A combined grant and micro-credit scheme was created to address the lack of tailor-made products for microenterprises in Hungary using structural funds.
In the framework of the Economic Development Operational Programme (EDOP) 2007-2013, the Hungarian Managing Authority designed a combined grant and microcredit scheme intended specifically for micro enterprises and channeled through selected financial intermediaries (mainly development foundations, NBFIs and saving cooperatives). The scheme included non-refundable and refundable financial assistance and was financed via structural funds (ERDF). The financial assistance could be used for technology modernization, purchase of machinery, IT development, business infrastructure (real estate) purchase and development.
Primary target group was those microenterprises that had difficulties in getting access to finance and had limited funding to cover their own contribution for their projects.
In terms of scheme structure the total eligible costs of funded projects had to include a mix of own resources, microloan and non-refundable grant. Own resources could not go below 10%, the non-refundable grant could not exceed 45% and the microloan had to be bigger than the non-refundable part and of a maximum of 60%. Concerning project sizes the non-refundable grant could range from EUR 3,300 to EUR 33,000, whereas the microloan could range from EUR 3,300 to EUR 65,400.
The core team in setting up and running the schemes was the financial instruments department of the MA composed of 7 colleagues.
Evidence of success
For the available time of the product which was 2011-2013, the combined scheme proved highly successful. Total number of contracts reached 7,820 and the contracted microloan volume amounted to 173.4 million. The original financial frame was increased multiple times before the scheme was suspended. The scheme showed that grants could be effectively combined with loans.
The beneficiary monitoring reports indicate that as a result of the scheme, 11.673 jobs were created.
Implementation was preceded by long preparation since the complexity of the scheme and the number of involved actors set challenges for the managing authority.
Potential for learning or transfer
Procedures (deadlines, underlying IT) and requirements (e.g. project selection criteria) of the participating intermediaries in project selection, contracting, monitoring, disbursement, etc., had to be harmonized between the grant leg and the loan leg, furthermore ERDF regulations had to be fully respected. That required a lot of effort both from the Managing Authority and the various intermediary organizations. The workload was underestimated upfront therefore the first launch of the product was delayed. Therefore a recommendation is giving ample for preparation before the launch of such an instrument.
An objective of the combined scheme was to make microenterprises used to financial instruments which gained ground in the succeeding years. The combined scheme supported the transition of the main target group from grant towards the use of financial instruments allowing Managing Authorities to progressively increasing funds available to support a larger number of microenterprises.
Please login to see the expert opinion of this good practice.