Microloans are characterised by small loan amounts (according to the 2003
European definition <€25,000) for persons who are excluded from access to
bank credit. For business purposes microloans are provided to microenterprises
(1-9 employees) and self-employed persons. France is the country in Western
Europe where the microcredit sector is the best developed.
This is the outcome of 20 years of activity of three principal
organisations: Adie, France Initiative and France Active (all are non-profit
organisations). They differ in the kind of products they offer, in their
functioning, their sources of funding and with regard to the target group they
serve. All these organisations also provide business support services for the
entrepreneurs they finance and rely heavily on support from volunteers. These
organisations have shown that a huge demand for microcredit exists; since
launching their programmes, they have grown substantially.
A study carried out in 2008 by Adie on behalf of the European Investment
Fund (EIF) on the gap between demand and supply of microfinance for business
purposes in France confirms the huge existing demand for microcredit. The study
differentiates between the non-bankable demand (loans below €15,000) and the
bankable demand (loans between €15,000 and €30,000) for microcredit. The
results illustrate that the demand for microcredit in France is still largely
unmet, with 100,000 microloans from banks and between 80,000 and 130,000 loans
from non-bank microcredit providers lacking. The financial resources used for
setting up an enterprise in France are generally low: in 2006, approximately
50% of entrepreneurs started their business with less than €8,000. However,
only about a quarter of all new entrepreneurs took out a bank loan . Banks are
often reluctant to provide small loans due to their unprofitability (high
handling costs) and a higher risk ratio. Obtaining a small loan is even more
difficult for persons who do not have the means to bring in a considerable
amount of own capital and who lack necessary guarantees. This often concerns
unemployed persons, especially the long-term unemployed.
Adie has defined the provision of microcredit as its main mission and
strategy. It was founded in 1989 upon the private initiative of Maria Nowak and
two colleagues. Inspired by the international microcredit model developed in
Bangladesh, Adie’s aim is to serve socially and financially excluded persons
who do not have access to standard bank loans and who would like to create
their own job. 83% of its clients are welfare recipients and unemployed persons
with an average unemployment period of two years. Out of these, 42% receive
social minima paid to persons who have exhausted employment based income
support. Adie’s principal products are microloans up to €5,500 for a maximum
period of 24 months. On its loans, Adie applies an interest rate which is today
7.98% plus a 5% commission. The ratio behind this model is to be able to serve
a relatively ‘risky’ clientele and at the same time rely as little as possible
on public subsidies for the credit activities. The Adie microloan can be
complemented by loan products made available through public programmes.
During its 20 years of existence, Adie has expanded its activities
significantly. It has today 369 staff working in 131 branch offices spread over
the French mainland and overseas territories and disbursed nearly 10,000 loans
in 2007 representing a 30% growth compared to the year before. (Adie, Rapport
Annuel 2007) Another microlender is France Initiative. France Initiative has a
different history and serves a different type of client than Adie. The
association was set up upon public initiative in 1985 as a federation of 20
local business support programmes with the global mission to develop economic
initiative through business start-up. It works in very close collaboration with
the Chambers of Commerce where its local offices are often located. As its main
activity, the association disburses quasi-equity in the form of so-called
“prêts d’honneur” (‘honour loans’). These are personal, interest-free loans
without guarantee that are generally used to leverage a bank loan. In 2007, 66%
of France Initiative clients were unemployed. Nevertheless, in contrast to
Adie, France Initiative targets relatively experienced, ‘almost-bankable’
persons with projects aimed at creating three to ten jobs. The average amount
of a prêt d’honneur was €7,400 in 2007 accompanied by more than seven times
that amount in bank lending. Thirty percent of the projects funded by France
Initiative are business take-overs. In 2007, it disbursed 12,500 prêts
d’honneur out of which an estimated 5,000 enabled the beneficiaries to access a
bank microcredit (Adie/EMN, Microfinance Market Study, 2008). France Initiative
today federates 242 so-called local platforms with all in all 509 employees.
Often new local platforms are set up upon local initiative and partnerships
between business owners, Chambers of Commerce and/or regional governments.
(France Initiative Rapport Annuel 2007) Complementary to the products disbursed
by these two organisms, a number of additional programmes were developed by the
French government to support small business start-ups, especially by the
unemployed, such as guarantees. Beside equity investment, the organisations
France Active which has been in existence for more than 20 years, manages a
number of guarantee schemes, amongst which two governmental ones: the FGIF
(Fonds de Garantie pour la création, la reprise ou le développement
d’entreprises à l’initiative des femmes), a guarantee fund for women
entrepreneurs and the FGIE (Fonds de Garantie pour l’Insertion Economique)
which is used by Adie to cover a part of its risk. France Active is made up of
39 territorial funds and works with 280 staff. Other governmental programmes
complement these services for microentrepreneurs. As such France Initiative and
Adie are allowed to additionally provide the ‘PCE’ loan (prêt à la création
d’entreprise’ – business start-up loan) which was introduced by the State in
2000 and is managed by the public development bank OSEO. It consists of an
unsecured loan between €2,000 and €7,000 with an interest rate based upon state
bonds (approximately 5.6%), a six-month deferment on principal payments and a
maximum loan term of five years (54 monthly instalments). PCE loans are
disbursed to registered new microenterprises not more than three years old as
well as to take-overs, regardless of their sector of activity (except for
agriculture and real estate). An accompanying bank loan two or three times the
amount of the PCE is obligatory. 23,261 PCE loans were disbursed in 2007. In
addition, for business started out of unemployment, another loan was
introduced: EDEN, a financial advance for entrepreneurs above 50 or younger
than 30 years of age and beneficiaries of social minima.
Since the beginning of their activities, the French microcredit
organisations have been able to largely increase their activities and the
number of loans disbursed. This is the result of several factors that are
closely linked: the strong efforts of single persons as is the case for Adie’s
president Maria Nowak; local partnerships between business owners, French
regions and Chambers of Commerce leading to the development of the France
Initiative network; a reinforced acknowledgement of entrepreneurship and
self-employment in the political sphere and strong improvements in the legal
environment for microenterprises and microcredit.
Regarding the legal framework, Adie has carried out significant lobbying to
obtain an amendment to the French banking law allowing certain microcredit
providers to borrow for on-lending to microenterprises during the first five
years after business start-up. In addition the usury rate for loans provided to
individual entrepreneurs was abolished, allowing Adie to set an interest rate
that covers part of its expenses. The Adie Microfinance Market Study (2008)
acknowledges the efforts made by the French government to encourage the
development of microcredit, while highlighting persistent barriers to be
addressed such as insufficient funding for business support services and
insufficient attention to the informal sector.