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 January-September 2001 - Getting the
framework right - Public support frameworks and strategies for local and micro-finance.Challenge - The partners - Case Studies The issue During the last 10 to 20 years a new generation of financial organisations has emerged Europe-wide serving groups of people, sectors and regions that the mainstream banking sector is either no more willing or able to serve. These instruments include notably micro-finance organisations helping people to start their micro-businesses and development and community funds serving the local economy, as well as eco-banks financing small businesses in the emerging environment sector and credit co-operatives financing the social economy at large. INAISE, one of the partners in this project, is precisely an international network of about 50 such new financial organisations trying to fill this widening funding gap at the local and lower ends of the economy. One of the weak points in the development of these new financial instruments has been the support from the government side, especially at the national and European levels. Not all these new financial instruments necessarily need government support, but some of them do, like those micro-finance organisations which are not self-sufficient. Others simply need a legal framework to exist and to function properly. But almost all of them would be able to operate at a more significant scale and have a larger impact if they were more proficiently supported and used. Although public authorities are usually easily convinced of the efficiency and usefulness of local and micro-finance instruments, notably in terms of job creation, too often the support frameworks are not well designed, though well intended. This "weakness" of public support does not refer necessarily to funding as such, but more to the design of the support, i.e. (1) who may access it, (2) how, (3) to serve whom and (4) in what way and with what time-frame? The result of this is that local and micro-finance organisations, even if able to access public support, may end up in unnecessary dependency relations, have their main focus turned away from the public they serve, be led to spend money rather than to scrupulously care for it to come back, have a glut of funding for one aspect of their activity (e.g. training) and too little for another part (e.g. lending). These issues are mostly ignored on the public authority side partly due to insufficient experience, but also because the "pilot support" often granted to these initiatives is more flexible than mainstream public programmes. A further and very serious issue around poorly
designed government support programmes is that they may actually worsen the underlying
funding gap problem which they seek to combat: many programmes end up financing and
supporting publics that the mainstream banking sector could have financed. By doing so
these programmes allow mainstream banks to further disengage from less profitable sectors
and customers, thereby increasing the funding gap in the market place. A thorough analysis
of the overall effects of government support is therefore indispensable. The challenge of this project is to identify and
define public support frameworks which have similar qualities that local and micro-finance
initiatives try to achieve, namely accessibility, sustainability and independence. It is
precisely these qualities – that these new financial instruments have solved for the
public they serve – that the state will need to adopt in wanting to support these
financial instruments. The innovation needs to go one step up.
New Economics Foundation New Economics Foundation Evers.Jung, Forshung und Beratung in Finanzdienstleitungen-Financial services. Research and Consulting EVERS & JUNG is a research and consulting firm working on innovations in financial services. It aims at the development and implementation of social financial services which effectively support their target group in an economically efficient way Contact : Jan Evers or Martin Jung Fondazione Choros Fondazione Choros works to improve global human growth and to promote social economy and ethical finance at a national and international level. It aims at developing applied research projects, concrete support to microcredit programs by financing innovative and socially relevant projects and fundraising to support countries affected by war or social, economic and environmental crisis. Fondazione Choros INAISE INAISE is the international network of about 50 new social economy finance organisations that have come up throughout Europe these last 10 to 20 years to serve local development, micro-businesses, the environment and social economy organisations. INAISE Contac persons : Viviane Vandemeulebroucke The analysis and outputs of the project will be built on case studies (of good or bad practice) of public support measures for local and micro-finance.
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