1. GLOBAL DEVELOPMENT AND SOCIAL JUSTICE MASTER PROGRAMME
MICROCREDIT AND SMALL AND MEDIUM ENTERPRISES IN ITALY
Francesca Romana Armini
2009/2011
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2. Introduction
In the last few years the phenomenon of “microcredit” has become a well-known
concept, both in developing countries and in developed countries, as a tool of economic
development aimed at supporting the emergence and development of a new micro-
entrepreneurship.
The main purpose of the project is that of assessing whether the micro-credit in
Southern Italy may represent an opportunity to implement a larger financial scale in
order to improve the financial ability of the so called “active poors’” of the country.
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3. Microcredit: definition
• Particular form of credit;
• Small loans addressing poor individuals;
• No collaterals and guarantees;
These characteristics have enabled microcredit to become disseminated across
underdeveloped countries, and contribute to the emergence of micro-
businesses, self-employment projects and micro-activities in developed
countries.
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4. History of microcredit
Microcredit was born in Bangladesh in the second half of the ‘70s and was designed
by Prof. Muhammad Yunus in order to address “the poorest of the poor” and enable
them to access credit through the establishment of Grameen Bank.
Aims addressed by Yunus:
• Improving poor people’s quality of life
• Providing equal access to decent work
• Reducing social and economic inequalities
• Reducing poverty
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5. Grameen Bank
Prof. Yunus created a milestone in the traditional system by establishing a bank of the
poors, the Grameen Bank, which provided loans to the so called “non bankable
subjects” and “active poors”: poor people usually not considered by the traditional
credit system but willing to start new economic activities.
Differently from the previous credit system, Grameen Bank relied on the following
principles:
• Poor people’s reliability;
• Group’s solidarity;
• Joint liability
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6. Microcredit and Grameen Bank’s success
Through microcredit it was finally possible to overcome the obstacles finance
formally met in granting credit to the poors:
• Alleged insolvency;
• Usury;
•High unit costs of financing;
•Inability to provide adequate guarantees;
For these reasons, microcredit soon became an alternative to the formal and
traditional credit system and is actually spreading in many parts of the world to
address a new range of customers, the active poors.
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7. Forms of microcredit
The following are the most common forms of microcredit:
• Group lending: groups constituted by 5-10 entrepreneurs involved in processes of
reciprocal peer monitoring, where the insolvency of one of the members precludes the
other members to access credit;
• Individual lending: is the oldest form of micro-credit which looks at the individual as
the centre of the lending.
• Solidarity group: these loans address groups of 3-10 people who are all responsible
for credit in proportion to their share of loan.
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8. Approaches to microcredit
Microcredit programmes are commonly identified according to the approach they
follow in providing services to customers:
• Minimalist approach: only based on the provision of loans;
• Integrated approach: the most common; it aims at providing customers with loans +
additional services, such as technical support and other financial services depending
on the specific needs of targeted groups.
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9. Microcredit is not only about money...
It must be noted that the role of microfinance is not only that of providing
financial services for credit and savings, but also supporting development of
small and medium enterprises (SME).
The following are additional services often provided:
• Business management services;
• Technical assistance;
• Marketing services;
• Tutoring services.
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10. Evolution of microcredit (I)
The table below represents the evolution of microcredit programmes in the last
years, depending on geographical area.
There is a relevant difference between developing and industrialized countries,
since microcredit programmes in industrialized countries represent almost 10% of
microcredit programmes realized in developing ones
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Sub - Saharian Africa 377 455 613 740 811 919 994 959 970 935
Asia – Pacific 329 352 647 1075 1377 1603 1628 1652 1677 1727
Latin America – Caribbeans 141 152 193 230 246 261 388 439 579 613
Middle East - North Africa 14 16 17 23 23 30 34 30 30 85
Developing Countries Total 861 975 1470 2068 2457 2813 3044 3080 3256 3360
North America - West Europe 30 48 53 59 47 48 48 35 39 127
East Europe - Central Asia 34 42 44 59 68 70 72 18 21 65
Industrialized Countries Total 64 90 97 118 115 118 120 53 60 192
Global Total 925 1065 1567 2186 2572 2931 3164 3133 3316 3552
“State of Microcredit, Summit Campaign” between 1998 and 2007.
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11. Evolution of microcredit (II)
As we can observe from the table below, microcredit consolidated until 2005 and obtained a
strong success in 2006 -2007. The table also shows a strong increase of interventions in North
America and West Europe, East Europe and Central Asia as well as Middle East and North
Africa.
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12. Evolution of microcredit (III)
The table below shows the comparison between the total number of people reached by
programs and the number of poor people reached: this is an important indicator of
microcredit ability to address poor people and reduce poverty level.
Poor
Programs Clients Poor Clients Clients
Years
numbers involved involved involved
(%)
1997 618 13.478.797 7.600.000 56,38%
1998 925 20.938.899 12.221.918 58,37%
1999 1.065 23.555.689 13.779.872 58,50%
2000 1.557 30.681.107 19.327.451 62,99%
2001 2.186 54.932.235 26.878.332 48,93%
2002 2.572 67.606.080 41.594.778 61,53%
2003 2.931 80.869.343 54.785.433 67,75%
2004 3.164 92.270.289 66.614.871 72,20%
2005 3.133 113.261.390 81.949.036 72,35%
2006 3.316 133.030.913 92.922.574 69,85%
2007 3.552 154.825.825 106.584.679 68,84%
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13. Microcredit and communication
Microcredit practitioners usually respond to poor people’s needs through
special mechanisms and strategies customized to appropriately meet their
needs, gain poor people trust and involve their participation in the projects.
As a consequence, communication plays a fundamental role in order to
make a project successful and reach the following aims:
• Contributing to participation and social inclusion;
• Enabling people to interact with one another;
• Sharing ideas and information;
• Building awareness and critical sense about the project and its
challenges.
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14. Characteristics of communication
In order to make a microcredit project successful, communication should be:
• Customized to satisfy every population’s individual needs;
• Precise and effective;
• Understandable and clear;
• Democratic and comprehensive.
In view of designing an efficient microcredit project, the following actions
should be undertaken:
• Focusing on the problem;
• Identifying beneficiaries;
• Finding the solutions to incentivize change and progress and develop the
project.
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15. Principles of communication
In order to rend the project’s outlines understandable to all
beneficiaries, the following series of principles should be followed:
• The message should be “culturally and socially appropriate”: not too
long and difficult;
• The message should be “translated” according to audience’s
different knowledge and awareness level;
• The message should be positive: it should not create a sense of panic
or anxiety about the problem.
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16. Brazil: a successful experience in terms of communication
In Brazil, the continuous introduction of information and ICT into financial
services provided positive results in terms of productivity increase and
business performance.
A network was established called “meso level”, actually understood as the
ideal network for microfinance institutions to efficiently operate thanks to the
following elements:
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17. Microcredit and women (I)
OECD states that microcredit programmes can provide women with the following
essential benefits:
• Improvement of their role within the household;
•Reduction of their dependency on men;
• Access to community services and collective actions with other women;
• Change in the perception of their role within the community;
• Increase of women’s awareness of their fundamental rights.
According to IFAD studies, microcredit experiences concretely helped women to
enhance their status in the following terms:
• Modification of gender relations within household and community;
• Gaining of respect and decision-making power;
• Creation of self-help groups performing as a protection against gender-based
violence.
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18. Microcredit and women (II)
OECD suggested the following guidelines microcredit professionals should follow
while developing a microcredit project addressing women:
• Identifying discriminatory legislation, negative attitudes and prejudices towards
women;
• Promoting women’s access and participation in the management and planning of
the programs;
• Ensuring that provision of credit is supported with additional business skills;
• Identifying specific barriers and constraints;
•Incorporating gender equality issues into training;
• Implementing supportive social service to support women’s participation;
• increasing the understanding of women’s economic potentialities both at local and
international level.
In the light of these suggestions, several microfinance local programmes have been
started both at European and national level to fight against women’s economic
exclusion.
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19. Microcredit and health (I)
With the aim of extending to health care the success of microcredit, in
1993 Grameen Bank established in Bangladesh the so called Grameen
Healthcare programme (GH).
Objectives of Grameen Healthcare:
• Promoting best practices in a wide range of health care services;
• Providing Grameen Bank’s borrowers and rural poor with quality health
care services at affordable costs;
• Improving disease prevention, diagnosis and awareness.
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20. Microcredit and health (II)
Actions undertaken by Grameen Healthcare:
Training of young women
in the village: they will be
Establishment of 51 clinics,
encouraged to become
pathological laboratories,
entrepreneurs and operate
pharmacies and
house-to-house to spread
emergency services
the use of new medical
devices
Establishment of nursing
Introduction of new IT colleges for young women to
tools for receive education loans from
professionals, new medical Grameen Bank: thanks to Development of a new
devices, education bachelors and diplomas in medical college and a
programmes and network nursing, they will enter local teaching hospital
for professionals to share and international market
medical information and will repay their
education loans
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21. Microcredit and health (III)
In the light of Grameen Healthcare’s experience, other States are
including health care services in the framework of microcredit projects.
The following are two examples:
• The Banco Mundial de la Mujer provides health
coverage together with credit loans
Argentina • Partnerships with MEDICOS and SER-CEGIN, to
provide clients with free cards
• Kenya Health Store Clinics created
health franchises to target poor
clients
Kenya • In 2001 Jamii Bora started to offer
health care to its clients
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22. Microcredit in Europe (I)
In the last century also Europe saw the spreading of microcredit as a financial
instrument able to engage poor people in productive activities and new businesses
Instruments to foster microcredit programmes in Europe:
•Tax incentives and business support services;
• Establishment of the European Microfinance Network (2003) which calls upon
Member States to follow a set of guidelines to encourage microcredit:
 Promoting self-employment;
 Supporting microfinance through training;
 Improving national legal and regulatory framework on microfinance.
 Providing additional services (business plan assistance, marketing and customer care
assistance, legal advices)
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23. Microcredit in Europe (II): projects
Particular attention should be focused on two European projects aiming at
promoting new forms of funding at European level:
Jeremie Jasmine
aims at aims at
optimizing establishing a
financial context legal and
in which SME regulatory
operate framework
It promotes new
It betters SME good
access to practices, provid
funding and es short and
their guarantees long-term loans
instruments and strengthens
technical
assistance
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24. Microcredit in Italy (I)
In Italy, people needs credit to respond to two fundamental needs:
• Social inclusion of the most vulnerable (in particular immigrants, women, young
and unemployed people)
•Promotion of self-employment and self-entrepreneurship.
At the same time, SME need credit to face several difficulties:
• Insufficient sales;
• Increase of suppliers’ prices;
• Irregularity of payments;
• Indebtedness;
IMPORTANT: Small and medium entrepreneurship is a fundamental
characteristic of Italian productive structure, thus microcredit could be an
important instrument to improve them, especially in Southern Italy.
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25. Microcredit in Italy (II): focus on Southern Italy
Obstacles to growth in Southern Italy:
Usury
Economic weakness
Unemployment and
illegal work
Low educational levels
Marginalization
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26. Microcredit in Italy (III): Cooperative Credit Banks
A solution to the problem of marginalization has been found in the establishment
of the so called Cooperative Credit Banks.
•What is a Cooperative Credit Bank (BCC)?
-Is a non-profit institution operating to enable vulnerable people to access
credit, participate in socio-economical life and better their own self development;
• What principles does it follow?
- Locality (support to families and enterprises);
- Mutuality (provision of loans and focus on social utility);
- Solidarity (promotion of reciprocal help between members);
• What about its structure?
Cooperative Credit Bank is based on a three levels structure depending on
different territories: local level, regional level and national level
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27. Microcredit in Italy (IV): Cooperative Credit Banks
What are the aims of Cooperative Credit Banks?
-Privileging immigrants and bettering their economic position, taking into consideration
origins and elements characterizing different ethnic groups;
-Promoting growth of voluntary associations and non-profit organizations to facilitate
social and assisting initiatives (for example, the Ethical Bank);
- Fighting against usury and financial exclusion.
What are its methods?
Cooperative Credit Banks follow the relationship lending method, characterized by a long
term credit relationship based on reserved and confidential information shared by
population and banks
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28. Microcredit in Italy (V): where is it?
Microcredit’s progress in Italy is actually constrained by several factors:
• Disinterest toward microcredit;
• Lack of financial resources (often in Southern Regions);
• Lack of a specific regulatory framework;
Anyway, since 2000 microcredit activities have really developed and several
organizations became interested in it.
Italian
Promotion
National RITMI (Italian
of
Committee Network for
microfinance) microcredit
for
activities
Microcredit
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29. Microcredit in Italy (VI): Classification of projects
The project started in Italy can be grouped into the following two
categories:
• S. Charles Foundation
Credit provision to enterprises • Microcredit and solidarity
• Direct provision of small loans to non bankables
Loans addressing social economy • Caritas and Ethical
Bank
• Indirect provision through the intervention of
non-profit organizations operating at social level
and gathering funds to finance projects in the
field of social and international cooperation
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30. Italian Caritas: an example of “loans addressing social economy”
Project in partnership between Caritas and the Ethical Bank
• Beneficiaries: Italian and foreign poor families
• Aims: Providing credit to face household’s needs
• Actions:
-Provision of 5.000 Euros (Ethical Bank)
- Provision of home, health care, financial and scholastic assistance (Caritas)
Signature of an agreement with Ethical Bank
- Participation of Diocesan Caritas: Establishment of a guarantee fund
- Gathering information and institutional document to evaluate credit requests
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31. My project: overview (I)
I tried to develop my own project in Italy, taking into consideration the
fundamental characteristics of a microcredit project:
- Identification of beneficiaries;
- Individuation of promoters;
- Individuation of interventions
•Beneficiaries:
- Unemployed and jobless women
- Graduated and not graduated young people up to 35 years old
- Unemployed people up to 40 years old
- Immigrants residing in Southern Italy
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32. My project: overview (II)
•Promoters:
- Government (financing the project)
- Local entities in Southern Italy (management of funding)
- Ministries interested in the project (training campaigns and participation in the design of the
project)
-Nature of interventions: Providing credit and establishing new SME in the following sectors:
- Technological innovation
- Facilities and services for enterprises
- Environment
- Tourism
- Fruition of cultural, historical and archaeological goods
- Local services
- Handicraft
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33. My project: overview (III)
Finally, in order to verify that all beneficiaries meet the requirements to benefit from the
project, I identified some criteria to evaluate credit requests:
-Potential beneficiaries’ credibility, according to coherence between their professional
profile and the entrepreneurial activity to be performed;
- Market opportunities;
- Economic and technical efficiency of investments;
- Initiative’s economic profitability.
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34. Conclusions
 It is possible to completely apply Grameen’s experience to Italy, where the success of
credit cooperation implies the possibility to start interesting initiatives addressing poor
people, unemployed people, women, immigrants (Caritas project)
Microcredit approach is different from the traditional ones, since it focuses on the
importance of dialogue between beneficiaries and microcredit institutions in view of
identifying the causes of insolvency and individuating new ways to overcome these
difficulties.
The success of microcredit demonstrated that poor people are reliable and solvent and
they definitely can better their lifestyle conditions in an autonomous way, not needing
policies of mere charity, but integrated policies which can enable them to redeem
themselves from poverty.
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35. THANK YOU FOR YOUR ATTENTION
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