to
Finnvera also has its own database which is confidential
Finnvera’s database is confidential and not marketable
Legally valid credit losses and delinquents are reported to register as
prescribed by law
19
PA\619426.6
JURISDICTION SUMMARY: FINLAND
Source: EMN with Finnvera
provide their
borrowers' credit
history to such
databases
Significant
initiatives taken
to develop
microcredit
-
The most comprehensive reform was the establishment of a
Ministry of Employment and Economy in the beginning of
2008. The ministry was formed of the current Ministry of Trade
and Industry, the Ministry of Labour and a part of Ministry of
the Interior. The new Ministry has two ministers. The new
ministerial structure will simplify regulatory matters related to
regional Development and the Employment and Economic
Development Centres.
-
An Entrepreneurship Policy Program implemented by
Government: The Finnish enterprise service system is
organisation-oriented and complex. The supply of services
should be clarified in a more customer-oriented direction, based
on national service channels. The objective is that customers
receive public enterprise services impartially and on equal
grounds throughout the country as easily as possible and based
on the same operating model. The reform is carried out the new
Ministry, Ministry of Employment and Economy.
-
Finnvera runs a special credit programme for female
entrepreneurs
For microenterprises/self-employment:
Suggested
measures to
improve existing - Reduce barriers to set up new business: bureaucracy related to
starting and managing a company, taxation, high social security
framework/create
contributions
a new framework
(as applicable)
- Promote positive image of self-employment and micro
for microcredit
entrepreneurship
and
microenterprises
For microcredit:
No suggestions at the present moment
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Types of
corporate vehicles
available for
microenterprises
and selfemployment
- Individual enterprise (Entreprise individuelle)
Costs and
Procedures
Cost of registering an individual enterprise is between 50 and 100 €
approximately
- Personal company with limited liability (Entreprise unipersonnelle à
responsabilité limitée - EURL)
- Limited liability company (Société à responsabilité limitée- SARL)
In August 2003 administrative measures have been eased under the “Loi
pour l’Initiative Ecomomique”: business registration and modifications/
cessation requests can be made via Business Formality Centres (“Centres
de Formalités des Entreprises CFE”) that act as a one-stop business
registration window.
Financial support
programs during
the transition
period
Financial support programmes for self-employment out of
unemployment exist for persons receiving unemployment benefit and
social aid in the preparation period of the business project: and after the
setting up of the business.
In case of ceasing the new activity, a formerly unemployed person may
take up again his/her remaining rights to allocations for up to 3 years. A
person having received social minima has the possibility to ask once
again for social minimum allowance.
Other governmental financial support programmes specifically connected
to enterprise set-up by persons in a precarious situation are:
- EDEN (Encouragement au Développement d’Entreprises Nouvelles –
Encouragement for the development of new enterprises) : This is a
repayable loan without interest and collateral (similar to quasi equity)
subordinated to obtaining a complementary loan (from a bank or a
microcredit association) of at least half of the amount of the
reimbursable advance asked for.
- ACCRE (Aide aux Chômeurs Créateurs et Repreneurs d’Entreprises –
Support for unemployed persons setting up or taking over an
enterprise): Under certain conditions French law grants exoneration of
social charges for enterprise set-up by the unemployed and
beneficiaries of social minima. The provision of ACCRE has been
simplified and its target group has been extended in 2006.
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Business
Development
Services
Business support is of the highest importance in France due to the
complex legal environment for new enterprises. This is even truer for the
target groups of non-bank microcredit which are often not familiar with
administrative procedures or management techniques.
New entrepreneurs who are supported by ACCRE may benefit from
advice from organisms authorised by the local government.
Divers organisms provide advice, training or mentoring services:
- Organisations that are financing microenterprises and providing their
services in addition to financial products: Adie (microcredit), France
Initiative (quasi equity) , France Active (guarantee)
- Organisations that are specialised in support but do not provide
financial services: Chambers of Commerce, Chambres des metiers,
Boutiques de Gestion (RBG)
Specific laws &
regulations
applicable to
microcredit,
microcredit
providers and
microenterprises
- A simplified framework has been set up: the fiscal regime for
microenterprises. The main objective of this regime is to reduce
fiscal obligations for solo-entrepreneurs. It applies to individual
enterprises with an annual business volume limited to 73,000 or
27,000 euros depending on the type of activity.
- Non-bank microcredit institutions are allowed to borrow for on-
lending. Since the n°2001-420 law of 15/05/2001, non for profit
associations are allowed to borrow in order to lend to unemployed
persons and beneficiaries of social minima who would like to set up
their business during the first five years of a new enterprise. This
simplifies loan management and improves loan disbursement. To date
only Adie is authorised under this law.
Types of
institutions
providing
microcredit
- Non bank MFIs=> Adie
Sources of
funding for
microcredit
institutions
Adie finances its credit resources through banks that make available
credit lines, through social savings, own funds and loan funds from
public authorities.
- Banks if one respects the DG Enterprise definition of microcredit
(loans below 25 000 euros)
Operational costs are covered by different sources such as EU structural
Funds (FSE, FEDER), the State and local governments, private
enterprises (Corporate Social Responsibility) and some donations from
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Source: EMN with Adie
individuals. Adie clients contribute through the solidarity contribution
and the interest rate applied to each microcredit.
Operational /
financial
autonomy
This is not the case at the moment, but Adie expects to cover its credit
cost within 3 years time through revenue on loans; Business development
services will remain subsidised as a “public service for economic and
social development”.
Usury rules
(interest caps)
The usury rata has been abolished. Interest rate cap for loans to soloentrepreneurs has become possible through article 7 of the n°2005-882
law of 02/08/2005 in favour of SMEs..
This law included a report from the Banque de France evaluating the
impact of the abolished usury rate. This document with the title
« Rapport au Parlement. Les incidences de la réforme de l’usure sur les
modalités de financement des petites et moyennes entreprises » stresses
that the former regulation tended to exclude enterprises representing a
higher risk. The evaluation highlights the positive effect of the
abolishment of the usury rate. It facilitated access to credit for small
enterprises and has not produced the perverse effect feared by many.
Tax incentives
A favourable fiscal regime has been implemented for donations to
associations. The n°2003-709 law of 1st August 2003 relative to
patronage to associations and foundations authorises a fiscal deduction of
66% for donations to individuals realised in a limit of 20% of imposable
revenue and of 60% for enterprises for donations up to 0.5% of business
volume.
Access to
guarantee
schemes for banks
and non bank
microcredit
institutions
Risk coverage is assured by the FGIE guarantee fund (Fonds de Garantie
de l’Insertion par l’Economique) fed by the Social Cohesion Fund
(Fonds de Cohésion Sociale; “Loi n°2005-32 of 18/01/2005 de
programmation pour la cohésion sociale”); the European Investment
Fund, partner banks, own funds and the borrowers.
Databases
recording
borrowers’
history
There is a banks’ database: the FCC (fichier central des chèques
impayés) and the FICP (fichier des incidents des crédits aux particuliers)
of the Banque de France.
The Social Cohesion Fund proves 73 M€ over a period of 5 years and
considerably increases the means of guarantee for microcredit. It has two
target groups: microenterprises set up by persons in precarious situations
as well as non for profit organisms.
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Access to such
databases
They are not accessible to non-bank microcredit institutions at the
moment but this might change soon due to an action by Adie in this field.
In order to better manage risk microcredit organizations authorized in the
frame of article L511-6 of the Monetary and Financial Code should have
access to the databases. The purpose is not to increase the selection of
entrepreneurs due to theses databases, but to take prevention measures
regarding the credit amount and the support to ensure reimbursement and
increase the chances that the business will have success.
Obligation for non Non-bank microcredit institutions do not have the obligation to provide
bank microcredit information on their borrowers’ credit defaults to this database. It will
change if they have access to the database.
institutions to
provide their
borrowers' credit
history to such
databases
- The different laws already given as examples previously
Significant
initiatives taken to
- Partnerships between banks and non bank MFIs (Adie) or between
develop
banks and guarantee or quasi-equity providers (France Active/Fir)
microcredit
- Those are significant steps towards the development of microcredit
24
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Source: EMN with Adie
Suggested
measures to
improve existing
framework/create
a framework (as
applicable) for
microcredit and
microenterprises
For microenterprises/self-employment:
1.
Remove the obstacles related to the carrying of different types
of business
Access to self-employment remains limited due to a number of
barriers related to persons, businesses and types of enterprises.
These barriers incite persons to work in the informal sector which
provokes disloyal concurrence to registered entrepreneurs, loss of
resources to the State and most of all Lack of dignity for those
concerned.
Article 4 of the French Constitution stresses the principle of
entrepreneurial liberty that can only be restricted through a nondiscriminatory legal decree justified by the motive of public security or
protection of the environment.
2.
Improve the system of social contributions
The system of social contributions remains too heavy. The system of
capped contributions (“bouclier social”) set up in March 2007 limits
social contributions and allows microenterprises to calculate their
contributions in a simplified manner. These are important improvements,
but they only apply to enterprises registered under the micro-regime
which still Is not adapted for all types of businesses.
The measures implemented in 2007 regarding social contributions should
be extended to businesses that are not registered under the fiscal regime
of microenterprises, but that have a business volume corresponding to
this regime.
A more ambitious reform should be implemented regarding progressive
imposition of social charges depending on revenue, unifying the regime
and abolishing minimal contributions.
3.
Provide more and less expensive business premises
Premises are too expensive for very small enterprises in the city centre,
and they are paradoxically very rare in the suburbs.
A bigger part of the budget of the National Agency for Urban
Regeneration could be provided to the construction and planning of
adapted premises at low price, for microentrepreneurs.
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Renting of already existing premises should be facilitated through
information and confidence-building amongst funding providers.
Legislative measures are necessary to allow mixed usage of social
housing for activities without nuisance
For microcredit:
The Bill on the modernization of economy to be passed in the next
months includes :
- enlarging of the article L 511-6 of the monetary and financial code
allowing non bank institutions to borrow and on-lend
- access of the non bank institutions to the Central Bank databases
-the remaining obstacle to the development of microcredit is the lack of
funding for coaching and business development services.
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Types of vehicles
available for
microenterprises
and selfemployment
Costs and
procedures
Micro-enterprises may either be established by individuals or by
business partners becoming self-employed:
-
sole proprietorship (Einzelkaufmann /-firma);
-
limited liability company (Gesellschaft mit beschränkter Haftung –
"GmbH");
-
business partnership (Personengesellschaften): general partnership;
limited partnership;
Depending on sector of business, various prior formalities are required:
registration with tax authorities; Trade Surveillance Office
(Gewerbeaufsichtsamt);
Social
Insurances
(Krankenkassen,
Rentenversicherung, Berufsgenossenschaft); Construction Office
(Bauamt); Registration in commercial register (Handelsregister) via
notarial act (applicable to all businesses except very small businesses
and partnerships organised as a GbR (Gesellschaft bürgerlichen
Rechts))
Financial support The Federal Government offers support loans managed by KfW
programs during Mittelstandsbank and have to be applied for via applicant's own bank
transition period ("house bank"):
-
Micro-loan (StartGeld, up to 50,000 €)
-
Capital for
Gründungen)
-
Business loan (Unternehmerkredit)
new
start-ups
(ERP-Unternehmerkapital
für
Subsidies can also be obtained through Employment Agency (Agentur
für Arbeit) by recipients of unemployment benefit (Arbeitslosengeld
I/II) wishing to set up a business:
-
Start-up subsidy (Gründungszuschuss)
-
Initial financial support for people setting up a business
(Einstiegsgeld)
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Business
development
services
-
Sponsorship for advisory services (Beratungsförderung)
-
Sponsorship for advisory services for start-ups: Gründercoaching
Deutschland
-
Centers for founders of a business (Gründerzentren)
-
Assistance provided by German MFIs
-
Networks: several local, regional and national networks for founders
of SMEs offer broad information, qualification, personal advice and
coaching for people who plan to set up a business, contacts to capital
investors and customers, exchange of experience etc.
Specific laws &
regulations
applicable to
microcredit, selfemployment and
microenterprises
-
Legislation restricts lending activities to banks only
-
General corporate and trade law rules (such as German Limited
Liability Company Act (GmbH-Gesetz) and German Trade Code
(Handelsgesetzbuch) and general tax laws (in particular the
German Trade Tax Act (Gewerbesteuergesetz), Corporate Income
Tax Act (Körperschaftsteuergesetz) and Income Tax Act
(Einkommensteuergesetz), and Valued Added Tax Act
(Umsatzsteuergesetz) apply in the same way to self-employment
and microenterprises
Types of
institutions
providing
microcredit
-
A key role to promote microcredit in Germany is played by
promotional banks (KfW Mittelstandsbank being the most active
actor) at federal and regional (“Länder”) level. KfW
Mittelstandsbank is a state-owned promotional bank. It does not, in
general, directly grant microloans, but it gives funds to house banks
which arrange credits and on-lend funds to borrowers. Thus, first
contact for applicants for microloans is always their house bank.
Similar promotional banks exist in each of the 16 “Länder”.
-
KfW Mittelstandsbank, Federal Ministry of Economy and
Technology, Federal Ministry of Labor and Social Affairs and GLS
Gemeinschaftsbank e.G. created Microfinance Fund Germany
(Mikrofinanzfonds Deutschland) to provide capital for microlending and acquire and manage capital used for lending.
Technically, loans are still granted by applicant's house bank which
has been elected for cooperation and has to execute a cooperation
agreement with the Fund. Amount of loans must not exceed
€10,000; loans have a term of approximately 2 years. Microfinance
Fund Germany exempts lending banks from all credit risks and
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covers losses in cases of an event of default. As remuneration for
coverage of credit risk, i.e. guarantee given by Fund, the house
bank has to pay a commission which currently amounts to 5% p.a.
This commission is paid out of interest paid by borrowers. Current
interest rate is 10% (5% for “Mikrofinanzfonds Deutschland”, 5%
for co-operating bank).
-
-
German non bank microcredit providers accredited by the German
Microfinance Institute (Deutsches Mikrofinanz Institut e.V - DMI)
are not comparable to international MFIs which are mostly licensed
credit institutions and grant credits themselves. German MFIs do
not grant loans since they do not hold necessary license for such
banking business: loans are granted by "house banks" instead.
DMI-MFIs act as intermediaries between borrower’s (start-up’s /
microenterprises) and banks:

consultancy & technical support for borrowers

preparation of loan application (via DMI-Software) and
collection of all necessary documents

forwarding loan application & recommendation of loan delivery
to co-operating bank (GLS Bank; Sparkasse Offenbach (saving
bank); Volksbank Villingen-Schwenningen (cooperative bank)

provision of risk capital (20% of yearly loan portfolio agreed
with “Mikrofinanzfonds Deutschland”)

loan monitoring & further (non-financial) support

crisis management & liquidation of securities

participation at DMI-Benchmarking as an instrument for
transparency to funders / sponsors and exchange of results
between microfinance practitioners is compulsory for DMIMFI’s.
Several other semi-public and private schemes providing
microcredit exist often in form of co-operations between regional
business support institutions, regional authorities and regional
banks (“Sparkassen” and “Volks- und Raiffeisenbanken”).
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Sources of
funding for
microcredit
institutions
Do non-bank
microcredit
providers achieve
operational /
financial
autonomy?
Public sector funds on regional, national and European level
Microfinance Fund Germany can theoretically reach financial
sustainability and operational autonomy. Since liability of regional
MFIs to cover credit losses is capped to 20%, capital of Microfinance
Fund Germany would only be diminished if default rate in loan
portfolio exceeded 20%. If default rate of credits is between 10% and
20%, capital of Microfinance Fund Germany would remain stable, but
regional MFIs would produce losses. If default rate of credits was below
10%, capital in Microfinance Fund Germany would stay stable and
regional investors would receive a return on their investment.
However, in practice so far non of the DMI members issuing loans
covers operational lending costs (please see the following example):

average loan amount: 7.000 Euro

maximum gratification 10% (no loan default): 700 Euro

actual gratification / deduction of average loan default 6,5%: 245
Euro

average credit period: 24 months

result: 122,50 Euro / loan / per year for technical assistance loan
application and ongoing support
MFI’s put in a claim to receive processing fees similar to banks
(Example: Housebank will receive a processing fee of 1.000 Euro for
public loan programme “KfW StartGeld”).
Usury rules
(interest caps)
The rule of "significant disproportion" of interest rate which is designed
to protect weak borrowers from lenders who exploit their economic
weakness which is applicable to consumer loans does not appear, for the
time being, to hinder the development of microcredit
30
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Tax incentives
Access to
guarantee
schemes for
banks and non
bank institutions
providing
microcredit
Existence of
database
recording credit
history
Access for nonbank microcredit
providers to such
databases
-
For trade tax purposes a tax allowance in amount of €24,500 applies
to individuals and partnerships
-
Small and medium-sized enterprises can be subject to special
appreciation rules: taxable profit may be decreased in certain years
to a large extent
-
Entrepreneurs with turnovers in preceding business year below
€17,500 and with expected turnovers of below €50,000 within the
current year can opt not to be subject to VAT
-
German banks operating as "house banks" have access to guarantee
schemes provided by guarantee banks in each of the 16 “Länder” if
they provide microcredits in the framework of established
programmes to promote microcredits, e.g.:
-
KfW Mittelstandsbank-programmes
default guarantees of 80% of loans
-
Microfinance Fund Germany exempts the co-operating bank of local
MFI 100% from all liability (e.g. GLS Bank, Sparkasse Offenbach,
Volksbank Nürtingen-Schwenningen – other local banks will
follow)
-
Regional promotional programs: similar guarantees are available and
generally assume around 70-80% of credit liability. For instance,
Bavarian development bank LfA Förderbank Bayern combines its
start-up program "Startkredit" with option "HaftungPlus" which
releases relevant house bank from 70% of its liability
"KfW-Startgeld"
provide
Several credit bureaus that record credit history (Schufa-database,
Creditreform) are managed by private entities and aim either at profits
or at sharing information between members of such entities on
cooperative basis. However, individual's consent is required prior to
communication of any information.
Access to information, in general, is only permitted to costumers of
those databases who, in return, oblige themselves to file all information
they gather in their course of business with database.
However, most of these databases grant access to information recorded
therein to third parties for a certain fee if relevant individual has
consented to a release of such information to third parties.
Each individual may access information recorded on itself and convey
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them to non-bank MFI.
Obligation for
microcredit
institutions to
provide their
borrowers' credit
history to such
databases
Significant
initiatives taken
to develop
microcredit
No, but can be organised by contract.
1) The German Microfinance Institute DMI plays a key role in the
Microfinance Fund. It is a private law, non-profit association
whose members are mainly start-up advisory centres, financial
institutions, public agencies and other associations tasked with
promoting economical development. The aim of German
Microfinance Institute is to collect knowledge and gain experience
in the field of microfinance so as to establish a microfinance sector
in Germany.
The German Microfinance Institute trains and accredits so-called
Microfinance Institutions (Mikrofinanzierer) which provide both
support and financing-related services. MFIs (usually, start-up
advisory centres, economic development organizations, local
authority entities or consulting companies after having received
necessary training and accreditation by German Microfinance
Institute) identify valuable business ideas, advise potential
borrowers in their plans, analyse credit applications and
recommend to banks to grant loans.
MFIs are also involved in servicing of loans; MFIs bear risks of
loans recommended by them and have to indemnify Microfinance
Fund Germany if it has to cover losses. However, if borrowers do
not default, MFIs receive a bonus of 10% of capital repayments of
loan. This means that if default rate of loans promoted by MFIs is
below 10%, MFIs realize profits. This mechanism works as an
incentive for MFIs to thoroughly check ideas and projects which
they intend to recommend.
2) In the last years KfW has organised several meetings and
workshops bringing together all relevant players in the field of
microfinance in Germany to discuss development and problems.
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Suggested
measures to
improve existing
framework/
create a new
framework (as
applicable) for
microenterprises
and microcredit
For microcredit:
-
Improve Scale and Efficiency of MFIs: the number of loans issued
through all DMI members is limited – it was below 200 in 2006 and
possibly around 200 in 2007. Through MFIs’ eyes risk/return-ratio is
inappropriate (lack of programmes for capacity building / to finance
start-up of MFIs; low gratification / lack of processing fees, but 20%
risk assuming). So finding federal / regional / local funding sources
for the development of MFI’s has high priority for DMI and MFIs
and is very power consuming.
-
Promote cooperation with banks
-
Link the funding for refinancing and operational costs. With regard
to public funding, there is often a separation of funding between
operational and refinancing costs. Only focusing on one and
neglecting the other leads to a distorted allocation of money within
the organisation.
-
Enable funding options for private investors. For private donors it is
often hard to fund microfinance providers, which do not possess a
charitable (dt.: gemeinnützig) status. Donors therefore can not
necessary claim these costs. In the view of increasing corporate
social responsibility, tax laws should be improved and private
funding to microfinance institutions should be deductible.
33
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Types of vehicles
available for
microenterprises
and selfemployment
-
Sole proprietorship
-
Limited partnership
-
General partnership
-
Limited liability company
Costs and
Procedures
In 2007 several laws have been passed in the frame of the „Tuned to
Business” programme of the Ministry of Economy that aims at easing
administrative burdens for setting up a business and to improve the
operational conditions of enterprises within the frames of the
convergence programme: possibility of online registration; reduced
registration fee; procedure time: 8-15 working days
Financial support
programs during
the transition
period
Supporting developments that create jobs: In the call for application the
employment organisation stressed that enterprises operating in socially
and economically disadvantaged areas should have supplementary
support for the sake of new jobs.
Support of keeping jobs: The non-returnable grant given to the employer
may range from 25 to 75 % of the added amount of wages and
contributions of the relevant employee. In 2006 this support enabled
nearly 7,400 employees, who would have otherwise got redundant, to
keep their jobs.
Payment of contributions instead of employers who employ formerly
unemployed people: This support is to urge the employment of jobseekers by paying the employer’s expenses relating employment
(medical and social insurance contributions, employer’s contribution and
health care contribution) in part or total.
Supporting the process of becoming an entrepreneur: the support enables
unemployed people who become entrepreneurs to finance their social
security contributions. In 2006 approximately 2,700 people received
grants supporting the process of their becoming entrepreneurs, which is
658 less (i.e. 19.4% less) than in the previous year.
Support of self-employment specifically for job-seekers: this support can
be given to job-seekers to whom the employment centre could not offer a
suitable job and who undertake to employ themselves - by starting or
joining a business -, furthermore they have the initial funds to start the
34
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business - at least 20% of the investment - as well as the necessary
financial security for repayment.
Business
Development
Services
Specific laws &
regulations
applicable to
microcredit, selfemployment and
microfinance
-
State-owned organisations aiming to develop SMEs (e.g. the
Hungarian Development Bank, Creditguarantee, Regional
development Holding etc., EXIMbank Corvinus), and support
brokerage organisations (MAG Close Corp. etc.), which are
established and continuously financed by the state
-
Non-profit development agencies (NGOs), which are not founded
directly by the state but partly execute state functions as well.
-
Chambers (of commerce and industry, agriculture and special fields
etc.)
-
Entrepreneurial business federations, trade associations: VOSZ,
GYOSZ, IPOSZ, KISOSZ, Innovation Association, Association of
Business Incubators etc.
-
Enterprises providing business-type services (financial institutes,
enterprises of property development, consultancy and training etc.)
-
The national network of enterprise promotion foundations (LEA
network)
Hungary allows both bank and non-bank MFIs to provide credit to
microenterprises. However, non-bank lending is limited. MFIs are legally
licensed to disburse credit but not to collect savings. There is no specific
law for microcredit; it is regulated in the following laws:

Act XXXIX/2003 on the modification of Act CXII/1996 about
lending institutes and financial enterprises: It defines operational
rules and conditions for profit-oriented actors of the financial market.
On the basis of Article (1) h. in §2 of the act lending from the
National Microcredit Fund of MVA and the microlending activities
of the enterprise promotion foundations in the county and the capital
city ® are exempt from the action of this law.

Government Decree No. 2163/2004. (July 5th) to settle the operation
of the Microcredit Program, Microcredit System realised by utilizing
the rights and Funds relating the revolving regional and national
credit funds financed by PHARE, and their connecting credit
guarantee funds: It authorizes the Minister of Economy and Transport
to practise the owner's rights relating the state-owned Microcredit
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Funds on behalf of the Hungarian Republic. Financial settlement of
the funds with the EU has not been accomplished before the
preparation of this study.

Act LXXVI/2007 about the modification of Act XX/2001 on the
Hungarian Development Bank: §1 of the law enables MFB to take
part in the finance of loans needed for the microlending activities of
the Hungarian Enterprise Promotion Foundation and the enterprise
promotion foundations in the counties and the capital city on the
basis of a government decree.
Other regulations:
The National Microcredit Programme is operated on the basis of the
"Microcredit Manual" as approved by the Ministry of Economy and
Transport.
Types of
institutions
providing
microcredit
Bank microcredit:
-
37 commercial banks: only microenterprises at the very top of
band for turnover are drawing don bank credit; banks tend to
offer their entrepreneurial loan products more and more often to
the micro- and small enterprises creating competition for public
funds.
-
KAVOSZ Chambers of Commerce: Subsidised Széchenyi Card
loans disbursed through commercial banks (OTP, Erste Bank,
Volksbank, Inter-Eruope Bank, MKB Bank) and savings
institutions
-
169 cooperative credit unions
Non bank microcredit:
-
Hungarian Foundation for Enterprise Promotion (MVA) – nonprofit organization under the supervision of the Ministry of
Economy and Transport: since 2001 national co-ordinator of the
National Microcredit Programme and caretaker of the National
Microcredit Fund; has changed its name to Hungarian Enterprise
Promotion Network Consortium non profit PLC in 2007.
-
Foundations: 20 Local Enterprise Agencies (LEAs): exclusive
local administrators of the National Microcredit Programme on
behalf of PHARE
36
PA\619426.6
JURISDICTION SUMMARY: HUNGARY
Source: EMN with HMN; Microfinance Market Study by MFC for CEE and NIS
Sources of
funding for
microcredit
institutions
Operational /
financial
sustainability
-
MFIs: Mikrohitel (lends smaller amounts) in cooperation with
Autonomia NGO; target group: Roma
-
Ministry of Economy and Transport (MET): Microcredit Fund;
authority over the National Microcredit Programme
-
Hungary Development Bank (MFB): Microcredit Plus Program in
co-operation with the Hungarian Enterprise Promotion Network
Consortium since 2005
-
Hungarian Centre for Economic Development and Subsidy
Intermediation Ltd. (MAG Zrt.): created by the Government
through merging former subsidy intermediary organizations.
MAG Zrt. became a major subsidy intermediary agency
responsible for the Economic Development Operational Program
financed under the EU Structural Funds.
-
Hungarian Enterprise Finance Ltd.: The company was established
in 2007 in order to become the holding fund of the JEREMIE
programme, using ERDF resources.
-
Commercial loans: Microcredit Ltd is a profit-oriented financial
enterprise supported by non-profit organisations but it does not
collect deposits.
-
Soft loans: A microcredit programme called GOP-4 microcredit
(named after the Economic Development Operative Program) was
issued in late 2007. This resource, coming from EU funds
(ERDF), is provided to MFIs and banks by the Hungarian
Enterprise Financing Ltd. at a price of 0.5%
-
PHARE and government grants within the framework of the
National Microcredit Programme
Non-bank microfinance institutions (MFIs), either state-sponsored
(MVA) or Mikrohitel which operates on half the funds required to break
even, lack sustainability.
It seems that LEAs are self-sustainability even with relatively low
interest rates, partly due to the fact that LEAs - as non-profit
organisations - have tax allowances, operate in a national network and
run other business development programmes that cover a part of the costs
(counselling, training, business incubators etc.).
37
PA\619426.6
JURISDICTION SUMMARY: HUNGARY
Source: EMN with HMN; Microfinance Market Study by MFC for CEE and NIS
Usury rules
(interest caps)
There is no interest cap in Hungary.
Between 1992 and 2007 the interest rates in the National Microcredit
Programme were equal to the respective base interest rate of the central
bank.
Non-LEA microfinance institutes realised a higher interest but their
volume both in clientele and dispersed loans is low.
The interest rate of the GOP-4 microcredit programme issued late 2007
has an upper limit: that is the EU reference interest rate + maximum 2 %point.
There is the view that there are very few potential enterprises whose
financial background and business activities would enable them to realise
a significant development from a credit burdened with a high interest and
that high interest would result in business failure.
Tax incentives
LEAs receive tax and duty allowances on their activities of public utility
(as any other foundation does on its activities of public utility).
Access to
guarantee
schemes for banks
and non bank
microcredit
institutions
The State Guarantee Agency (Hitalgarancia) has played a meaningful
role in microcredit development. Through partnerships with institutions
that provide microcredit, the Guarantee Agency (Hitalgarancia) has
helped to mitigate risk and lower credit costs, thereby increasing scale.
Database
recording
borrower history
The Bank Supervisory Authority database records borrower defaults for
credit institutes.
Access by nonbank microcredit
institutions to
such databases
Non-bank microcredit institutions do not yet have access to such
information. The LEAs can rely on the data of their own network and the
information from members of the Microcredit Censorship Board.
Obligation for non No obligation
bank microcredit
institutions to
provide their
borrowers' credit
history to such
databases
38
PA\619426.6
JURISDICTION SUMMARY: HUNGARY
Source: EMN with HMN; Microfinance Market Study by MFC for CEE and NIS
JEREMIE and the new EU initiative on microcredit
Significant
initiatives taken to
develop
microcredit
39
PA\619426.6
JURISDICTION SUMMARY: HUNGARY
Source: EMN with HMN; Microfinance Market Study by MFC for CEE and NIS
Suggested
measures to
improve existing
framework/create
a framework (as
applicable) for
microcredit and
microenterprises
For microenterprises/self-employment:
1. Reduce administrational and taxation burdens - It is currently
under preparation to significantly reduce the taxes and
contributions payable by enterprises with less than 10 employees
from 2009 as a positive result of the convergence programme. A
major part of enterprises benefit from a so called Simplified
Enterprise Tax (Hungarian acronym EVA), which radically
reduced tax burdens and their administration.
2. Provide access to finance for new entrepreneurs - A wide range of
the population has little accumulated capital. The financial
institutes do not welcome and finance small enterprises willingly
due to low profitability and high risk of small loans. lending
organisations have a much too “careful” business policy due bore
remarkable losses en masse in the early '90s
3. Create a favourable economic environment for microenterprises
which promotes growth, encourages entrepreneurs to join the
formal economy, and allows access to finance.
4. Improve efficient operation of the enterprise development
institution
5. Promote entrepreneurial culture - It significantly hindered the
development and efficient operation (or simply the survival) of
the enterprises in the sector that the population did not have
notable entrepreneurial traditions, experience or knowledge.
For microcredit:
1. Allow microlending by non-banks in order to lower average loan
size to reach more microenterprises, single person entrepreneurs
and the working poor.
2. Reduce dependence by the national programme on subsidised
donor funds for microcredit schemes. This distorts the
microlending mechanism and inhibits financial innovation.
Subsidised donor programmes should complement, not compete,
with private capital to provide small loans otherwise not
available.
3. Promote cooperation between banks, government agencies, MFIs
and NGOs to optimise the potential of all service providers.
40
PA\619426.6
JURISDICTION SUMMARY: HUNGARY
Source: EMN with HMN; Microfinance Market Study by MFC for CEE and NIS
4. Introduce innovations in IT and information collection. This will
enable commercial banks to downscale their lending activities by
simplifying procedures and MFIs to deliver credit on a large
scale.
5. Where public funds are being disbursed, there needs to be an
active monitoring and evaluation system to ensure accountability
and impact measurement.
6. Strengthen the networking of LEAs and facilitate access to GOP
4 funds. Limit resources to one particular microfinance institute
in a region proving specific standards and results.
41
PA\619426.6
JURISDICTION SUMMARY: IRELAND
Source: EMN with First Step and intrepid Management Consultants
Types of vehicles
available for
microenterprises
and selfemployment
-
sole trader
-
partnership
-
limited liability company (including partnerships)
Costs and
procedures
Registration, inter alia, for tax purposes
If one wishes to register as a company, the cost c. €150.
To start business in one’s own name, no cost.
In both cases must register with Revenue, with no cost applicable.
Financial support
programs during
transition period
Business
development
services
-
The Irish government provides "back to work schemes" and assists
new microenteprises and self-employment with financing of their
company. Individuals can return to welfare should business fail.
-
First step (MFI) provides access to funding
State funded agencies:
-
35 City Enterprise Boards
-
County Enterprise Boards and
-
Area Partnership companies
Specific laws &
regulations
applicable to
microcredit, selfemployment and
microenterprises
No, other than revenue, planning, labour, health and safety, etc. where
applicable.
Types of
institutions
providing
microcredit
-
Commercial banks: Bank of Ireland, AIB Bank, Ulster Bank (RBS)
-
One MFI operating nationally in Ireland: First Step Microfinance
-
Approximately 500 independent local credit unions, however such
42
PA\619426.6
JURISDICTION SUMMARY: IRELAND
Source: EMN with First Step and intrepid Management Consultants
entities are only authorized to lend to consumers (not for business
purposes)
Sources of
funding for nonbank microcredit
providers
Loans from a joint body set up by banking community (The Social
Finance Fund), and from Enterprise Ireland (State body which assists
start up and development of businesses).
Do non-bank
microcredit
institutes achieve
operational /
financial
autonomy?
First Step operates autonomously: rates set on loans do not allow
sustainability and other revenue streams are developed to insure
sustainability.
Usury rules
(interest caps)
No interest caps: interest rates are set by financial institutions in
consultation with the Financial Regulator.
First Step sets its rate below this benchmark.
Tax incentives
-
Thresholds for VAT returns and year end reporting based on
business size exist in relation to setting up of a business.
-
First Step has a specific "charitable status" and is only subject to
VAT. First Step is not subject to Corporation taxes.
-
Individuals and corporations which donate funds to First Step can
benefit to extent of 20% relief on amounts donated up to €100,000
per year.
Access to
guarantee
schemes for banks
and non-bank
microcredit
institutions
First Step has access to guarantees provided by banking community
fund (please see Section "Sources of funding") and by European
Investment Fund.
Database
recording
borrowers’
history
Irish Credit Bureau
Access by nonbank microcredit
institutions to
MFIs can access such information if they are members of Irish Credit
Bureau.
43
PA\619426.6
JURISDICTION SUMMARY: IRELAND
Source: EMN with First Step and intrepid Management Consultants
such databases
Obligation for non Only if MFI is member of Irish Credit Bureau
bank microcredit
institutions to
provide their
borrowers' credit
history to such
databases
Initiatives of Financial Regulator to regulate microcredit, selfSignificant
initiatives taken to employment and microenterprises
develop
Creation of Enterprise Ireland
microcredit
Suggested
measures to
improve existing
framework/create
a new framework
for microcredit
and
microenterprises
For microenterprises/self-employment:
Implement stringent business regulatory and compliance issues.
For microcredit:
N.A.
44
PA\619426.6
JURISDICTION SUMMARY: ITALY
Source: Latham & Watkins Milan; EMN and micro.bo
Types of vehicles
available for
microenterprises
and selfemployment
Two categories of vehicles are available:
-
“società di persone” (similar to partnership), which encompasses:
“società semplice”, “società in nome collettivo” and “società in
accomandita semplice” and
-
“società di capitali” (similar to business corporation), which
includes: “società per azioni", "società in accomandita per azioni"
and "società a responsabilità limitata”
Corporate forms most likely to be used for microenterprises are the
“società di persone”

Italian law does not provide for a general legal framework concerning
self-employment and microenterprises. However, there are some legal
instruments that specifically relate to and regulate the assistance and
promotion of self-employment and microenterprises.
In this respect Legislative Decree No. 185 of 21 April 2000 (the
"Decree") introduced incentives to facilitate creation and development
of enterprises and self-employment in certain geographical areas and
with regard to specific groups of people.
Pursuant to the Decree, the microenterprises must:
-
be a newly set up "società di persone" (exclusion of joint stock
corporations and limited liability companies)
-
not pursue mutualism
-
have its registered office is within economic disadvantaged areas
identified by European Union
-
be composed of unemployed adults resident in disadvantaged
economic areas and
-
pursue a project in area of production of goods and service sectors
If all criteria set up by Decree are met, the microenterprises can be an
eligible beneficiary of non-repayable grants, subsidized loans for
investments and grants for operating expenses
45
PA\619426.6
JURISDICTION SUMMARY: ITALY
Source: Latham & Watkins Milan; EMN and micro.bo
Costs and
procedures
Approximate cost of a public notary to set up a “società di persone”:
€2,000 (whereas public notary costs to set up a “società di capitali” are
in average double)
Minimum capital requirements exist for the two following forms of
“società di capitali”:
-
€120,000 for “Società per azioni”
-
€10,000 for “società a responsabilità limitata”
No minimum capital requirement for "società in accomandita per
azioni" or for any corporate form of “società di persone”
Financial support Those persons who carry out a self-employed activity - which had been
programs during started prior to the termination of the employment relationship - can be
transition period eligible to unemployment benefits.
Otherwise, unemployment benefits may be granted only if the selfemployed activity is not carried out on a continuous basis
Business
development
services
Business development centers are the result of the collaboration among
regional and local public institutions, usually jointly with the private
sector (i.e., Business Associations, Chambers of Commerce, local banks
and individual enterprises etc.)
Furthermore, private companies, universities, Agenzia nazionale per
l’attrazione d’investimenti e lo sviluppo d’impresa S.p.A. and some
Italian local public entities provide "business incubators" to assist new
businesses in their start-up phase (services provided against
remuneration or free of charge depending on provider)
With regard to the Decree (please see Section "Types of institutions
providing MC"), Agenzia nazionale per l’attrazione d’investimenti e lo
sviluppo d’impresa S.p.A. - a financial intermediary wholly owned by
and under control and surveillance of Ministry of Economy - is in
charge of the applications' review process, the granting of credit
facilities and the subsequent monitoring phase. If all criteria set up by
Decree are met, microentreprises can benefit from technical assistance
in investment realization
46
PA\619426.6
JURISDICTION SUMMARY: ITALY
Source: Latham & Watkins Milan; EMN and micro.bo
Other measures
Employees (with a seniority of at least 1 year) dismissed in the context
of a mass redundancy who intend to start a self-employed activity (or to
develop on a full-time basis a self-employed activity already started
during their previous employment) can obtain an advance payment of
their unemployment indemnity by presenting a special request to
National Social Security Institute together with the documents proving
the start-up of an independent activity
Specific laws &
regulations
applicable to
microcredit, selfemployment and
microenterprises
Tax incentives to support microenterprises and self-employment (please
see Section "Tax Incentives")
No general legal framework concerning self-employment and
microenterprises (however, please see the Decree in Section "Types of
vehicles available for microenterprises and self-employment ")
No specific national legislation or regulations on microcredit
Types of
institutions
providing
microcredit
-
Cooperative banks: Banca Popolare Etica, Banca Popolare Pugliese,
Banca Popolare di Ancona, Banche di credito cooperativo, Banca di
Credito Cooperativo di Roma, Credito Cooperativo Ravennate e
Imolese; Banca di Bologna
-
Financial intermediaries (pursuant to Article 106 of the Italian
Banking Act): Mag2 Finance s.c.ar.l. (Mutue di Auto GestioneMAG), Mag6 Società Cooperativa
-
NGOs in partnership with banks: micro.bo, Caritas Italiana,
Microcredito di Solidarietà S.p.A., Agenzia nazionale per
l’attrazione d’investimenti e lo sviluppo d’impresa S.p.A.
-
Foundations: please note that most do not - and are not allowed to provide microcredit. However, they provide the funds that guarantee
the institutions providing microcredit. Fondazione di Venezia; Terre
in Valigia; Fondazione San Carlo; Fondazione Field; Fondazione
Antiusura Iteresse Uomo; Fondazione La Casa; Compagnia di San
Paolo
-
Commercial banks: Banca del Piemonte, Banca Monte dei Paschi di
Siena, Intesa San Paolo, etc.
-
Specialised microcredit bank: Banca Prossima (established by Intesa
San Paolo)
47
PA\619426.6
JURISDICTION SUMMARY: ITALY
Source: Latham & Watkins Milan; EMN and micro.bo
Sources of
funding for
microcredit
providers
-
Governmental, regional sources of funding
-
Private sources (foundations)
-
European sources
Do non-bank
microcredit
providers achieve
operational /
financial
autonomy?
The cooperatives Società Mutua per l’Autogestione that provide
microcredit (i.e., the financial intermediaries Mag2 Finance s.c.ar.l. and
Mag6 Società Cooperativa) appear to have achieved operational and
financial autonomy
Usury rules
(interest caps)
Yes: pursuant to Law No. 108 of 7 March 1996, the Bank of Italy
publishes every three months the interest rate caps for macro-categories
of financial operations. An interest rate higher than the interest rate cap
is in breach anti-usury
Legal interest caps cannot exceed the double of the average market
interest rate identified on a quarterly basis by the Italian Exchange
Office (Ufficio Italiano Cambio)
Tax incentives
-
"Tax regime for new business activity and self-employment" In the
fiscal year during which business activity begins and for the two
following years, net profit carried out by a natural person is subject
to a flat 10% rate of a "substitutive tax" if the revenues do not
exceed €30,987 per year. Furthermore, the ordinary accountancy
rules and obligations do not generally apply when this tax regime is
applied. As mentioned, this regime is "temporary" (i.e., applicable
only in the first three-year period at most)
-
"Tax regime for lowest taxpayers" applicable to self-employed
natural persons provided that:
-

annual revenues do not exceed €30,000 per year

no employees and

instrumental material assets purchased in previous three years
do not exceed €15,000
The net profit, calculated on “cash” basis (in place of the “accrual”
one) is, inter alia, liable to a flat 20% substitutive tax rate. VAT is
not charged on the invoices issued (and, thus, the VAT exposed in
48
PA\619426.6
JURISDICTION SUMMARY: ITALY
Source: Latham & Watkins Milan; EMN and micro.bo
the invoices received is not deductible).
Access to
guarantee
schemes for
banks and non
bank institutions
providing
microcredit
Database
recording
borrowers’
history
-
Yes: a guarantee fund for small and medium enterprises - expressly
applicable to micro-enterprises - is managed by Mediocredito
Centrale S.p.A. (the "Central Guarantee Fund"). Banks and
Financial Intermediaries (Article 107 of the Italian Banking Act) can
request to be guaranteed by the Central Guarantee Fund when the
final beneficiaries are enterprises that satisfy specific requirements
or fall within certain categories.
-
Nation-wide mutual guarantee scheme for the craft sector, industrial
and commercial micro-enterprises: CONFIDI
-
BIC Lazio is an agency that manages a guarantee fund of €3.5
million established by Regione Lazio to support lending from
€5,000 to €20,000.
-
Compania de San Paolo has created a guarantee fund to secure the
banks that lend in the projects of the foundation.
Various databases exist:
A) the "Centrale dei Rischi" database managed by the Bank of Italy and
the "Centrale Rischi di Importo Contenuto" database managed by
SIA-SSB (each a "Database")
Subject to specific provisions being met, the following entities must
communicate to the to the competent Database its risk position
towards a client:
-
banks
-
companies belonging to a banking group
-
banking, financial and instrumental companies at least 20% of
whose capital is held by companies belonging to a banking
group or by an individual bank and
-
financial intermediaries (Article 107 of the Italian Banking Act)
(each an Information Provider)
B) the "Sistemi di Informazione Creditizia" managed by private entities
(the "Private Databases")
49
PA\619426.6
JURISDICTION SUMMARY: ITALY
Source: Latham & Watkins Milan; EMN and micro.bo
The following entities provide information to the Private Databases:
-
banks
-
financial brokers
-
other private entities that, in the exercise of commercial and/or
professional activities, grant an extension for the payment
related to the supply of goods and/or services
(each a Participant)
Access for nonbank microcredit
providers to such
databases
MFIs may access such databases provided that it can be qualified as
"Information Provider" or "Participant" under Italian law
Obligation for
non bank
microcredit
institutions to
provide their
borrowers' credit
history to such
databases
With regard to each Database in A) and the Private Databases in B)
above, only if the non-bank microcredit institution is respectively an
Information Provider or a Participant.
Significant
initiatives taken
to develop
microcredit
-
Legislative Decree No. 185 of 21 April 2000 (please see Section
"Types of vehicles available for microenterprises and selfemployment")
-
On 31 July 2007, the Ministry of Interior and, inter alia, Bank of
Italy, Italian Banking Association, National Association of Italian
Municipalities and Confederation of Italian Industry entered into a
framework agreement in which they undertake to, inter alia,
increase microcredit use
50
PA\619426.6
JURISDICTION SUMMARY: ITALY
Source: Latham & Watkins Milan; EMN and micro.bo
Suggested
measures to
improve existing
framework/create
a new framework
(as applicable)
for microcredit
and
microenterprises
For microenterprises/self-employment:
-
Reduce costs and
microenterprises
simplify
procedures
for
-
Promote business incubators and professional support
-
Absence of simplified status to set up microenterprises
setting
up
For microcredit:
-
Soften regulatory requirements for non-banking institutions engaged
in microcredit as their principal/exclusive activity. The current status
of Italian law foresees that only Financial Intermediaries – which are
subject to, inter alia, strict patrimonial requirements and to
prudential supervision – are allowed to grant microcredit
-
Establish a uniform and commonly agreed definition of microcredit
-
Implement regulation for microcredit
-
Implement tax incentives for individuals/corporations that invest in
MFIs and promote and support guarantee funds accessible to those
institutions that meet defined standards of governance, proficiency,
transparency and accountability
-
Set up a network of institutions involved in the Italian microcredit
sector in order to support the activity of Microfinance Committee
and to develop further activities
51
PA\619426.6
JURISDICTION SUMMARY: THE NETHERLANDS
Source: EMN with TriodosFacet; Microfinance Market Study by SEON foundation
Types of vehicles
available for
microenterprises
and selfemployment
-
Registration of a private company in various legal forms
-
Registration as self-employed without personnel (ZZP - Zelfstandige
zonder personeel)
-
Registration as a private, self employed (vrij beroep)
Costs and
Procedures
Registration has to be made with the Chamber of Commerce, with the
Fiscal Authorities (VAT number, status of self-employed or
entrepreneur).
Fees for registration (annual) are based on the number of employees.
Absence of simplified status for microentreprises. They fall in the same
category as small enterprises employed (ZZP) or self-employed.
There are no one-stop centres. However in some municipalities there are
so called “enterprise centres” where some business development services
are jointly offered.
Political decision makers try to tackle this issue in a more structural way
by promoting and/or stimulating collaboration between specialised
services providers.
Financial support
programs during
the transition
period
There are two special phenomena:
-
Unemployed persons who depend on minimum social welfare
(Bijstand) and who are eligible for assistance to start one’s own
business under a special programme (BBZ) may receive income
support in the starting phase for a maximum period of 18 months.
The decision is taken by the Municipality on a case-by-case basis.
This is not specific for micro-enterprises. Under the responsibility of
the Ministry for Social Affairs and Employment a pilot programme is
underway to open this facility for any person on social welfare.
-
In theory the ZZPer (Zelfstandige zonder personeel) - Self-employed
without personnel - retains built-up social welfare entitlements if
his/her venture fails within 3 years; the other entrepreneurs have no
rights on social welfare.
Once a person registers with the Chamber of Commerce he/she looses
his/her social welfare status and generated income is deducted from the
52
PA\619426.6
JURISDICTION SUMMARY: THE NETHERLANDS
Source: EMN with TriodosFacet; Microfinance Market Study by SEON foundation
social benefits.
Business
Development
Services
A number of options exists (all with relative limited effects in numbers
reached):
-
Persons in the BBZ programme (see above) have the possibility to
receive counselling and advisory services in the preparatory stage.
These services are rendered by private business development service
providers; most of them operate on a modest scale at local level.
There is only one network organisation (IMK) that operates nationwide; payment for these services is attractive for individual advisers/
consultants not for companies
-
In the pilot programme of the Ministry for Social Affairs and
Employment this facility is for any person on social welfare.
-
There are various projects funded mainly under EU/ Equal/ D2 or
similar programmes (and or by local authorities) that make it possible
to offer – temporarily! – business development services, in many
cases targeted at special groups of socially excluded persons.
Payments are often similar to those under aforementioned projects.
-
There exist various networks of volunteers (retired business persons)
that offer ad-hoc business development advisory services; some of
them such as Ondernemersklankbord have a more permanent
character; those volunteer groups are quite accessible for socially
excluded.
-
There are limited experiments by private organisations (such as
Hands On) that recently launched business development services
linked to credit / finance programmes; those services again are
rendered by volunteers (some of whom even contribute in cash to
such programmes).
-
Upcoming are the special interest groups that organise business
development service rendering amongst the members by the members
(sometimes with ad hoc funding by local authorities); see for instance
Zwarte Zaken Vrouwen Network (ZZVN); it is doubtful whether they
reach the socially excluded
53
PA\619426.6
JURISDICTION SUMMARY: THE NETHERLANDS
Source: EMN with TriodosFacet; Microfinance Market Study by SEON foundation
Specific laws &
regulations
applicable to
microcredit,
microenterprises
and selfemployment
There is no specific legislation on microcredit, but for credit and savings
mobilisation. As soon as a private organisation wants to take savings or
deposits it has to adhere to all laws and regulations in this field and needs
an operating license either from the Dutch National Bank (DNB) or the
Authority of Financial Markets (AFM).
The national Advisory Council in Microfinance in the Netherlands will
present an advise on Legislation and regulations for Microfinance
(institutions and users) by October 2008. The Centre of Microfinancing
of the University of Applied sciences INHOLLAND will undertake a
special research on this topic. The results of this research will be used by
the Council. This research will be based on the best practices on
Microfinance from the Southern- and European countries.
A generally accepted definition for microcredit does not exist in the
Netherlands; however the limit for microcredit is sometimes set at
35.000€.
Types of
institutions
providing
microcredit
-
Government: BBZ programme (see above)
-
Commercial banks: the most popular form of credit is the overdraft
facility:
-
-
-
Fortis Bank has started a microfinance project and channelled
a small amount of its own funds (€100.000) in that project
(CSR);
Some of the Gemeentelijke Krediet Banken (Municipal Credit
Banks) started in 2007 to develop special facilities for micro
borrowers (amounts not yet known);
Rabobank cooperative bank operates de facto as a general
bank.
Few private organisations exist that are specialised in and dedicated
to providing microloans. Only recently such initiatives are deploying:
i.e. SEON, Hands On, Start Smart.
Upcoming but not yet visible are small savings/ credit groups set up
by migrant groups; no regulation yet for this.
Sources of
funding for non
bank microcredit
institutions
-
Commercial loans: banks
-
Equity investments: banks and equity funds
-
Soft loans: mainly with funds from the Ministry of Social Affairs and
Employment, sometimes on limited scale with own funds
54
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JURISDICTION SUMMARY: THE NETHERLANDS
Source: EMN with TriodosFacet; Microfinance Market Study by SEON foundation
-
-
Subsidies and donations from:
-
National person - ad hoc
-
Private institution - various donor organisations such as VSB
Fonds, Start Foundation, DOEN Foundation
European sources: Equal/ESF/ etc
There are no public sources.
Operational /
financial
autonomy
This will require a change in mind-setting.
Usury rules
(interest caps)
There is no interest cap on commercial loans/ investment loans, but
central bank discount rates, open and transparent market and competition
clearly determine the rates.
Since January 2006 there is a law on financial services for consumer
loans. Per January 2007 maximum rate to be charged on top of the
discount rate is 18%.
There has been a serious debate about the level of the interest rates that
could be charged on consumer credit especially by mail order firms. It is
felt socially unacceptable to leave this rate free.
Tax incentives
There is no specific tax exoneration for microcredit but several for small
enterprises: i.e.:
-
exemption from paying VAT if the amount to be paid is limited (less
than Euro 1345);
-
extra tax reduction in the first year of operation of the business;
-
tax incentive for individuals lending to relatives of friends up to €
40.000 (Tante Agaath facility);
There are three tax facilities for individuals investing in risk capital either
directly or through certain registered organisations.
Access to
guarantee
-
There are no special guarantee schemes in support of microfinance
55
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JURISDICTION SUMMARY: THE NETHERLANDS
Source: EMN with TriodosFacet; Microfinance Market Study by SEON foundation
schemes for banks
and non bank
institutions
providing
microcredit
(institutions/ lending programmes).
Banks have access to a national Guarantee facility in support of
lending to SME: BBMKB, an unfunded scheme, with ex-post
evaluations, offering 50% coverage on a supplementary basis, mainly
above €25.000. Most beneficiaries are SMEs already in existence for
several years and guaranteed loans amounts are often beyond
€100.000. Although it has often been argued that the scheme could
also be used for micro borrowers its present procedures are not yet
adequate to do so. The Council for Microfinance therefore proposed
the Government to amend procedure and/or introduce an adjusted
guarantee scheme for micro credit.
-
A pilot is underway in Rotterdam, Leeuwarden and Lelystad under
guidance of the Ministry for Social Affairs and Employment whereby
the BBMKB facility is opened up to banks who lend to persons
depending on social welfare who start a new business with external
funds (loans from those banks) – guarantees for loans up to €31.000
with average of €22.000.
-
Private guarantee funds such as the SEON fund for minorities and
women (guarantees up to € 16.000).
-
The deposit guarantee scheme of De Nederlandsche Bank (DNB) to
protect private individuals and small businesses having deposits (up
to €20.000) with a bank that is under the supervision of DNB.
Database
recording
borrowers’
history
The Bureau Krediet Registration BKR in Tiel is a credit reference bureau
accessible to all banks.
Access for non
bank microcredit
institutions to
such databases
Only members (banks but also a number of other institutions) have
access to the information of BKR; individuals have to request the
personal data of BKR through their own bank.
Obligation for non No obligation
bank microcredit
institutions to
provide their
borrowers' credit
history to such
databases
56
PA\619426.6
JURISDICTION SUMMARY: THE NETHERLANDS
Source: EMN with TriodosFacet; Microfinance Market Study by SEON foundation
National level:
Significant
initiatives taken to
In 2007 the National Advisory Council on Microfinance in the
develop
Netherlands presented its first policy recommendation to the Netherlands
microcredit
Government. This advice was taken over by the Government and is now
being implemented.
In this advice, the Council presents an approach for the Dutch situation
based on relevant experience gained inside as well as outside the
Netherlands. The approach proposed consists of three interrelated
components:
1. Promotion and distribution of the services by local microfinance
initiatives: these are existing or new organisations from which (potential)
entrepreneurs may obtain information, advice as well as specific types of
business support. On a local level, they also make people more aware of
available microfinance opportunities. For example, they can make use of
scouts from local communities to actively approach target groups.
2. Coaching by a network of trained volunteers and professionals:
Coaches may be members of national networks but will also often have a
permanent home base with a local initiative, due to the culture of the
specific target group and the individual perspective adopted by specific
local initiatives.
3. Simplified access to financial assistance is realised via a guarantee
fund, a screening system and agreements with parties providing the
funds. The four large banks have promised to also participate collectively
in this financial assistance model, at least for 2008.
The Council is of the opinion that these three components should be
brought together in a kind of franchise model. In this model, elements for
which benefits of scale are important are structured in a centralised
fashion; this includes marketing, administrative processing of funding
requests, and contact with national government bodies. The local
initiatives should be given ample opportunity to develop their own
profile for their own target groups.
The Council proposes the implementation of a franchise system in order
to benefit optimally from the expertise and networks of established
organisations such as Ondernemershuizen (Dutch Entrepreneurial
Centres) and Chambers of Commerce as well as other microfinance
initiative. In this scenario, the local organisations enter into an agreement
with a (small) national project organisation. As a result, they can display
57
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JURISDICTION SUMMARY: THE NETHERLANDS
Source: EMN with TriodosFacet; Microfinance Market Study by SEON foundation
the franchise label and make use of the support services offered, thereby
guaranteeing a nationally set minimum level of services for the target
group. It should be noted that the franchise concept proposed here does
not mean that the participating organizations contribute to financially
supporting the national organization.
European level:
Parties in The Netherlands are awaiting what the EU Microfinance
Initiative will bring; the official reaction will be submitted in the course
of the months March/ April 2008.
For microenterprises/self-employment:
Suggested
measures to
- Build up the capacity of Business Development Services such as
improve existing
mentoring and coaching
framework /create
a framework (as
- Extend the outreach of public programmes; do not only focus on
applicable) for
persons receiving social welfare benefits
microcredit and
microenterprises
- Better inform potential entrepreneurs about the possibilities of
microfinance for self-employment and entrepreneurship
For microcredit:
-
Increase the scope and outreach of private MFIs: only 200
microcredits are yearly issued by specific projects undertaken by non
financial institutions and banks. This is a rather poor result as about
20 non financial institutions supply microcredit and at least 10 noncommercial business development organisations are active
-
Incite more banks to enter the sector
-
Inform practitioners about the fact that lending by private nonbanking organisations is allowed by the central bank
-
Assess the actual demand for micro-credit before starting a
microfinance initiative
-
Decide whether it is still wise to invest in building up traditional
Microfinance Institutions or focus on designing and introducing
innovative credit delivery mechanisms such as the recently launched
BizNer Bank or the Booper, both operating on the internet with
extremely low costs and short processing times.
58
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JURISDICTION SUMMARY: POLAND
Sources: EMN based on Microfinance Market Study in Poland by MFC
Types of vehicles
available for
microenterprises
and selfemployment
Limited liability companies
Costs and
Procedures
According to experts, efforts have been made to shorten registration
procedures. In 2006, the average duration was between 30 and 60 days,
which was considered as acceptable. Apparently, costs for setting up are
still very high.
Joint-stock companies
Financial support programs during
transition period
Polish Agency for Enterprise Development - governmental agency
under authority of Ministry of Economy which allocates grants to
regional funds
-
Regional Financing Institutions which act as partners of Polish
Agency for Enterprise Development
-
Non-bank MFIs: Fundusz Mikro, Rural Development Foundation,
FDPA, Inicjatywa Mikro (see “Types of institutions providing
microcredit”)
Local development initiatives to support the creation and survival of
micro-enterprises and self-employment are widespread in the country
through the establishment of “Micro-credit Loans Funds” put in place
by public authorities (regional). There were 76 loan funds in 2003, but
with large regional difference and no strong interconnections.
There is apparently no coherent national strategy for the improvement
of the financial support for micro-enterprises and no national
programme focusing on fostering self-employment for socially excluded
people.
Business
development
services
The National SME Services Network consists of 180 cooperating
outlets in 190 localisations in Poland. This network consists primarily of
regional and local development agencies, business support centres,
chambers of industry and commerce, and local non-profit foundations
and associations, which render various services directly to small
business sector.
The Consultation Centres (PK) function as first-contact institutions
for small and medium-sized enterprises. In 2007 around 190 were in
59
PA\619426.6
JURISDICTION SUMMARY: POLAND
Sources: EMN based on Microfinance Market Study in Poland by MFC
service.
Development services to help socially excluded people remains weak if
not non-existent (strategic orientation toward business generating cash
flow).
Specific laws &
regulations
applicable to
microcredit, selfemployment and
microenterprises
There is no special legal regulation for micro-finance providers.
The existing regulation, although it does not support directly
microfinance, establishes an environment in which it is relatively easy
to create microcredit institutions, and in which they can conduct their
activities. The legal base for conducting business activities is regulated
by the Freedom of Business Activity Act, which specifies the principles
for undertaking and conducting business activities in Poland. As a
general rule specified in Art. 6 of the Freedom of Business Activity Act,
anyone is free and permitted to undertake and pursue business activity
under equal rights, subject to conditions set forth by law.
The requirements to set-up a micro-loan fund are as follows (which
apply for micro-credit funds supported by public resources). According
to its statue the fund has to operate not-profit or allocate the profit for its
statutory goal. The micro-loan fund is a legal entity, which, by
resolution of a relevant body, sets up a separate block of finance to grant
loans to micro and small sized enterprises. The amount of any loan
given cannot exceed 120 000 zloty (app. EUR 30 000). Loans shall not
be provided to enterprises in difficulty within the meaning of the
Community Guidelines on State aid for rescuing and restructuring firms
in difficulty (O.J. C 288, 9.10.1999). Finally, a risk assessment must be
carried out.
Credit Unions – SKOK – operate under special legislation for credit
unions. The legislation is very favourable and contributed to the very
fast development and growth of SKOKs in Poland.
Types of
institutions
providing
microcredit
-
Commercial banks: PKO BP, Cooperative Banks, Pekao SA and
BPH (largest providers)
-
Credit
Unions:
SKOK
(Krajowa
Spółdzielcza
Kasa
Oszczednosciowo - Kredytowa / National Association of
Cooperative Savigs and Credit Unions) – mainly focussing on
consumption credit
-
Non bank MFIs (registered as limited liability company): Fundusz
Mikro, Inicjatywa Mikro Sp.z o.o., FWW (Fundacja Wspierania Wsi
-Rural Development Foundation), Fundacja na Rzecz Rozwoju
60
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JURISDICTION SUMMARY: POLAND
Sources: EMN based on Microfinance Market Study in Poland by MFC
Polskiego Rolnictwa (Foundation for the Development of Polish
Agriculture - FDPA)
-
Polish Association of Loan Funds (Polskie Stowarzyszenie
Funduszy Pożyczkowych) represents interests of such Funds from
all over Poland on national level and supports their activities to
develop microenterprises. However, their outreach is very limited.
Sources of
funding for
microcredit
providers
-
Government sources, inter alia, regional government
-
Private funds
-
International (World Council of Credit Unions, USAID) and
European sources (ESF, EIF, ERDF)
Do non-bank
microcredit
providers achieve
operational /
financial
autonomy?
Only Fundusz Mikro has achieved financial and operational
sustainability.
Usury rules
(interest caps)
Yes, "Anti Usury Act" applies to non-bank MFIs
Tax incentives
None
Access to
guarantee
schemes for
banks and non
bank institutions
providing
microcredit
Guarantee Funds for SMEs financed from Sectoral Operational
Programme “Improvement of Enterprise Competitiveness” realised by
Polish Agency for Enterprise Development. Over 50 guarantee funds
operate on territory of Poland (e.g. 4,743 guarantees provided in 2006).
87% of these loans were provided by banks and 10% from Loan Funds.
Over 70% of guarantees were provided to SMEs.
Data protection
rules
No information available
Access by non
bank microcredit
providers to such
databases
Significant
initiatives taken
In 2002 a national government programme to build an integrated system
of regional and local financial institutions for SMEs, was launched
61
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JURISDICTION SUMMARY: POLAND
Sources: EMN based on Microfinance Market Study in Poland by MFC
to develop
microcredit
(Capital for Entrepreneurs).
Suggested
measures to
improve existing /
create a new
framework (as
applicable) for
microenterprises
and microcredit
For microenterprises/self-employment:
-
Improve knowledge of potential entrepreneurs about microcredit and
microenterprise finance providers
-
Promote access to finance for microenterprises
For microcredit:
-
Authorise non bank MFIs to use a short and effective procedure in
acquiring the legal title to collect debts
-
Allow tax exemption for non bank MFIs
-
Abolish interest rate cap
-
Improve accounting regulations concerning principles of loan loss
reserves; allow MFIs to treat their loan loss reserves as a cost
-
Reduce taxes that have to be paid by Polish MFIs on the interest
they remit to foreign lenders (now: 20%).
-
Ensure better geographic coverage of microcredit providers, in
particular in those areas where demand is highest
-
Promote cooperation between banks, non-bank MFIs, government
agencies and support institutions to ensure maximum leverage;
stimulate innovation in product development and delivery channels
to provide microcredit to un-served segments
62
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JURISDICTION SUMMARY: PORTUGAL
Source: EMN with ANDC
Costs and
Procedures
During the past two years some measures have been implemented in
order to make the process of starting up a small company easier, faster
and less bureaucratic.
“Empresa na Hora” (“on the spot firm”) desks have been set up: they
allow the whole process of creating a company to be carried out in one
office (one-stop office) and on the same day. This has, in fact,
considerably reduced bureaucracy and speeded up the process.
However this is a procedure that has not been widely implemented in
microcredit practices.
Financial support
programs during
the transition
period
Business
Development
Services
Specific laws &
regulations
applicable to
microenterprises,
self-employment
and microcredit
-
One of the main problems for socially excluded persons who would
like to create a micro-business or self-employment is the fact that
there is no gradual reduction of aid, in other words, once the microenterprise is created the proponent looses all social income support
he/she was receiving up until that moment.
-
Moreover, if the micro-enterprise fails, the micro-entrepreneur will
not be eligible for unemployment benefit as are other employed
workers.
-
With the exception of the support services made available by the
charity institutions who work with socially excluded people, there are
no specific services for those people, namely in terms of business
development.
-
IEFP (Employment and Vocational Training Institute) has been trying
to implement, through their “Programa Rede” (Network Program),
tuition and consultancy actions for small businesses, to take place
after start-up. - It is important to point out that this is has no relation
to microcredit.
-
In Portugal, only banks and financial institutions are allowed to take
deposits and/or grant loans and offer other financial products.
Institutions such as ANDC, dealing in microcredit, are “forced” to
negotiate agreements with banks determining the conditions under
which they are prepared to grant microcredit.
-
Credit unions, with the exception of Caixa de Crédito Agrícola, are
non-existent in Portugal. Caixa de Crédito Agrícola is nowadays,
locally, a commercial bank like any other, although it still maintains a
certain proximity with the rural and farming populations. The various
63
PA\619426.6
JURISDICTION SUMMARY: PORTUGAL
Source: EMN with ANDC
Caixas de Crédito Agrícola are members of Caixa Central de Crédito
Agrícola.
Types of
institutions
providing
microcredit
Sources of
funding for
microcredit
institutions
Operational /
financial
autonomy
-
There is no legislation on microcredit or microfinance activities.
-
Commercial banks: Millennium bcp (BCP), Banco Espírito Santo
(BES), Caixa Geral de Depósitos (CGD) and Montepio Geral. BCP,
BES and CGD have agreements with ANDC to provide loans to
projects they propose. Montepio has an agreement with Santa Casa da
Misericórdia de Lisboa, only for the city of Lisbon. Millennium bcp,
in addition to the agreement they have with ANDC, have also set up
their own microcredit product, which despite being aimed at those
unable to obtain commercial loans, covers a range of people whose
level of exclusion is not as serious as those targeted by ANDC.
-
Credit unions: The Caixas de Crédito Agrícola are starting, at a local
level, partnerships to promote microcredit projects
-
Associations in partnership with banks: Associação Nacional de
Direito ao Crédito (ANDC), by means of agreements signed with
Millennium bcp, BES and CGD.
-
Commercial loans: carried out by commercial banks by means of
agreements with microcredit institutions (in this case, only ANDC)
-
Subsidies and donations: Subsidy from the Ministry of Labour and
Social Solidarity (Employment and Vocational Training Institute),
proportional to the number of financed initiatives, justified by the fact
that, while promoting microcredit, ANDC also promotes
employment.
-
Aid comes mainly from public sources, although also, to an extent,
from private sources. There are no autonomous administrative
regions in Portugal and therefore all support is centralized.
This is one of the problems faced by microcredit institutions.
From an operational perspective - because they do not grant loans
themselves - they are not able to generate income and are therefore
dependent on those who finance them, namely the State.
This support is regulated by agreements signed by the parties involved,
which may or may not be renewed, leaving the institutions in a state of
great dependency.
64
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JURISDICTION SUMMARY: PORTUGAL
Source: EMN with ANDC
It is not certain that microcredit institutions could be financially
independent, even if they could grant loans and practice higher interest
rates.
Usury rules
(Interest caps)
There is no legislation on this matter.
However, ANDC in its agreements with the financial institutions has
defended an interest rate close to Euribor at 90 days plus a 2 to 3%
spread, which is similar to that used for home loans.
In the case of the microcredit programme, developed by Millennium, the
interest rate applied depends on the risk of the project and is usually
around 15%.
There is no evaluation system of the impact of interest rates.
Tax incentives
Since there is no legal framework, there are no benefits for microcredit
institutions.
The same happens with individuals or companies, since legally there are
no microfinance institutions.
Access to
guarantee
schemes for banks
and non bank
institutions
providing
microcredit
Mutual Gurantee Systems are starting to appear and operate in Portugal,
making access to financing easier, although they require beneficiaries to
become shareholders.
However, for inclusion purposes, there are no guarantee schemes to
cover financing of socially excluded people, other than those created by
the institutions themselves -such as ANDC- imperative to the agreements
signed with financial institutions.
Unlike other countries, there are no institutions whose activity is to
guarantee projects in the area of social economy and solidarity.
Existence of a
database
recording
borrowers’
history
The Bank of Portugal (Central Bank) controls credit information.
Access by non bank microcredit
institutions to
such databases
Only banks and financial institutions can access this information and
only for their clients or potential clients.
ANDC may have access to that information when authorised by potential
65
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JURISDICTION SUMMARY: PORTUGAL
Source: EMN with ANDC
clients.
Obligation for non
bank microcredit
institutions to
provide their
borrowers' credit
history to such
databases
There is no obligation for non-bank microcredit institutions to provide
information on their borrowers’ credit defaults to such institution or
database, since in legal terms, microcredit institutions do not exist as
financial institutions.
National level:
Significant
initiatives taken to
- The development of microcredit in Portugal has been a slow and
develop
difficult process. Over the past three years, especially since the
microcredit
International Year of Microcredit, there has been a greater awareness
of this instrument.
-
It should be pointed out that the government, through its Employment
and Vocational Training Institute, has supported, from the beginning,
the activity of Associação Nacional de Direito ao Crédito (ANDC).
-
However, besides the support to ANDC’s activity and the interest
always shown, so far no significant steps have been taken towards the
development and legal framework of microcredit as a financial
institution with specific characteristics.
European level:
-
On a European level, the reflection that has been promoted in its
midst is an important contribution to a greater unity in decision
making by member states on this subject.
-
The document “Microfinance Community Initiative” is a vital step
towards the creation of institutional conditions that match the
demands of microcredit development, as an effective instrument to
overcome the ever greater market flaws, which can be found even in
the most developed countries.
66
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JURISDICTION SUMMARY: PORTUGAL
Source: EMN with ANDC
Suggested
measures to
improve existing
framework/create
a framework (as
applicable) for
microcredit
For microenterprises/self-employment:
-
Improve access to financing.
-
Improve business training and technical support as well as
coordination among different organisations involved.
-
Implement adequate inclusion policy.
For microcredit:
-
Implement legislative framework on microcredit.
-
Carry out evaluation studies on impact of microcredit.
-
Allow the future microcredit institutions to operationally articulate
their needs in terms of the structural and sustainable development of
micro entrepreneurship initiatives, with other initiatives developed by
local governments, regardless of their nature.
-
The lack of appreciation for the risk taken by those suffering from
serious social and economic exclusion who take on the responsibility
of creating their own employment or small business, particularly the
cutting off of social aid after creation of self-employment and the
lack of support in case of failure.
-
The lack of coherent commitment on the part of governments to
include microcredit in the active employment policies, in spite of the
references made in various plans (PNAI, for example).
-
Reluctance from social institutions, still with a strong
“assistentialistic” mindset, to adhere to microcredit as a solution for
some exclusion situations.
Sustainability difficulties for organisations and great dependency
from public funding.
67
PA\619426.6
JURISDICTION SUMMARY: ROMANIA
Sources: 2 EMN Surveys, Benchmarking Microfinance in Romania 2005 – 2006 Study;
Presentation on the Romanian microcredit Scheme
Types of vehicles
available for
microenterprises
and selfemployment
Easiest form to implement microenterprise: limited liability company
Costs and
procedures
-
Registration and licensing of MFI as Non-Bank Financial
Institutions - Microfinance Companies
-
Limited Liability Company: average timeframe for registration is
one week (reduced from 8 weeks) and costs related to this procedure
amount to approx. €200.
-
The registration of the individual entrepreneurs (freelancers, family
associations, etc) is de-centralised and takes place at the community
fiscal and administrative office; the average time necessary to
register is two weeks and the costs are around 50 euros.
-
There is a one-stop-shop administrated by the Chamber of
Commerce and Industries network and the Trade Register.
-
The Ministry of SMEs is testing the new on-line registration system
available since fall 2007. This system will further reduce the costs
and time necessary for the registration.
Easiest for to implement self employment : authorised physical person
(authorised individual entrepreneur)
Financial support There are no provisions or specific financial instruments that
programs during accompany less favourable social groups, including unemployed, to be
transition period reinserted into economic activities.
On 12 March, 2007 the Government organised the first reunion of the
recently set up National Commission for Social Inclusion whose agenda
was to discuss mechanisms and procedures for social inclusion of the
most un-favourable groups.
Business
development
services
There is a well managed Business Development programme
implemented through the employment agencies. The unemployed may
have access to it. For the other categories there are specific business
development programmes but their impact is rather punctual and not
sustainable.
68
PA\619426.6
JURISDICTION SUMMARY: ROMANIA
Sources: 2 EMN Surveys, Benchmarking Microfinance in Romania 2005 – 2006 Study;
Presentation on the Romanian microcredit Scheme
Specific laws &
regulations
applicable to
microcredit, selfemployment and
microenterprises
The existing legal framework is recognising the Microfinance Sector as
part of the Romanian financial sector. This is due to continuous
lobbying effort to make the stakeholders aware of the sector’s main
characteristics: efficient financial services with a positive social and
development impact.
In less than 2 years the Romanian microfinance sector, passed from not
being regulated at all, to the other extreme overregulated.
The most important laws are:
-
Government Ordinance no. 40 sets up a framework for licensing of
non-bank credit organisations to administer public funds
-
Microfinance Companies Law no. 240 creates an favourable
environment for MFIs to grow and expand their portfolio of
products and support services with micro-loans of up to €25,000
-
Government Ordinance no. 28 regulates non-banking financial
institutions sector. National Bank of Romania is supervisory
authority of all non-bank financial institutions, which include leasing
companies, mortgage companies, credit unions and MFIs
-
Law no. 300/2004 regarding physical persons and familial
associations carrying out economic activities independently
The drafting of the current microfinance legislation was based on
general microfinance principles, at the same time taking into account
the Romanian legal, economic and cultural background:
-
Minimum share capital imposed: 200.000 euros in order to ensure
the self-sustainability of microfinance companies and enhance
market legitimacy and reputation: By imposing this minimum share
capital, microfinance companies are forced to be more efficient in
their activities and achieve desired self-sustainability.
-
Limited regulatory barriers for market entry of microfinance
companies, as “finance-only” entities  absence of limitations on
foreign ownership, management and sources of capital: This is
especially true since the recent European Union integration of
Romania and anticipated economic development will most likely
determine a decrease or termination of donor granted funds and
force current microfinance entities to seek non-donor sources for
69
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JURISDICTION SUMMARY: ROMANIA
Sources: 2 EMN Surveys, Benchmarking Microfinance in Romania 2005 – 2006 Study;
Presentation on the Romanian microcredit Scheme
funds on-lent to micro-borrowers.
Types of
institutions
providing
microcredit
-
Consumer protection by truth-in-lending requirements: (1)
protection of borrowers against “abusive” lending and collection
practices, and (2) “truth in lending” - providing borrowers with
accurate, comparable and transparent information about the cost of
loans. This is designed to be an efficient tool to help applicants
evaluate the true cost of micro-credit, and this should promote price
competition on the microfinance market. Finally, the requirement to
disclose interest rates may determine microfinance companies to
focus on the necessary steps to increase efficiency and thus lower
interest rates.
-
Commercial banks;
-
Specialised microcredit banks : Pro Credit Bank, Transilvania Bank;
-
Credit unions : represented by National Association of Credit
Unions (credit unions can only lend to natural persons and cannot
receive any deposits);
-
Foundations: Centre for Economical Development CDE, a non bank
financial institution that administrates currently only the microcredit lines from World Bank through the Romanian Ministries for
micro companies, self-entrepreneurs from the former mining areas ,
farmers and un- employed;
-
Associations: Local or community development projects with microcredit component developed by local associations with no
commercial purpose within a limited location and timeframe, not
aimed particularly to become sustainable;
-
Non-bank financial Institutions – Micro credit Companies (MFIs):
Opportunity Romania, CAPA Finance, Express Finance, FAER,
LAM, ROMCOM – extending business micro-credits to micro
enterprises, self-employed and farmers,
-
National Bank of Romania (Central Bank) regulates microfinance
activity, registers and licenses MFIs;
-
Besides the first 8 Micro Finance Institutions established with the
support of international donors, around 20 newly NBF Companies
established under the new legal framework registration and licensing
with the National Bank of Romania.- the newly established NBF
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JURISDICTION SUMMARY: ROMANIA
Sources: 2 EMN Surveys, Benchmarking Microfinance in Romania 2005 – 2006 Study;
Presentation on the Romanian microcredit Scheme
Companies are extending mainly consumer credits for personal
investments of the borrowers .
Sources of
funding for
microcredit
providers
-
Commercial loans: BRD - Groupe Sociéte générale ; OPIC
-
Equity investments: Balkan Accession fund, Coop- East, Oikocredit,
etc
-
Soft loans: BERD, Oikocredit, Coop – East; the interest of the loan
is at commercial level but the loans are accompanied by technical
assistance grants, risk funds.
-
Guarantee: Deutsche Bank
-
Romanian Government as contributor to the Micro-credit schemes
implemented by MFI and administrated through the related
Ministries e.g. Ministry of Labour, Ministry of Development, Min.
of Economy and Finance, etc.
-
International sources: Initially : CHF - International, Opportunity
International, Soros Fundation, USAID, Swiss Confederation,
MEDA; World Bank, IFC, BERD; EU funds (PHARE)
Do non-bank
microcredit
providers achieve
operational /
financial
autonomy?
Yes
Usury rules
(interest caps)
-
No usury rules
-
System of evaluation of the social impact of this situation: selfevaluation and external evaluation at request of the donors and
funders, eg. Micro-Finantza rating on social performance assessment
of CAPA finance and OMRO; Banyan Global US impact
assessment on the targeted beneficiaries of the USAID investment
funds granted to Romanian the MFIs: CAPA, Omro and Express
finance.
-
Tax exemption for micro-loans granted by credit unions;
-
Companies that invest into MFIs (however it difficult to apply and
Tax incentives
71
PA\619426.6
JURISDICTION SUMMARY: ROMANIA
Sources: 2 EMN Surveys, Benchmarking Microfinance in Romania 2005 – 2006 Study;
Presentation on the Romanian microcredit Scheme
to obtain this tax exemption due to the complicated procedure);
Access to
guarantee
schemes for
banks and non
bank institutions
providing
microcredit
-
Romanian Rural Guarantee Fund (providing guarantee to the rural
clients of CDE)
-
Public Guarantee Fund for SMEs
Existence of
database
recording
borrowers’
history
The National Bank of Romania (NBR) administrates a database for
default loans of minimum amount of €5,000 named Central Banking
Risks Office.
Ability of non
bank microcredit
providers to
access such
databases
Obligation for
non bank
microcredit
institutions to
provide their
borrowers' credit
history to such
databases
Other credit agencies:, Credit Bureau administrated by the banks
association.
Non-bank micro-credit providers can access the NBR database, but it is
not free of charge.
Microcredit providers are authorised to exchange and share information
on the credit history of borrowers with the Central Banking Risks
Office, Credit Bureau ‘s information can be consulted only by banks.
No obligation.
The experience in other countries suggests that when microfinance
companies begin to compete with each other for customers, overindebtedness and default will rise sharply unless microfinance
companies have access to a database that captures relevant aspects of
their clients’ credit history.
At the same time, available credit history may allow microfinance
companies to be much more aggressive in lending without collateral
requirements and may also have a beneficial effect on competition
among lenders. The combination of credit bureaus and statistical riskscoring techniques has expanded lower-income groups’ access to credit.
72
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JURISDICTION SUMMARY: ROMANIA
Sources: 2 EMN Surveys, Benchmarking Microfinance in Romania 2005 – 2006 Study;
Presentation on the Romanian microcredit Scheme
Significant
initiatives taken
to develop
microcredit
-
Implementation of “Romanian Microcredit Scheme” funded by EUPHARE programme, the Romanian Government and BERD: microloans for microenterprises and start-ups;
-
Special microcredit schemes for rural areas former mining areas and
unemployed entrepreneurs;
Suggested
For microenterprises
measures to
improve existing / - Maintain unemployed allowance for the first year of operation as
create a new
self-employed
framework for
microenterprises - Reduce labour taxes for employees
and microcredit
- Subsidize the cost of registration of micro-enterprise for
unemployed entrepreneurs
-
Adapt financial reporting standards for microenterprises and SMEs
-
Improve access to financial services (80% of microenterprises are
not bankable)
For self-employment:
-
Renewal of authorisation each year
-
Pension and social security contributions are not considered as
deductible expenses
-
Limited access to financial services
For microcredit:
-
Establish a legal framework at EU level for non saving MFIs and for
the micro-credit banks
-
Extend risk funds and special guarantee funds for the beneficiaries
and microcredits to disadvantaged groups
-
Reduce and simplify the reports of MFIs for the National Bank
-
Reduce average cost of borrowed capital which is too expensive for
MFIs
73
PA\619426.6
JURISDICTION SUMMARY: ROMANIA
Sources: 2 EMN Surveys, Benchmarking Microfinance in Romania 2005 – 2006 Study;
Presentation on the Romanian microcredit Scheme
-
Simplify the procedures of transformation of an MFI to a microcredit bank
-
Foster benchmarking at EU level of MFIs for both financial and
social performance and best practice shared among countries sector
-
Provide specialised technical assistance and training to new MFIs
74
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JURISDICTION SUMMARY: SLOVAKIA
Source: EMN with Integra Venture
Costs and
procedures
There is no simplified status or procedure for self-employment or for
microentreprises.
There is no one stop shop, bur the registration process has been
simplified over the past few years.
Financial support There is no financial income support during the transition for
programs during unemployed or welfare recipients who set up a business or provisions to
transition period allow a return to unemployment benefits or welfare in case of failure.
This is a major obstacle.
Business
Development
Services
- The para-statal organisation “National Agency for the Development
of SMEs” provides business development to larger SMEs. However,
their support for microenterprises and socially excluded persons is
very limited.
- There are some NGOs that focus on providing business development
for microenterprise start-ups and socially excluded people.
Specific laws &
regulations
applicable to
microcredit, selfemployment and
microenterprises
No specific laws and regulations, general corporate rules apply.
Types of
institutions
providing
microcredit
- commercial banks
Essentially there is a banking monopoly, although there is limited
freedom to grant loans to limited companies and co-operatives, provided
that these are made out of the companies own resources.
There is no credit union law in Slovakia.
- foundations: Integra Foundation
- associations: VOKA
Due to existence of banking monopoly which prevents foundations and
associations from receiving deposits from the public, foundations and
associations can only grant loans from their capital
Sources of
funding for
microcredit
providers
- Equity investments: Angel investors
- Soft loans: specialist microcredit funds in Western Europe
- Donations from natural persons (in practice, small amounts only)
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JURISDICTION SUMMARY: SLOVAKIA
Source: EMN with Integra Venture
- Very limited public and private sources
Operational /
financial
autonomy?
Very rarely
Usury rules
(interest caps)
No interest caps; no system of evaluation of the social impact of this
situation
Tax incentives
Only incentive: There are tax breaks for companies that set up a
“protected workplace” for the employment of disadvantaged groups.
Access to
guarantee
schemes for
banks and non
bank institutions
providing
microcredit
Private guarantee scheme arranged by Integra
Database
recording
borrower credit
history?
Such credit bureau exists
Access of nonbank microcredit
providers to such
databases
Non bank microcredit providers do not have access to this database
Obligation for
non bank
microcredit
institutions to
provide their
borrowers' credit
history to such
databases
No obligation
Significant
initiatives taken
to develop
National Agency for Development of SMEs
Integra, based in Slovakia, has developed microenterprise schemes in
76
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JURISDICTION SUMMARY: SLOVAKIA
Source: EMN with Integra Venture
microcredit
Romania, Bulgaria, Serbia and Russia.
Suggested
measures to
improve existing /
create a new
framework (as
applicable) for
microenterprises
and microcredit
For microenterprises/self-employment:
- Set up tax incentives
- Improve access to finance for microenterprises
- Reduce social security costs to employ workers
For microcredit:
- Set up tax incentives
- Create a legal framework for either credit unions or non-bank MFIs
- Authorise non bank MFIs to take savings
- Enable the use of EIF, JEREMIE or similar instruments to provide
local funding for non-bank microcredit providers
77
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JURISDICTION SUMMARY: SPAIN
Source: Latham & Watkins Barcelona and EMN with Caja Granada and Nantik Lum de
Microfinanzas
Types of vehicles
available for
microcredit and
self-employment
Two most common corporate forms:
Costs and
procedures
Limited Liability Company:
- Limited Liability Company (Sociedad de Responsabilidad Limitada)
- New Entrepreneurship Limited Liability Company (Sociedad
Limitada Nueva Empresa)
- Central Commercial Registry
obtaining corporate name
(Registro
Mercantil
Central):
- Notary Public: grants public deed of incorporation, which contains
by-laws and evidence of deposit of share capital in a financial entity;
notarial fees amount approximately to €300 where minimum share
capital subscribed (for a LLC €3,005)
- Inter alia, payment of taxes related to incorporation (approx. 1% of
share capital)
- Commercial Registry: registration of company
New Entrepreneurship Limited Liability Company: share capital, which
ranges from €3,012 to €120,202; process of incorporation which is
mostly electronic; no possibility of appointment of board of directors
(Consejo de Administración) as management body; corporate purpose
does not need to be specific but it has to be one of following:
agricultural, livestock farmer, forest, fishing, industrial, construction,
commercial, tourist, transportation, communication, intermediation or
professional services in general; legal entities cannot be shareholders of
company; maximum 5 shareholders who can incorporate a company;
only shareholders may participate in management body.
Financial support Spanish public authorities and private institutions (chambers of
programs during commerce (Cámaras de Comercio)) provide income support during the
transition period transition for unemployed or welfare recipients who set up a business.
Spanish labour authorities allow total or partial capitalisation of
unemployment subsidies to which an individual is entitled in a sole
instalment provided that certain requirements are fulfilled.
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Source: Latham & Watkins Barcelona and EMN with Caja Granada and Nantik Lum de
Microfinanzas
Business
Development
Services
Social Microcredit Support Ogranisations SMSOs (see below) provide
potential microcredit clients with training and preparatory courses in
business management, negotiation, and/or banking processes.
Public and private training programmes for socially excluded people in
general: Public Institute of Employment (Instituto Público de Empleo)
promotes different courses for unemployed people which allow them to
acquire and/or develop specific skills that may help them to set up a
business as entrepreneurs.
For New Entrepreneurship Limited Liability Company: Puntos de
Asesoramiento e Inicio de Tramitación ("PAIT"): regionally based
governmental entities implemented to assist entrepreneurs in general.
Main functions of PAIT are: arranging an appointment with Notary
Public; filling necessary documents and forms in order to obtain
corporate name; delivery of Unique Electronic Document (Documento
Único Electrónico). PAIT offices play a dual role: (i) inform and advise
entrepreneurs in definition and processing of their entrepreneurial
initiatives, assist them during first years of activity; and (ii) manage
incorporation of company through Unique Electronic Document.
Other measures
Spanish legal framework to set up microenterprises has been structured
in two different systems:
- a system which is composed by two different entities: (a) an entity
which is in charge of selecting projects and of their following up
(SMSO); and (b) an entity which is responsible for loan and financial
issues arising from it (f.ex. Instituto de Crédito Oficial ICO) and
- a system in which one entity is in charge of both selection of project
(usually through a feasibility committee) and into financing (usually
through a financing committee) (COOP 57)
Specific laws &
regulations
applicable to
microcredit, selfemployment and
microenterprises
No specific rules
79
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JURISDICTION SUMMARY: SPAIN
Source: Latham & Watkins Barcelona and EMN with Caja Granada and Nantik Lum de
Microfinanzas
Types of
institutions
providing
microcredit
- Public institutions: Microcredit Programme for Entrepreneurial and
Business Women of the Women’s Institute co-financed by ESF and
in partnership with “La Caixa”
- Savings banks: CAI, Caixa de Catalunya, BBK (solidarity deposit),
Caja Granada (solidarity bank card)
- Specialised microcredit banks: Microbank
- Commercial banks: Banco Santander Central Hispano, Grupo Banco
Popular, BBVA (mainly Corporate Social Responsibility)
- Social Microcredit Support Organisations SMSOs - acting as
intermediaries between the end client and the financial institution
(training; selection and monitoring of projects): Fundación BBVA
para las Microfinanzas; “Un Sol Mon” of Caixa Catalunya savings
bank; Fundacion CajaGranada Desarrollo Solidario of CajaGranada
saving bank
Sources of
funding for
microcredit
providers
Credit lines:
- ICO Microcredit Line channeled through about 40 private financial
institutions and social work institutions (Instituciones de Asistencia
Social);
- Savings banks’ funds for social work
Operational costs:
- European funds (ESF, EIF)
Do non-bank
microcredit
providers achieve
operational /
financial
autonomy?
Depending on particular structure of non-bank MCIs, it is possible for
them to achieve financial and operational autonomy
Some non-bank MCIs can be considered financially autonomous, since
they obtain financing through contributions of their own partners or
through their investments and their MC projects. From an operational
perspective non-bank MCIs are most of times autonomous, however it
is necessary to point out an increasing trend towards collaboration with
banking institutions (e.g. Fundación un Sol Món-Caixa Catalunya)
However, the microcredit system in Spain may be thought as more
appropriate to care for the poorest strata through subsidised credit than
to achieve financial and operational sustainability. In all cases,
80
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JURISDICTION SUMMARY: SPAIN
Source: Latham & Watkins Barcelona and EMN with Caja Granada and Nantik Lum de
Microfinanzas
microcredits are either directly or indirectly subsidised through savings
banks funds for social work, national public organisations or European
funds.
Savings banks use their funds for social work to support their
microcredit programmes. These funds are non-refundable, thus enabling
the savings banks to sustain losses in the short to medium term.
Usury rules
(interest caps)
Yes, existence of a usury law
Tax incentives
- New Entrepreneurship Limited Liability Companies are entitled to
tax benefits related to tax debts in connection with taxes accrued
during the period from their incorporation through the first two years
of existence.
- If microcredit is subject to tax regime for non-profit entities, interests
arising from microcredit would be partially tax exempted. However,
if interests arising from microcredit are really low, tax benefits are
equally minimal.
- Possible tax deduction for individuals or enterprises that carry out,
among others, capital grants to patronage and non-profit entities
(foundations, associations for public benefit, NGO, etc): individuals
are entitled to a deduction of 25% of capital grant amount from total
tax liability amount, and legal entities are entitled to a deduction of
35% of capital grant amount from total tax liability amount.
Access to
guarantee
schemes for
banks and non
bank institutions
providing
microcredit
Risks arising out of microcredit are generally assumed by the institution
providing microcredit.
81
PA\619426.6
JURISDICTION SUMMARY: SPAIN
Source: Latham & Watkins Barcelona and EMN with Caja Granada and Nantik Lum de
Microfinanzas
Database
recording
borrower history
Various databases record this type of information: inter alia, Defaults
Register administered by Interbank Cooperation Center; EQUIFAX
database administrated by National Association of Financial Entities.
Access by non
bank microcredit
providers to such
databases
Access to financial data is only allowed when a third party needs such
information in order to be able to assess the financial soundness of an
individual, if the third party is already in a relationship with the
individual, or it is about to enter into such a relationship.
Obligation for
non bank
microcredit
institutions to
provide their
borrowers' credit
history to such
databases
No such obligation
Significant
initiatives taken
to develop
microcredit
- The important work of the savings banks
- The important work of the SMSOs (Social Microcredit Support
Organisations) to develop the spanish model.
- Setting up of the ICO line and the Women´s Institute Microcredit
line by the Public Administration.
- In December 2007, Spanish savings banks and their industry
organization CECA launched the Spanish Network of Microfinance
with the objective of promoting debate and lobbying to create
necessary financial regulation in the microcredit industry.
82
PA\619426.6
JURISDICTION SUMMARY: SPAIN
Source: Latham & Watkins Barcelona and EMN with Caja Granada and Nantik Lum de
Microfinanzas
Suggested
measures to
improve existing
framework/create
a new framework
(as applicable)
for microcredit
and
microenterprises
For microenterprises/self-employment:
- Reduce bureaucracy as it delays proceedings affecting to a greater
extent small entrepreneurs with limited financial resources
- Promote evaluation processes regarding feasibility of
employment and microenterprise projects
self-
- Implement specific regulations on setting up of microenterprises and
on self-employment
For microcredit:
- Establish a consolidated legal and regulatory framework microcredit
- Reduce tax rates for new microenterprises (fiscal fees and social
security)
- Create a credit register accessible by all entities
- Strengthen professional capacity of SMSOs through both technical
and financial support from financial institutions and the government
- Strengthen public support for establishment of post-graduate courses
on microcredit in public universities in order to increase both the
number of experts in field and social awareness
- Improve evaluation systems re. feasibility of projects and
consequently of their selection by microcredit providers
83
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JURISDICTION SUMMARY: SWEDEN
Source: EMN (+ALMI)
Costs and
Procedures
Administrative
complicated.
and
tax
procedures
for
micro-enterprises
are
Start-ups can find relevant information needed to start a business at the
internet-service Startlinjen (Start-up line).
Financial support
programs during
the transition
period
Starta eget bidrag (start-up grants) are intended for job seekers who
start their own business. The grant is intended to supplement the
business owner’s living expenses during the first 6 months of his/her
start-up period. It is provided if the business is estimated likely to be
financially viable. The target group is: unemployed individuals, people
at risk of losing their jobs and people living in certain less developed
areas.
Business
Development
Services
Two organisations work nationwide, NUTEK and ALMI. They provide
business support to start-ups and established businesses. The target
group is unemployed individuals, people at risk of losing their jobs and
people living in regional development areas.
Specific laws &
regulations
applicable to
microenterprises,
self-employment
and microcredit
No specific rules for microenterprises; general corporate rules apply
There is no specific framework for micro-finance providing institutions.
The general legislation for financial institutions (Lag om bank- och
finansieringsrörelse
2004:297
Förordning
om
bankoch
finansieringsrörelse SFS 2004:329) fixes inter alia the amount of capital
financial institutions have to raise to start their business. Very extensive
rules exist, for instance on how to secure the savers money etc.
Non-governmental non-bank actors do not have the possibility to lend.
Types of
institutions
providing
microcredit
Sources of

Promotional bank: ALMI Företagspartner (state-owned)

Cooperative Bank: Ekobank, JAK Bank

NGO: NEEM

Savings Banks
-
Central and local government: Swedish Industrial Development
84
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JURISDICTION SUMMARY: SWEDEN
Source: EMN (+ALMI)
funding for
microcredit
institutions
Fund; Sixth Swedish National Pension Fund
-
EU funds
Operational /
financial
autonomy
Microcredit programmes depend on public subsidies.
Usury rules
(interest caps)
There is no usury law in Sweden.
The Legislation about government financing by ALMI Företagspartner
AB (Förordning om statlig finansiering genom ALMI Företagspartner
AB SFS 1994:1100) states that ALMI is obliged to take a higher interest
rate than banks, due to a higher risk and in order not to compete with
banks.
Tax incentives
N.A.
Access to
guarantee
schemes for
banks and non
bank institutions
providing
microcredit
A new initiative, a Credit Guarantee Association (in Västerbotten), has
started in the north where it is very difficult to obtain loans due to
widespread lack of collateral. The seed capital of the members’
contribution is being used as a guarantee for commercial banks.
Existence of
database
recording
borrower history
N.A.
Access of non bank microcredit
institutions to
such databases
Obligation for
non bank
microcredit
institutions to
provide their
borrowers' credit
history to such
N.A.
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JURISDICTION SUMMARY: SWEDEN
Source: EMN (+ALMI)
databases
Significant
initiatives taken
to develop
microcredit
No specific initiatives regarding microcredit.
Entrepreneurship has gained acceptance among public authorities.
There has been a rapid increase in the supply of entrepreneurship
courses and programmes at universities and schools.
For microenterprises/self-employment:
Suggested
measures to
improve existing - Develop a clear policy for self-employment and microfinance
framework/create
a framework (as - Create an environment that is small-business minded in terms of
entrepreneurial context, legal framework, tax system and coapplicable) for
operation between the different systems (financial system, labour
microcredit and
market and social system). Keep in mind specific target groups
microenterprises
(women, immigrants, ect.).
-
Reduce walls between social, employment and financial systems.
The financial sector does not show much interest in the issue of
support to self-employment as a career for the unemployed.
For microcredit:
-
Allow non-governmental non-bank actors to lend
-
Foster the debate on micro-credit and the role to be played by banks,
savings banks, welfare and employment institutions.
86
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JURISDICTION SUMMARY: UNITED KINGDOM
Source: Latham & Watkins London, with assistance of the Community Development Finance
Association
Types of vehicles
available for
microenterprises
and selfemployment
Microenterprises (defined as an enterprise with less than 9 employees)
or self-employment can be established through a variety of different
vehicles:
-
sole trader
-
partnership
-
limited liability partnership
-
limited liability company or
-
company limited by guarantee
For smallest businesses, it is more usual to operate as a sole trader or in
partnership with a business partner.
Costs and
Procedures
The simplest way to establish a small business through self-employment
is to set up as a sole trader. There are no registration fees but the sole
trader must be registered with HM Revenue & Customs as selfemployed. Similarly, if a business is operated by two or more partners,
each partner must register as being self employed.
Private companies and limited liability partnerships are required to be
registered at Companies House which also requires payment of certain
fees (currently £20 for incorporation and £30 annual fee).
There are certain regulatory exemptions available to small to medium
enterprises (which have an annual profit of less than £250,000, i.e.
about 310,000€) such as less onerous obligations for lodging company
accounts.
The UK does not have a one-stop-shop. However, the UK government
has established the Small Business Service, a UK government agency,
whose aim is to help small businesses in a variety of ways, including
providing front office and registration assistance; local advisory centres
(Business Link offices); and advice through a website.
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JURISDICTION SUMMARY: UNITED KINGDOM
Source: Latham & Watkins London, with assistance of the Community Development Finance
Association
Financial support Governmental income support programmes to support transition from
unemployed to setting up a business:
programmes
during transition
- Unemployment benefits are available to individuals seeking work on
period
condition that the individuals can show they are seeking work;
Business
development
services
Other measures
-
Unemployment benefits (Job Seeker Allowance) can continue to be
provided during a transition period as a self-employed business is set
up, tapered according to level of income that is being derived from
self-employment. Where allowance is tapered, a test-trading period
of six months is put in place to allow for a period of transition until
the business is self-sufficient.
-
Small Business Service
-
Advice is provided by: non-governmental bodies, such as Leonard
Cheshire Foundation, which supports disabled people to live
independently and PROWESS, an organisation which promotes
women’s enterprise support.
-
Advice as well as financing is provided through Community
Development Finance Institutions (CDFIs) which are ‘not for profit’
third sector organisation.
Social entities can establish themselves through Community Interest
Company ("CIC") which has been set up specifically for socially
established enterprises. A CIC can be established as any one of a private
company limited by shares, a private company limited by guarantee or a
public limited company. To set up a CIC, a "community interest test"
and "asset lock" test are applied, which ensure that CIC is set up for a
community purpose and assets and profits are dedicated to these
purposes.
A trade association has been set up in the UK to support CDFIs:
Community Development Finance Association (cdfa) whose mission is
to support development of finance sector that provides finance for
disadvantaged and underserved communities and contributes to
increasing prosperity of such communities.
88
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JURISDICTION SUMMARY: UNITED KINGDOM
Source: Latham & Watkins London, with assistance of the Community Development Finance
Association
Specific laws &
regulations
applicable to
microcredit, selfemployment and
microenterprises
Types of
institutions
providing
microcredit
No specific legislation that only relates to microcredit. However, there
are various acts and regulations which apply to microfinance:
-
Laws relating to CDFIs: CDFIs can be registered under the
Industrial & Provident Societies Act, 1965. An Industrial &
Provident Society is an alternative corporate form to a company.
Societies created under the Act benefit from exemptions under the
Financial Services and Markets Act 2000 and are able to raise
capital through the issue of redeemable shares known as
withdrawable share capital. Redeemable share capital is known as
risk capital, so CDFIs are not regarded as credit institutions or as
carrying out the business of banking.
-
Government Supported Lending (Small Firms Loan Guarantee
Scheme) operates through government and bank collaboration with
BERR providing 75% of security for a particular loan while bank
takes 25% of risk. It enables banks to lend more freely to those who
are a lender credit risk or are less able to provide collateral.
-
Commercial banks
-
Community Development Finance Institutions: CDFIs are not banks
(they do not take deposits), they are encouraged to lend in markets
less serviced by normal banks. CDFIs are independent organisations
whose primary purpose is to provide finance, and related support, to
enterprises in disadvantaged communities. They operate in a more
complex policy environment, with a plurality of activities, products
and missions that go beyond just microfinance. Community
Development Finance Institutions are generally formed as either
Industrial and Provident Society or a company limited by guarantee.
If registered as an Industrial and Provident Society under Industrial
& Provident Societies Act 1965, an alternative corporate form is
created which benefits from certain exemptions under the Financial
Services and Markets Act 2000 including being able to raise capital
through issue of redeemable shares (known as withdrawable share
capital). Redeemable share capital is known as risk capital, so
CDFIs are not regarded as credit institutions or as carrying out
business of banking. Examples of CDFIs: Street Cred, Women's
Employment, Enterprise & Training Unit (WEETU), Fair Finance.
-
Credit Unions, which are limited in interest rates that they can
charge, with loans being capped at 2% a month (or 26.8% per
annum). In practice this is not a restriction, with credit union loans
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typically being offered at interest rates well below that cap.
Sources of
funding for
microcredit
providers
-
Commercial loans: corporate social responsibility programmes that
lead to them investing in micro-finance, via CDFIs and credit
unions
-
Equity investments: for example by buying shares in one of the
CDFIs that are registered as Industrial and Provident Societies.
Investments are structured through issue of redeemable shares and
may also qualify for CITR scheme (please see below)
-
Soft loans: often provided on a fairly adhoc basis
-
Subsidies and donations from:
 Government agencies, Regional Development Agencies and
Housing Association
 Private institutions
 Funds can also be raised through bonds. For example, on a
regular basis Shared Interest (finance provider for fair trade
producers) raises funds to on-lend to Oikocredit through a five
year bond issuance.
-
International aid: JEREMIE (Joint European Resources for Micro
to Medium Enterprises) and JESSICA (Joint European Support for
Sustainable Investment in City Areas) programmes.
-
National level: Phoenix Fund to support development activities in
organisations which provide enterprise support in disadvantaged
areas and/or to under-represented groups.
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Do non-bank
microcredit
providers achieve
operational /
financial
autonomy?
Even though most CDFIs are partially dependant on subsidies from
public and private sources, CDFIs have operational independence
allowing them to allocate those funds as they determine, subject to
investments they make falling within specified limits and criteria under
relevant legislation.
Moreover, certain CDFIs such as Charity Bank and Triodos Bank have
achieved operational self-sustainability, so do not rely on public or
private subsidies. Other CDFIs have benchmarks which they are
attempting to meet to establish operational self-sustainability within
certain time frames.
Usury rules
(interest caps)
Only regarding credit unions (please see above)
Research work on the social impact of credit unions and CDFIs is
carried out by academics, such as the Personal Finance Research Centre
at Bristol University, and think tanks like the New Economics
Foundation.
Tax incentives
Community Investment Tax Relief (CITR) is a scheme which provides
tax relief for investors investing in Community Development Finance
Institutions. This tax incentive is available to individuals and
companies. It comes in form of a tax relief, which reduces investor's
income tax (or corporation tax) liability. Investors can (over a period of
time) get tax relief of up to 25% (5% per year over 5 years) of amount
they have invested in a CDFI on their income or corporation tax
liabilities.
Access to
guarantee
schemes for
banks and non
bank institutions
providing
microcredit
Small Firms Loan Guarantee Scheme (SFLG) enables small
entrepreneurs with viable businesses to borrow, backed with a guarantee
from BERR (Department for Business, Enterprise and Regulatory
Reform) for 75% of the loan amount. 25% of the risk is not guaranteed
with lender adopting risk
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Database
recording
borrowers’
history
Access by nonbank microcredit
providers to such
databases
Financial databases, Experian and Equifax provide credit information,
borrower history and defaults for lenders to assess credit rating of
borrowers
Community Development Finance Institutions can access these
databases through purchasing a membership
Obligation for
non bank
microcredit
institutions to
provide their
borrowers' credit
history to such
databases
No
Significant
initiatives taken
to develop
microcredit
-
Creation Community Interest Companies
-
Community Investment Tax Relief
-
Small Firms Loan Guarantee Scheme
-
Encouragement of Basic Bank Accounts
-
Small Business Service
-
New Deal Programme
Suggested
measures to
improve existing
framework/create
a new framework
(as applicable)
for microcredit
and
microenterprises
For microenterprises/self-employment:
Individuals going into business have to opt between being a sole trader
(which has unlimited liability) or setting up a company (as shareholder
they may be subject to double taxation, as company will be liable to pay
tax on profits on top of personal tax liability that individual liable will
incur on any distribution from company).
For microcredit:
-
Further incremental changes could lower the barriers to micro-credit
in the UK. For example, increasing the current 6 month tapering
period of welfare allowances during the initial stage of a micro92
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enterprise business would provide a greater opportunity for the
business owner to develop a sustainable business.
-
A relaxation of the rule of mutual exclusiveness of the Small Firms
Loan Guarantee and the Community Investment Tax Relief scheme
for CDFIs would stimulate greater private and social investment
under the CITR and a reduction in the risk of lending via the SFLG.
This would increase investment in the sector as a whole as risk is
decreased and rewarded is increased, and improve the impact that
CDFIs can make towards developing people and their communities.
-
Support with appropriate finance is needed to enable CDFIs to grow
their operations and portfolio. The European Union can support the
future development of the sector via appropriate funding schemes
which provide capital for both on-lending to micro-enterprises and
to cover operational costs of running CDFI.
-
Stronger assistance to develop CDFIs' capital strategies would guide
their long-term sourcing of appropriate private and social investment
to grow their organisation at a sustainable level.
-
Due to the UK CDFI sector still being relatively new, any regulation
from Europe would need to be appropriate to the size and scale of
the sector. Principles-based self-regulation would enable CDFIs to
develop, without a too onerous regulatory burden that this emerging
sector might not have the capacity to respond too.
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