Large corporates, strong industrial medium-sized companies – what the Germans call 'Mittelstand', innovative and fast-growing start-ups… those are the companies that usually enjoy most public and political attention. They are determinant for economic competitiveness of regions and countries on global level.
Micro-enterprises are therefore often overlooked. According to the definition of the European Commission, 'micro-enterprises are enterprises employing fewer than 10 people and which have an annual turnover or annual balance sheet total or maximum EUR 2 million […] However, they represent over 90% of European enterprises and are thus decisive for boosting jobs, growth and investment in Europe'. (Source: European Commission)
Lack of access to finance is one of the main obstacles micro-enterprises face. This is especially the case for a large number of businesses from the social sector, cultural and creative industries, service-oriented companies run by individuals lacking access to conventional banking and funding schemes due to their personal situation (lack of personal capital, unemployment or social exclusion background, etc.).
Microfinance is a category of financial services which targets those entrepreneurs and helps them overcome this funding gap. It includes guarantees, microcredit, equity and quasi-equity. The most popular micro-financing tool are microcredits, i.e. loans of up to EUR 25 000.
Microfinance is considered a tool for socio-economic development and should be clearly distinguished from charity. The European Commission supports micro-financing through its EU Programme for Employment and Social Innovation (EaSI). It clearly contributes to the realisation of the « Inclusive growth » priority of the Europe 2020 strategy.
A successful example in the Mazowieckie region (Poland)
The Interreg Europe project ATM for SMEs - Access to Microfinance for Small and Medium-sized Enterprises aims at improving the access to local micro-finance programs. A remarkable example is the 'Cash on Start' practice, which targets unemployed and inactive citizens in the Polish Region Mazowieckie.
The hard facts:
- The Cash on Start practice 'offers loans for entrepreneurial activity, with a wide range of purposes such as investment capital, turnover, as well as current operational costs, extension or modernisation of production and intangible assets related to the project.'
- The loans are up to about EUR 11,700 with an interest rate of 0,5 % with no further fees or commissions.
- The reimbursement period is up to 60 months.
Besides the financial support provided, a major ingredient for the success of the initiative lies in the accompanying consulting provided by the National Association for Support of Entrepreneurship in Końskie (KSWP) to applicants and beneficiaries of the loans throughout the process:
- Application stage
- Initial support prior to the submission of the application,
- One-hour validation of the applicant’s profile and needs,
- 4 hours personalised coaching for helping entrepreneurs writing their business plan.
- Implementation stage
- Ongoing training in the fields of marketing, business administration and taxes, depending on the needs of the beneficiaries.
Those accompanying support measures are delivered for groups of 5 or more beneficiaries, which contributes also to stimulate interaction among the new entrepreneurs.
The initial implementation period of the practice was 2013-2015, with a budget of about € 1,3 Mio, 85% coming from ESF and 15% from national funding. About 96% of the amount went to the investment fund, including management costs, and 4% to the non-financial support services.
Considering the success of the practice, it was reconducted by the Managing Authority of the Mazowieckie region. By 30 June 2020, the number of loans distributed since 2013 reached 323, for a total amount of about € 2.9 Mio.
The practice has also been transferred to all regions in Poland.
Using loans rather than grants to support entrepreneurs has been identified by the regional Managing Authority as a way to access committed entrepreneurs, which are aware of the necessity for their project to generate enough revenues to be profitable and to be able to repay the loan instalments. Channelling structural and national funds through microfinance appears to be an efficient and sustainable alternative to the traditional grant-based financing.