Establish a successful partnership between MFIs and the Mayor´s Office with the main objective of lowering interest rates on microloans.
The Credit Support Program was developed as an initiative of ZMVA, who initiated a partnership with the Mayor’s Office of the town Zalaegerszeg to efficiently direct municipal money to support microenterprises through microfinance. The inclusion of this governmental partner ensures a subsidy that enables ZMVA to offer microloans at favorable conditions (lower interest rate) to entrepreneurs of the 60,000 inhabitants in the city of Zalaegerszeg.
Most important objectives: the creation of a strong microenterprise sector, seeing it as an efficient way to reduce unemployment, increase consumption and develop the local infrastructure.
The target population of this product are young entrepreneurs and entrepreneurs that invest in the local area.
ZMVA also complemented this service with tailored coaching and mentoring in order to support entrepreneurs beyond financial support to ensure a greater number of successful cases.
In terms of eligibility, the application criteria requires that the microenterprise be officially located in Zalaegerszeg since the programme is a local initiative. Furthermore, the microenterprise staff should not exceed 9 persons and the annual net income of the enterprise should not exceed EUR 2 million.
The project’s contract runs from 2015-2019 and has an available budget of 50 million Forint (approx. EUR 160,000) for the partnership framework, 10 Million Forint per year.
Evidence of success
The partnership went into effect in 2015, and during its first year of implementation, 28 microenterprises were financed in the amount of EUR 668,866, of which EUR 3,303 was the subsidy component. During 2016, 15 new microenterprises participated in the program: EUR 238,329 in loan amount and EUR 8,650 in interest rate subsidy.
As a result of the program, 3 companies decided to set quarters in Zalaegerszeg in order to benefit from it.
Potential for learning or transfer
This practice is cost efficient thanks to task distribution. The Mayor’s Office wants to invest public money in a productive way while also offering an incentive to spend the money locally to encourage a favorable local economic scenario. The MFI takes ownership of the loan disbursement, which does not exceed more than 15 days and offers non-financial services.
This kind of partnership can be an effective framework to involve city councils in microfinance initiatives. Through this partnership, the city council can support local enterprises to ensure an efficient use of public money by institutions specialized in the delivery of microloans. This is the reason why the program can be easily replicated in other regions. In this respect, given the fact that geographical scope of the initiative is restricted, one key to success is to replicate it in areas with enough market potential. Another key role for the municipality is the promotion of the initiative at the local level.
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