ESTADO LOCALIDAD AGUASCALIENTES Aguascalientes

Difficulties in access to finance are particularly pronounced for micro-enterprises and other target groups of micro-finance. Despite the recent positive trends reported by MFIs belonging to EMN, the overall situation in microcredit provision in Europe remains complex. Microfinance institutions

have been affected by the adverse macro-economic conditions during the global financial and economic crisis, generally through significantly higher bad debt rates among their clients and in some cases through increased difficulties in accessing external sources of funding. With ongoing problems in the banking sector, the target groups for microfinance are faced with tightening credit supply by mainstream banks due to their higher risk aversion and increasing need to de-leverage their balance sheets. In an increasingly risk-averse environment of credit allocation, lending might be allocated away from small and young firms as they are more risky than their larger peers and have small financing needs which are difficult to cover in a cost-efficient manner by mainstream funding providers. This refers by nature in particular to the segment of microfinance.

Microfinance can be an important contribution to overcome the effects of the crisis for some specific groups and in particular to support inclusive growth. However, the perspectives of the sector with regard to growth and self-sufficiency are limited, if microfinance providers do not have access to stable funding.

Moreover, with regard to future trends, MFIs expect less public support in the coming years, due to public budget restrictions. The MFIs have prepared to develop more efficient and lean processes, and to reduce the costs for the provision of microloans and to look for additional funding sources EMN, 2014). Furthermore, collaboration between MFIs and crowdfunders as well between MFIs and banks might increase.

According to EMN (2015), crowdfunding may offer MFIs different scenarios for collaboration: (i) crowdlending platforms could successfully be used to finance microfinance activities and attract potential investors. (ii) MFIs can act as intermediaries between the platforms and microfinance seekers. The mechanism might allow MFIs to use their expertise by pooling and disbursing the raised money on the platform. (iii) MFIs’ involvement in the crowdfunding platform could widen financial inclusion. The poorest might still remain beyond the platform as they usually lack computer and business skills, which are necessary to attract potential investors. MFIs could assist them when choosing the most suitable crowdfunding model and could even supplement the raised money up to the desired amount in case needed. (iv) MFIs could completely transfer their activities to the crowdfunding and P2P platforms in order to increase outreach. However, such a complete transformation would most probably change the original mission of the MFI.

Collaboration and partnership between MFIs and banks already exists. MFIs borrow from banks to finance their micro-lending or operating activities. On the other hand, banks benefit MFI screening and monitoring technologies and better tailored products to the clients. The main challenge is alignment of objectives of MFIs and banks. “Cooperation can be improved through long term commitments, the creation of multi-bank partnerships models, larger decision power given to MFIs, decreased complexity of the partnerships, increased awareness of banks about microfinance and standardisation of methods and criteria employed” (Cozarenco, 2015).

Against the background of the current difficult framework conditions, support on a European level has become even more important – via funding, guarantees and technical assistance to a broad range of financial intermediaries, from small non-bank financial institutions to well-established microfinance banks – in order to make microfinance a fully-fledged segment of the European financial sector.

We discussed the rationale for public support in the microfinance area in one of our previous working papers (i.e. in Bruhn-Leon, Eriksson and Kraemer-Eis, 2012), and explained the chosen approach for the Progress Microfinance mandate as support on European level – via the EIF. The intervention logic is based on the market structure and its significant diversity. It seeks to maximise outreach through a flexible investment approach in terms of eligible types of investments and types of financial intermediaries. The key target group are non-bank MFIs, but the range of financial intermediaries is extended also to banks with good outreach to microfinance clients, such as cooperative banks or micro-banks.

Results show so far that non-bank MFIs have been the most active lenders over the first four years of Progress Microfinance, as their main focus is micro-lending, unlike banks. Moreover, many non-bank MFIs have made use of the flexibility under Progress Microfinance to provide funding and risk coverage denominated in local currency. Progress Microfinance covers 20 countries as of end-2014 with two additional countries (Estonia and Hungary) likely to be added in early 2015. Progress Microfinance had as of end-September 2014 mobilised around EUR 274m of new financing to eligible micro-borrowers. The long-term target under the facility of providing EUR 500m of new micro credits to minimum 46,000 micro-borrowers is still within reach.

In mid-2015 the Progress Microfinance successor program, the program for Employment and Social Innovation (EaSI) will be launched; the related mandate agreement between the European Commission and the EIF was signed on 24 June 2015. The EaSI investment period will run until 2023. EaSI contributes to the Europe 2020 strategy by supporting the EU's objective of high level employment, adequate social protection, fighting against social exclusion and poverty and improving working conditions. EIF will manage and implement the EaSI, enhancing access to microfinance for vulnerable groups and micro-enterprises and social enterprises, while building- up the institutional capacities of microcredit and social finance providers. In an initial phase through a new guarantee instrument, the EC will make available EUR 96m to offer credit risk protection for lending products provided to micro and social enterprises. In a second phase, likely to start in the first semester of 2016, additional funds will be made available by the EC also for funded instruments to intermediaries such as senior loans, subordinated loans and direct equity investments.