Déirdre de Búrca (Green Party)

I welcome the Minister to the House. I am very happy to second the motion. I would like to address particularly the issue of microfinancing across Europe and the need to promote a much greater availability of these services to address the growing levels of unemployment due to the economic crisis in the EU and globally. As my colleague, Senator Boyle, said, microfinance aims to close the gap by providing small-size financing services to those who are excluded from traditional banks. Microfinance initiatives have been very successful in developing countries but to date this success has not been transmitted fully to the European microfinance sector. According to the EU multiannual programme, MAP, for enterprise and entrepreneurship, microfinance focuses on the supply of loans up to a maximum of €25,000 to new and already existing microenterprises. At European level it is the Green Party's view that policy makers must provide greater facilities for microcredit for the new unemployed.

In 2003, before the credit crisis and the knock-on effects on the European and global economy had hit, the European Commission's report on microcredit for small businesses and business creation said:

The insufficient supply of microloans is a major issue, in particular where business founders are unemployed persons, women or part of ethnic minorities. Supporting the supply of microloans is, therefore, not only an issue of entrepreneurship and economic growth, but also of social inclusion.

In Europe 2 million enterprises are created every year, 90% of which are microenterprises with fewer than five employees. Many reports note the success of microlending around the world. Nearly 70 million individuals are served by microfinancing institutions, MFIs, worldwide. A European survey in 2001 found that 93% of the 2.5 million European SMEs are also microenterprises.

Within five or six years of the collapse of the Berlin Wall, microfinance institutions in central and eastern Europe and the new independent states had attracted more than 1.7 million borrowers and 2.3 million depositors with an average client growth rate of 30% per year. In addition to the involvement of MFIs and NGOs in providing microfinance in eastern Europe, commercial banks also became increasingly interested in downscaling to provide microloans for the poor. In those years the microfinance sector expanded and became more highly structured.

In western Europe microfinance is regarded as a tool for economic growth and social cohesion, and many small businesses and families that lack access to financial services, in spite of our banking network, tend to turn to microfinance services. Micro and small enterprises form the core of the western European economic system, representing 99% of the 2 million start-up enterprises created every year. Traditionally one third of these enterprises have been launched by the unemployed. We should take on board that important point as we face into a number of years when we can expect EU unemployment levels to grow considerably. These businesses have both an economic and a social impact and the ability of the traditional banking system to reach and serve such small entities is vital to the achievement of general socioeconomic improvement. Exclusion from banking services generally constitutes a major obstacle to the launch of new business activities.

The European Microfinance Network report 2007 on the status of microfinance in western Europe noted:

Demand for microfinance in western Europe is less strong than in less developed countries. Yet [this is difficult to understand] the share of micro enterprises — enterprises with less than ten employees — amounts to 93% of all European enterprises. Small and microenterprises account for 65% of the European GDP. A recent European survey among existing companies noted that sufficient access to capital is still a huge constraint for about 20% of European MSMEs.

The European Microfinance Network report 2007 also noted:

Microfinance programmes in western Europe are not and possibly will not become profitable, but make economic sense. The average costs for someone supported within a microfinance scheme — particularly since the monetary support is interest bearing and repayable — are often below the cost for one year of support within the traditional social welfare system, where costs thereby incurred are "lost" subsidies.

I will give some other significant facts on the microlending sector in western Europe. It is a relatively young sector and there is plenty of room for it to expand and grow. Some 70% of the microlending organisations in the then EU 15 have been established since 2000 and 17% of those have begun lending since 2005. In the EU 25, 41% of micro-loan clients are women, 7% are ethnic minorities, 7% are immigrants, 7% are youth and less than 1% persons with a disability. Most microfinance institutions focus on start-up business or registered businesses with fewer than five employees. A significant number also assist businesses in the pre-start up phase by financing feasibility studies and the like.

In 2005, 27,000 microloans were disbursed in the EU 25. By country, the greatest coverage was in Poland, France and Finland. In France and Finland, single organisations disbursed 95% to 100% of all microloans and, similarly, in Poland one organisation made 80% of the loans reported in the new member states.

In Europe loans worth €25,000 or less are considered to be microloans. The maximum size of microloans provided ranges from €25,000 to €37,000. The average loan size across Europe is approximately €7,700. In the EU 15 the average loan value is €10,240 and in the new member states it is €3,800. The average maximum interest rate is 10% and the average minimum rate is 4%. This varies greatly according to the regulations in each country, with the UK having the highest rates in western Europe and Poland having the highest rates in the new member states.

The provision of support and advice is also a crucial aspect of microfinance in western Europe. Some 70% of microlenders offer training and counselling on a range of related subjects. Only 20% of microlenders offer financial services other than loans for microenterprise, development and self-employment. Those other financial services which are provided include consumer personal loans, savings products, transfer services and insurance.

The repayment rate on average is 92% and the average portfolio at risk is 11%. Microlenders have widely varying operational performances across Europe demonstrating a need to agree common performance indicators and a focus on capacity building.

I emphasise that the Green Party believes the model of microfinance needs to be promoted and mainstreamed to a much greater extent in the current economic situation in which we find ourselves. We will see large numbers of people becoming unemployed over the coming years and the microfinancing model seems to offer an opportunity for those who become unemployed to avoid long-term unemployment, to start up their own enterprises and to promote their social inclusion and also the economic cohesion and stability of member states.