The Role of Guarantee Funds in Microcredit

1. The Role of Guarantee Funds in Microcredit Workshop EMN-Conference Nice, 9th September 2008, 14.00 – 16.00 Moderator: Martin Jung, EVERS & JUNG Role of Guarantee Funds

2. Panelists • José Fernando Figueiredo – President (SPGM - Portugal) and Chairman (AECM - European Association of Mutual Guarantee Funds) • Nicolas Pirotte – Advisor (Sowalfin - Belgium) • Karol Sachs – President (Febea - European Federation of Ethical and Alternative Banks and Financiers - Belgium) • Anneli Soppi – Development Manager (FINVERA – Finland) Speaker Moderator • Martin Jung – Managing Partner (EVERS & JUNG - Germany) Role of Guarantee Funds

3. Credit Guarantee Schemes (CGS) • Guarantee Societies that have the sole purpose of providing loan guarantees • (Counter-)Guarantee schemes/funds set up in institutions with a broader focus (development banks, regional development agencies etc.) • Counter-Guarantee Facilities (EIF CIP SME guarantee facility for microcredits) Types of guarantees • Individual guarantees that provide case by case protection for loans where a guarantee scheme co-guarantees or counter-guarantees the risk taken by a lender (Bank or MFI) (e.g. CERSA, Spain) • Portfolio guarantees where a counter-guarantee is provided for a specific portfolio of loans of a lender (EIF CIP SME guarantee facility for microcredits) Institutions providing guarantees Role of Guarantee Funds

4. Credit Guarantees • Guarantees do never cover 100 % of the risk. This would set the wrong incentives for the lender and would be against EU State Aid rules. • Normally the guarantee only covers the risk for the lender, the borrower is still fully liable for the loan. • Lengthy an costly decision procedures can become a major problem, if several institutions share the risk for a loan. General aspects Role of Guarantee Funds

5. EU BEST Report on Guarantees • The Socama Express Loan does not require any pledge on the private assets of the entrepreneur. Decision criteria are simplified and the decision is made within three days. • Confidi Sardegna is a guarantee society which is member of Fedartfidi. They have designed a microcredit guarantee based on a flexible decision process in which simplified decision criteria are taken into account. It is distributed by the network of Artigiancassa and regional banks. • KredEx is also setting up a mechanism of microcredit loan guarantee with a delegation to the bank in order to speed up the procedure. • In Spain, Sociedades de Garantía Recíproca has a product that receives a counter-guarantee of 75 %, allowing more risks to be taken. Some Spanish regions subsidise the interest rate to make the product more attractive. • Socamut, a Sowalfin specialised subsidiary created with the support of the ERDF, reinsures guaranteed credits granted by the Walloon mutual guarantee societies with more favourable terms and a simplified process for microcredits. • Source: European Commission, DG Enterprise and Industry: Best Report No 3 – 2006 – Guarantees and mutual guarantees Examples for Microcredits guarantee (for business loans up to EUR 25 000) Role of Guarantee Funds

6. Main Questions for the Workshop • In all EU countries there are guarantee societies, often operating nation wide. What role do they play today in providing microcredit? • How can microcredit programmes/MFIs co-operate with guarantee societies? What could be improved? • Does the CIP micro-credit guarantee facility meet the needs of the MFIs? What should possibly be changed? • How to use EU-structural funds to establish counter-guarantee instruments for microcredit? • Who should be the final beneficiary of the guarantee, only the micro finance provider to reduce his risk costs or also the individual personally liable for the defaulted loan? • Summary: Conclusions and Recommendations for the future Guarantees for micro credit Role of Guarantee Funds

7. Thank you! martin.jung@eversjung.deTel. +49-40-3680968-10 Role of Guarantee Funds