Micro-Credit

Introduction

Created in the mid-18th century, the micro credit was developed by the Nobel Price, M,Yunus in 1976. Starting in Bangladesh, where he could improve the concept and help the local population by creating the Grameen Bank. Today this bank cover more than 7.3 million of Bangladeshi and 500 million people in the world have used a micro-credit to start a business. Microfinance is now studied in the most famous universities in the world and is recognize as a powerful tool to fight against the poverty.

We start this essay by looingk at the Europe and describe the micro-credit market and the different actors, clients...

Then we will focus on one country, France, and try to understand how the market is structured and how the different actors work. It will allow us to compare French with the other European countries.

The finish we will try to compare the initial model developed by M. Yunus in Bangladesh and the model implemented in France. Conditions of living are very different in those countries witch forced European institutions to adapt their microfinance model. By making this comparison we will try to give our recommendations to improve the actual French micro-credit model.

The Micro-credit in Europe:

The concept of micro-credit was born in the middle of the 19th century. It was really developed in 1976 to the model that we know today by M. Yanus and the origins of the Grameen Bank.

It came finally in Western Europe in the late 1980's as a tool to alleviate poverty in developing countries. The Easter Europe had to wait a decade more until the transition to the market economies. After the centrally-planned economies, a huge number of factories closed witch led to a significant growth of unemployment of urban and rural workers. As in Western Europe, the goal was to reach excluded people from financial institutions by providing them services. Moreover in Eastern Europe the priority was to create a viable financial sector, strong enough to manage a very important number of unemployed and poor workers.

In general, today it is in Spain and United Kingdom that we can find the more microfinance organisations.

Since the 80's many organisations were created to promote the microfinance in Europe, but it is also in April 2003 that was launched the European Microfinance Network (EMN) by three national organisations (Adie - France, NEF - UK, Evers&Jung - Germany). More than the promotion and the development of the microfinance in Europe, the role of this association is to coordinate and to lead all different European actors of micro credit. Today the EMN manage 57 organisations from 21 countries.

The micro-finance sector is still quite young comparing to the traditional banking sector but it has a high growth rate. According to the EMN, 46% of the microfinance organisations were created in the last four years and between 2003 and 2006, the amount of loans has grown by 242 % reaching in 2005 24,000 micro-loans and a value of 210 millions euros.

Loans in Europe:

According to the EMN, the average loan in Europe is about 7,286 Ђ for a period of 29 months. In facts we can find two distinct groups, people who ask for small loans, until 5,000 Ђ and those who ask for bigger one's, from 7,500 Ђ to 10,000Ђ.

As we can see, the average interest rate in Europe is 8%. Most of the countries are between 3 and 7% except in the UK where the rates are higher than 15%.

According to the EMN survey, since the launching of the different microfinance organisations in Europe, the total amount borrowed is about 1.1 billion euros witch represent 238 000 loans.

Number of loans disbursed in 2005

Source: EMN

In the distribution of loans bellow, we can see that a significant majority of them goes to three countries, Poland, France and Finland. Poland can be explained by its recent adhesion to Europe and the strong willing of the country to develop itself. Since this event, the Polish government tries to encourage entrepreneurial initiatives.

Who are the organisations in Europe?

In 2005, the United Nations declared the year "International Year of Micro-credit". It is the consequence of a real willingness to improve the society by helping people and giving them sometimes a second chance. It also created a lot of buzz, so many organisations were created in the 2003 - 2005 period and many projects were launched.

Year of microfinance projects launching

Source :EMN

The result of this event is that those new organisations don't have a strong experience and their economic situation is dependent of the government subsidises. Moreover many of those organisations act locally; they don't have a national network like ADIE in France or Planet in Europe.

In Europe, many institutions disburse micro-loans. There are non-governmental organisations, foundations, associations, local and regional government agencies, government financial institutions, savings banks, state banks, ethical banks and credit unions. It depends of the regulatory environment in each country. In Spain or Germany, lending activity is restricted to banking or government agencies. In UK nongovernmental can disburse micro-loans if they have a specific legal status. At the end we can find four types of institutions: government, banks, non-governmental organisations (NGOs) and credit unions. Globally the non-governmental organisations are lead the market because they have a bigger experience and their goal is not the profit, they are more focused on the poor person needs.

Who are the clients?

The main targets of microfinance institutions are small new businesses, registered or not. Here is a main difference between the European model and the Grameen model witch is more focused on people as individual, because in Europe if you want to make business, you had to create your company (legally) so institutions are more focused on companies.

Types of business supported.

Source: