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„Which Business Models for Growth in Europe?“. Silvia Rico – Fundación Nantik Lum (Spain) Veronika Thiel – nef (UK) Giampietro Pizzo – Microfinanza (Italy) Moderator: Martin Jung – EVERS & JUNG. EMN Conference Milan, 5 th June 2009. Content Structure. Economic Situation

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Which business models for growth in europe

„Which Business Models for Growth in Europe?“

Silvia Rico – Fundación Nantik Lum (Spain)

Veronika Thiel – nef (UK)

Giampietro Pizzo – Microfinanza (Italy)

Moderator: Martin Jung – EVERS & JUNG

EMN Conference Milan, 5th June 2009


Content structure
Content Structure

  • Economic Situation

  • Legal Framework

  • Mission, Target group and Uncovered Demand

  • Geographical Outreach and Scale

  • Relationship with Banks and Insurance Companies

  • Products

  • Portfolio Characteristics

    • Lending Methodology and Collaterals

    • Monitoring and Productivity

    • Portfolio Quality Indicators

  • Profitability and Sustainability

    • Income and Cost Structure

  • Business Development Services

  • Perspective and Challenges for Growth and how to meet it

  • Conclusion (main Success Factors or Hindrances for Growth)



Economic situations
Economic Situations

  • Spain

  • 46.2M inhabitants

  • 22% rural population

  • GDP per capita: €23,704

  • GDP growth:1.2%(2008)

  • Number of SMEs/ 1000 inhabitants: 58

  • Informal sector in % of GDP: 22.5%

  • UK

  • 61 M inhabitants

  • 19% rural population

  • GDP per capita: €25,700

  • GDP growth: 0.7% (2008)

  • Number of SMEs/ 1000 inhabitants: 26

  • Informal sector in % of GDP: 12.5%

  • Italy

  • 60 M inhabitants

  • 32% rural population

  • GDP per capita: €28,057

  • GDP growth: 1.5% (2008)

  • Number of SMEs/ 1000 inhabitants: 62

  • Informal sector in % of GDP: 27%


Legal framework
Legal Framework

  • Spain

  • No specific regulation for MFIs

  • Banks, savings banks and credit cooperatives are regulated by the banking law

  • Social entities (Social Microcredit Support Organisations) and Foundations of savings banks (Social Work) are regulated by their specific law (associations and foundations‘ law)

  • UK

  • No specific regulation for MFIs/CDFIs

  • Personal lending MFIs need to have consumer credit license

  • Some forms of incorporation require certain conditions by law and registration with the Financial Services Authority (FSA)

  • Otherwise, MFIs are not regulated by the FSA

  • Italy

  • No specific regulation for MFIs

  • Banking and non banking financial institutions are regulated by the law

  • Some institutions providing non banking microcredit are regulated by banking legislation (TUB art. 106)

  • Foundations and NGOs do not have a specific supervision or legal framework.



Geographical outreach and scale spain
Geographical Outreach and Scale - Spain

Aprox. 20 Savings Banks (out of 47) of which 10 are most active and one microcredit bank (Microbank la Caixa)

Nationwide: 2 (Obra Social Caixa Catalunya and Microbank la Caixa)

Regional coverage related to the Savings Banks’ territory

Social Microcredit Support Organisations (SMSOs) provide Business development Services


Geographical outreach and scale spain1
Geographical Outreach and Scale - Spain

Microcredit Supply Distribution in Spain


Geographical outreach and scale uk
Geographical Outreach and Scale - UK

England by Region

East Anglia 2

East Midlands 2

London 4

North East 4

North West 5

South East 4

South West 4

West Midland 4

Yorkshire 6

Nationwide 1

Northern Ireland 1

Scotland 1

England 35

Coverage is ok, but can be patchy in certain areas, especially rural ones.


Geographical outreach and scale italy
Geographical Outreach and Scale - Italy

MFIs: 33

Nationwide 3

Regional 13

Local 17

MFIs: 33

Northern Region: 17

Centre Region: 9

Southern Region: 7



Products
Products Funds

  • Italy

  • Social microcredit (=personal lending) and business microcredit

  • Average loan: € 7,192

  • Min. loans: € 1,800

  • Max. loans: € 17,000

  • Average interest rate: 5,8% (from 1.8% to 12%)

  • Spain

  • Social microcredit: personal (self-employment) and small businesses

  • Average loan: € 9,900

  • Min. loans: € 1,000

  • Max. loans: € 25,000

  • Average interest rate: 5.1%

  • UK

  • Personal lending and business microcredit to people rejected by bank

  • Average loan: £8,500

  • Min. loans: £500

  • Max loans: for MFIs around £15k

  • Fixed: average interest rate 13.4% (5.6-22%)

  • Variable: ca 5.8% over base rate (3.5-10%)


Portfolio characteristics
Portfolio Characteristics Funds

  • Spain

  • Strong portfolio growth

  • Gross loan portfolio (31/12/2007): € 84.4 million

  • Disbursed amount: €: 97,8 million for 8,773 loans (2002-2007)

  • Number of active clients (31/12/2007): 6,922

  • Retention rate (% of refinanced clients): n/a

  • UK

  • Stagnating portfolio

  • Outstanding portfolio £10.4m (1252 loans)

  • Disbursed amount: £25m for 3691 loans (ca 2003-2007), av. £6773

  • 2646 clients overall (including non-MFI clients)

  • Retention rate n/a

  • Italy

  • Strong portfolio growth

  • Disbursed amount: € 43.7 million for 3223 loans

  • On the 24 surveyed institutions that provided data: disbursed loans € 6.6 million for 923 loans

  • Retention rate n/a


Lending methodology and collaterals
Lending Methodology and FundsCollaterals



Portfolio quality indicators
Portfolio Quality Indicators Funds

  • Spain

  • Portfolio At Risk at 30 days: 9% (3 respondents)

  • Portfolio At Risk at 90 days: n/a

  • Write off ratio: 5% (5 respondents)

  • Refinancing/ rescheduled ratio: 6% (3 respondents).

  • UK

  • PF at risk (28 responses): 22% (no split 30 days/90 days)

  • Write-offs ca 13% (27 respondents, range 0%-28%)

  • Refinancing and rescheduling – insufficient data

  • Italy

  • Data for 7 MFIs:

  • PAR30: range 0,8% - 72% (average value 25%)

  • Range of Write-offs 0% - 28%; average of 5.9%.

  • Restructured portfolio: n/a


Profitability and sustainability
Profitability and Sustainability Funds

  • Spain

  • Operational Self-sufficiency: 100 % (only 1 respondent!)

  • Financial Self-sufficiency: n/a

  • UK

  • Operational self-sufficiency – average of 8.5% with one organisation at 40%

  • Some CDFIs indicate they want to be self-sufficient in 4-8 years

  • No data on financial self-sufficiency

  • Italy p.48

  • Data for 3 MFIs:

  • Self- sufficiency: ranges from 180% to 14% (average value 98%)


Cost and income structure
Cost and Income Structure Funds

  • Spain

  • Funding Savings Banks: interest income and Social Work funds

  • Social Microcredit Support Organisations (Business Development Services): private and public subsidies

  • Italy

  • Funding (33 MFIs):

  • private funds: 13

  • public funds: 6

  • mixed funds: 4

  • n/a: 10

  • UK

  • very little data for UK

  • Unit cost av. £742

  • Capital: mostly grants


Business development services
Business Development Services Funds

  • Spain

  • BDS are provided by SMSOs acting as partners of the savings banks

  • Services are either compulsory for all borrowers or forsome, or on request

  • UK

  • Very few formal

  • Vast majority refers to business advice agencies

  • Some compulsory programmes in house

  • Case-by-case decisions

  • Italy

  • 62% of the Institutions provide training or technical assistance

  • Services are either compulsory for all borrowers or for some, or on request


Perspective and challenges for growth and how to meet it
Perspective and challenges for growth and how to meet it Funds

  • Spain

  • Challenges:

  • Re-evaluate mission

  • Funding

  • Institutional capacity (staff SMSOs)

  • SMSOs to manage directly loan portfolios

  • Measure social performance and impact

  • Solutions:

  • Networking and coordination

  • Training

  • More government support

  • UK

  • Challenges:

  • Funds for operational costs

  • Funds for lending

  • Institutional capacity (staff)

  • Very little government support

  • Italy

  • Challenges:

  • Vision and strategy

  • Funding

  • Lack of scale and difficulties in meeting the demand

  • Solutions:

  • Training and mentoring

  • Networking and merging

  • Public and private partnerships

  • Solutions:

  • Market segmentation

  • Alignment with microfinance movement

  • Revision of insistence on full financial sustainability


Conclusion
Conclusion Funds

  • What are the common ‘Big Issues’?

Lack of data and transparency

Lack of market segmentation/alignment

Lack of scale (=> capacity building and growth)

Lack of financial resources

Lack of coordination


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