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Marek Hudon: "Providing services to those excluded from the financial system"

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Strasbourg, 14 September 2008 By Vincent Lebrou Translated by Rob Compton

Small loans, or so-called microcredits, are increasingly being used in the fight against poverty and exclusion.

Whether considering the situation in countries of the former Eastern bloc or Western European countries, it is clear that microcredit is increasingly seen by the authorities as a credible tool in the fight for social cohesion.

The European Union has launched the JEREMIE initiative, the Joint European Resources for Micro to Medium Enterprises, in collaboration with the European Investment Bank (EIB) and the European Investment Fund (EIF) to coincide with the 2007/2013 budget period. The initiative aims to improve access for small and medium-sized enterprises (SMEs) to finance and venture capital. The initiative is part of the Lisbon strategy for economic growth and competitiveness.

It should be remembered that the prospect of getting a microcredit as a tool for economic growth and social cohesion is closely related to the number of SMEs with up to nine employees there are in the area. This group represents 99% of all businesses in Europe.

Marek Hudon is co-director of the Centre for European Research in Microfinance (CERMI, Centre Européen de Recherche en Microfinance) and course convenor of the joint complementary master’s degree in Microfinance at the Université Libre in Brussels. He spoke to Babel Strasbourg about the spread of the microcredit concept in Europe.

Marek Hudon, can you explain the microcredit system in Europe to us?

When we talk about microcredit we automatically think about southern countries and Bangladesh in particular where the Grameen Bank launched projects supporting the poorest in society in the mid 1970s. Microcredit also appeared in Latin America at that time. In basic terms a microcredit is a small loan. In Europe that can mean more than 5000 Euros (approx. GBP£3800, USD$6700), in Asia 100-200 Euros (approx. GBP£75-150, USD$130-260) and in Latin America up to 1000 Euros (approx. GBP£750, USD$1300). The size of the loan can depend on the continent, the institution and its target. In southern countries it’s often a credit group that applies, which is less often the case here in Belgium. Eastern Europe is a specific case. When I say Europe, I’m referring more to Western Europe where loans are mostly given to individuals in poverty in general but also to those excluded from the banking system in particular. Given the size of the banking system in European countries, we are talking about a very small percentage of the population. But it’s here that we find the most extreme cases. Take the case of the Democratic Republic of Congo: from a population of 60 million only 30,000 have a bank account. Financial exclusion is something found both in Europe and developing countries. Microcredits, or more generally micro-finance, attempts to provide such people with financial services.

Do you consider Microcredits to be a useful tool in Europe, and if so what should its aims be?

Around 15% of Europeans live in poverty although the figures vary between countries. As the population increases, so we see more financial exclusion. This has become an important phenomenon. In Belgium, for instance, according to statistics from the alternative financing network, for a population of 10 million around 40,000 people are excluding from the banking system. It’s a significant figure if you consider the extent of banking coverage in the country. Whether you’re speaking about people who have had accounts and been blacklisted or those who have never had an account, it’s not a negligible figure. There are still a lot of people with very low incomes; for example those living on the French RMI (minimum benefits) due to unemployment. One solution for these people - and this is something economic systems are increasingly encouraging whether you like it or not - is the establishment of small businesses and the framework for those wishing to do so. Not everybody will want to take part but for those who wish to do so there is mentoring available and microcredit really responds to that demand.

How should microcredit be further devolped in Europe?

Above all it's a communication problem! ADIE, a French association that helps people outside the labour market and the traditional banking system to create their own enterprise and employment through microcredit, has an interesting growth rate and is very active with numerous partnerships including projects with the regions. In Belgium CREDAL, a banking cooperative offering alternative credit forms, has various products aimed at women and others and these products are more and more successful. What is missing here in Belgium is publicity about microcredit. Very few people know about it. In southern countries, however, it has a very good media presence. Just take a look at CREDAL, which is a major player here in Belgium. Following a TV report about them they had a surge in demand - as people were previously unaware of their activities. The need for good communication is very important, especially as there are so many different services. It's paradoxical: There is monitoring, there are public funds but there is a lack of publicity for something this size.

What are the debates surrounding Microcredits in Europe?

The main concern is over-indebtedness. From the moment one starts working with people without any financial safeguards, in particular when these people come from disadvantaged backgrounds, and giving them loans outside the banking system, you run the risk of creating a cycle of indebtedness. In Belgium 7% of the population are in a situation of bankruptcy due to loans. In Brussels it is even 10%. Over-indebtedness is therefore a central element of the debate.

I should say that this isn't all due to microcredit. In any case, public authorities have really gotten to grips with this in Belgium. There is an office for over-indebtedness which publishes statistics on the issue. In Belgium checks are made to ensure the loans are used to create new enterprises and that these are carefully regulated. On the other hand, in southern countries people rely much more upon the social control of group members or the community. Here, however, there is a loan committee that looks at every project individually in regards to its viability and relevance. This reduces the risk of over-indebtedness.

Websites : ADIE, CREDAL, and Réseau Financement Alternatif.