Toespraak eurocommissaris Hübner (regionaal beleid) over microkrediet als middel tot economische groei (en)

Keynote Speech at the Closing Ceremony of the Annual Conference of European Microfinance Network

Nice, 10 September 2008

Mrs Nowak,

Ladies and Gentlemen,

Good afternoon

I am very honoured to have been invited to this conference of the European Micro-credit Network. I am also honoured that the initiative of the European Commission for the development of micro-credit in Europe is being given high importance in the agenda. This is a rapidly developing area and we believe that our policy in relation to micro-credit meets real needs and has enormous potential for the future. You may remember that the Commission adopted a Communication concerning sustainable micro-credit late last year which explained some of our key ideas in relation to this area and reflects to importance which the Commission gives to this issue.

Before I speak in more detail about our new initiative in relation to Micro-credit, perhaps I should take a few moments to explain the wider background to this initiative. In our view, the micro-credit initiative fits very well into the European Union's cohesion policy aimed at making European regions more competitive.

What is cohesion policy about? Cohesion policy is basically about reducing disparities between Member States and regions and about increasing the growth potential of the European Union.

The European Commission is conscious that its cohesion policy must be flexible, capable of adapting to a rapidly changing global environment, and, above all, must have a real and sustainable impact on employment and the future prospects of the beneficiaries.

The European Union's cohesion policy is backed up by a large budget - € 347 billion from 2007 up to 2013 – and has the potential to transform the economic futures of the regions that use them well. However, the impact of any investment depends not just on its scale but also on the effectiveness with which it is used.

A major responsibility falls on all of the partners involved to make the potential of the policy a reality. The Commission is constantly reviewing the operation of Cohesion Policy and is aiming for an approach that is innovative, cooperative and sustainable over the longer term.

This approach has led the Commission to develop a number of new instruments, together with European financial institutions which bring additional expertise and experience into these initiatives. This kind of closer and more structured cooperation between the Commission and institutions which share similar goals is one of the features of the new instruments that were created in the framework of the new regulations on Cohesion Policy.

Let me briefly describe these novelties before move on more specifically to our microcredit initiative.

JASPERS (Joint Assistance support projects in European Regions) is one of these instruments. In a few words, JASPERS tries to bridge an important gap in new Member States, namely the lack of experience in project development and implementation within Cohesion Policy. JASPERS helps to overcome this shortcoming and facilitates the preparation of large infrastructure projects which will receive assistance from EU cohesion policy. Very importantly, it also promotes public-private partnerships. Another central feature of JASPERS is to help with the environmental impact assessment, which is obligatory for all large-scale projects.

This instrument has been in operation since 2006 in the twelve new member states and it has proved useful and successful where it operates. So far, JASPERS has help to prepare and evaluate some 70 major projects – and they are really large in size such as the metro of Warsaw-, which can now be submitted to the Commission for Cohesion Policy co-financing. JASPERS is a partnership between the Commission, the European Investment bank, the European Bank for Reconstruction and Development and, more recently, KfW, the German development bank.

JASPERS is not the only instrument that we have designed in the framework of the new regulations. We also want to encourage the use of modern "financial engineering" techniques, with the aim to use the Cohesion Policy funds in a more efficient way.

Until now, our projects had almost exclusively been supported through grants. We believe, however, that we need now to develop instruments that make the best use of limited budgetary means. This is precisely the role of financial engineering instruments: they help to transform grants into recyclable forms of finance, for instance loans, equity, guarantees and their combination. Financial engineering instruments help also creating financial leverage. While it is possible even with small grants to lever in additional investment due to the trust investors have in EU co-financed operation, financial engineering can achieve more thanks to its revolving nature.

That is why we have created JESSICA and JEREMIE, our new financial engineering instruments that are beginning to change the way EU funds are used.

JESSICA has been designed to provide funding for sustainable urban development. While urban development and rejuvenation is very costly at the outset, such investments can earn a lot of money in subsequent phases. Using revolving funds instead of grants is therefore much more efficient.

JESSICA is another cooperative venture between the Commission, the EIB and the Bank of the Council of Europe. It is still in the development phase in which feasibility studies are being carried out to identify potential areas of investment but we expect it to have a significant impact in the near future.

Our second financial engineering instrument is the JEREMIE initiative (Joint European Resources for Micro to Medium Enterprises), about which I want to speak in some more detail. JEREMIE is about improving access to finance for SMEs. It concerns also micro-businesses. And it is another of the joint ventures with the European Investment Bank Group.

The key innovation of JEREMIE is that it allows for the transformation of grants into repayable instruments like loans, guarantees, equity investments and the combination of these.

Another key idea is that JEREMIE makes use of the managerial experience present in financial institutions. This brings much needed skills and knowledge into the implementation of Cohesion Policy in the Member States and Regions. The European Investment Fund is heavily involved in the development of JEREMIE. We expect that the expertise and experience which it brings, built up over many years in all Member States of the Union, will have a major impact on the effectiveness of the new instrument.

JEREMIE can thus be an important instrument for the expansion of the micro-credit sector because resources can also be channelled to micro-credit providers, if the respective managing authority decides to allocate funds for micro-credit operations. It offers the dual potential to be a mechanism to release additional funding and to provide access to the financial and management expertise which is essential to make the operation of the European funds a success.

However, JEREMIE is only a part of the solution to help micro-credit develop in Europe. It needs to be complemented with other measures that I will elaborate now.

We know that the potential of micro-credit is huge and I don't need to tell you that there is an important financial gap in this area. It is difficult to assess precisely how much, but according to our estimates, an additional 700,000 micro-loans could be disbursed in Europe if we had the intermediaries, the capital and an improved environment. Even if these figures are only estimates, it means that a huge number of individuals in Europe are waiting for a micro-loan to start a business.

You may ask why the Commission, and in particular DG REGIO, has developed a specific initiative on micro-credit. This is because we believe that developing micro-credit in Europe requires more than just finding ways to increase the provision of capital. It also requires that action is taken at different levels to help people start up new enterprises with reasonable confidence. Currently, the micro-credit market lacks transparency and potential customer get easily lost in the jungle. Such obstacles might be felt even more strongly at the regional and local level. Yet, Europe cannot afford to miss out on potentially great ideas and business start-ups. That is why action at these levels is so important for regional and local development. An important precondition is, of course, that Member States adapt their legal, institutional and promote further entrepreneurship to improve the micro-credit environment. This is highlighted in the Communication on Microcredit that the Commission adopted in November last year.

However, one thing must be clear: our aim is not to create a layer of financial non-banking intermediaries which would compete with existing banking institutions. On the contrary, our objective is to create complementarities and synergies between all actors in the field: banks, non-banking institutions, networks, local partners, etc. We also want to promote good governance and exchange of good practices. Mentoring is one of these.

Last but not least, developing micro-credit in Europe requires partners in the banking and financial sector.

Developing micro-credit at the European level is thus a real challenge and an ambitious project. While we can get inspiration from successful models in other parts of the world, we still have to rely on our own models and experience. The objective of the Commission is to promote a micro-credit environment that fits the diversity of the European Union – in terms of ideas, citizens, cultural background, economic and social environment - and matches its needs. In our view, Micro-finance Institutions can play a significant role in this development and explain why they have been given importance in the framework of the micro-credit initiative.

The existing gap in the provision of finance for micro-credit has led me to examine how to propose appropriate solutions to increase the availability of micro-credit in Europe and to integrate the provision of micro-credit in the framework of the Cohesion policy, as well as how to contribute to reach the Lisbon objectives of growth and jobs. I am personally convinced that regions can already contribute significantly to the expansion of micro-credit in the European Union within the JEREMIE instrument which I spoke of earlier.

Ladies and Gentlemen, you are important partners on the micro-credit scene and you are well placed to contribute to reach the Lisbon objectives. You play an important role in capacity-building and in the dissemination of best practices through information, training and technical assistance that you provide to micro-credit borrowers. Although your job is difficult, the results you have achieved are spectacular and are only partially reflected in the growing number of loans that your institutions grant year after year.

I realise that behind this work there is an invaluable commitment and know-how that we would like to develop and make more visible. I realise also that having adequate financial means over time is a crucial problem for Micro-Finance Institutions. This is why important elements of our initiative are about increasing the provision of capital and setting-up a technical assistance facility that will help Micro-Finance Institutions increase and improve their potential. This is also why the Commission has decided to allocate resources from its technical assistance budget to set up a facility hosted within the JEREMIE Department of the European Investment Fund.

That is why we have created a new facility: This new facility will be named JASMINE, (JASMINE stands for Joint Action to Support Micro-Finance Institutions iN Europe). Its purpose is to help MFIs consolidate and adopt best practices in their set up, their management and their operating mode. It is a common undertaking of the Commission and the EIB Group.

It is envisaged that the JASMINE team will help Micro-Finance Institutions reaching the quality standard that is requested to become credible on the financial market. To this end, it will come up with a code of good conduct, publish material, organise conferences, seminars, exchange visits, etc.

JASMINE will be a contact point for Micro-Finance Institutions who wish to receive financial or administrative support in the framework of the micro-credit initiative. Practically speaking, the JASMINE team will examine the applications of Micro-Finance Institutions asking for support. It will assess the consistency of their requests in terms of technical support, seed capital and operational capital. The JASMINE team will examine their requests according to the business plan they will have to submit and will make proposals to the financing board.

In other words, JASMINE will act as an interface between Micro-Finance Institutions and the EIF and will help Micro-Finance Institutions in their effort to grow, to increase their quality and become sustainable.

Although providing support to Micro-Finance Institutions is not a new idea, the way we want to do it is new. It involves a number of European bodies - the European Investment Bank, the European Parliament and the Commission - private banks and others who prove all to be extremely committed and supportive. I have to underline that our project is becoming a reality thanks to the efforts they have put into this undertaking.

Such an important project requires that all parameters are properly addressed. This is why we have agreed with the EIB President, Mr. Maystadt, that a three years pilot phase was necessary to identify how to provide adequate technical support and appropriate funding to Micro-Finance Institutions. President Maystadt will give details on the financial set-up tomorrow in the framework of the EUROFI conference.

In the course of the pilot phase we will seek to identify the best practices in the field before starting operations at a larger scale.

We intend to start the pilot phase early next year.

Ladies and Gentlemen,

let me now come to my conclusions.

As I said, developing micro-credit in Europe is an ambitious project. Most of all, it is about people, about their livelihoods and about developing the huge potential that lies within us all. We cannot develop this project, alone. We need the contribution of a number of actors who have all a role to play: You, Micro-finance Institutions but also private banks, European Institutions, public authorities, member states and regions and other stakeholders. We need to build it up, stone by stone, and first and foremost as much as possible what is already available. We need to show that micro-credit is a viable economic opportunity and that it can be profitable on the medium- to long-term.

Last but not least, we need to demonstrate that micro-credit can contribute to reach the Lisbon objectives and at the same time to improve the livelihood of a huge number of citizens of Europe. In simple words, we need to convince our citizens that micro-credit has a future in Europe.

I can say that these two days have been a unique occasion to exchange views and share experience. The commitment of the participants, and their willingness to share their extensive experience in related fields, has contributed to interesting and rich discussions during the workshops. The discussions helped also to understand where the real problems are.

I firmly believe that micro-credit has an important role to play in promoting social inclusion and developing a new sense of entrepreneurship.

I can assure you that the Directorate General for Regional Policy is strongly committed to help releasing the full potential of micro-credit in Europe.

To conclude, Ladies and Gentlemen, let me quote Robert Schuman, one of the founders of the EU, when he said:

"L'Europe ne se fera pas d'un seul coup, ni dans une construction d'ensemble. Elle se fera par des réalisations concrètes, créant d'abord une solidarité de fait."

I am convinced that is particularly true in the case of the development of micro-credit in Europe.

Thank you for your attention.