COOPERATION FOR AFFORDABLE PERSONAL INCLUSIVE CREDIT CAPIC INTERNATIONAL WORKSHOP Pistoia, Biblioteca San Giorgio Auditorium Tiziano Terzani November 13, 2012 MEETING MINUTES Welcome and presentation of the CAPIC initiative (Cristian Bevacqua, Un Raggio di Luce Foundation) Thanks to participants and speakers. Agenda of the day. CAPIC: a European project in the framework of PROGRESS. CAPIC is an initiative that aims to analyze and promote social microcredit in Europe. The cases studied are in Belgium, France, Italy and the UK. The coordinator is RÊseau Financement Alternatif. In Italy, it is the microcredit Pistoiense that is presented. The partnerships studied are always a triad: public authority, social organization and private entity. Case studies were elaborated to analyze the weaknesses and strengths of the projects. In a second phase the learnings will be disseminated in AU, DE, RO, ES and CZ. In parallel, a film presenting the testimonials of beneficiaries, volunteers, social workers and bankers is being realized. In our times of social crisis, it is important to promote this microcredit system to avoid financial exclusion. The idea of this seminar is to focus on how to grow with all institutional partners. Each stakeholder has a different philosophy and it is essential to work together in an efficient way. In Italy, many microcredit stakeholders wish to have a specific to legislation for microcredit. For the moment there is only the TUB: the Single Bank Act that regulates credit and microcredit. Institutional greetings from: Federica Fratoni, President of Pistoia Province Thanks to CAPIC and welcome. The Province of Pistoia is proud to participate in a European context. The Pistoia microcredit system was implemented with different actors: Misericordia, Un Raggio di Luce and others. Yunus’ work in Bangladesh inspired that idea. In Pistoia, economic times make it difficult for people that a life accident can make vulnerable. They represent the most part of people asking microcredit. Example: Ethiopian shop keeper in Pistoia managed to continue his business thanks to microcredit. The idea is to create trust and to have a personal relationship with the microcredit beneficiary.
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Tina Nuti, Town Councilor for Productive Activities and Economic Development, Municipality of Pistoia Welcome on behalf of Mayor of Pistoia. Yunus’ work impulsed the microcredit idea in Pistoia. The instrument of microcredit is important for people who want to redeem their own life: microcredit can be a good instrument. It is important to overcome dependency from public institutions’ welfare that are seen as public resources dispensers. The idea is to do human projects: not only economic but also social. The current crisis involves many factors but the question of confidence is very important. The microcredit tool can be useful to help people get out of difficult economic situations. This project is important to promote. Pr. Ivano Paci, President of the “Microcredit System in the Province of Pistoia” Reasons and experience of microcredit in Pistoia: Yunus invented microcredit as a tool to respond to the systemic problems in his native land. Microcredit should be used as an instrument and not as a response to a crisis. Exclusion in times of crisis is even worse. Local institutions which combine many stakeholders, original system brings us back to some European approach. Credit institutions – which deciding units reside in Pistoia – have an authentic motivation with microcredit because they have always fought against usury and worked with low income people. The Pistoia territory was ready to use a tool such a microcredit. Local banks grant the credits, the partners guarantee together the microcredit (if the microcredit does not work, the losses are shared). The public authority, Province of Pistoia identifies the beneficiaries. The crisis has not helped the system. Microcredit access should be wider. Our experience will grow and we are looking to do other bigger social initiatives. I hope this conference will bring new ideas. The issue of financial exclusion in Europe (Olivier Jérusalmy, Research Officer, Réseau Financement Alternatif -- Belgium) -» see presentation Definition of financial exclusion. Access but also use is to be examined. Mainstream why? Since if devices are specific to lower income people, there is a risk of stigmatization. Differences between access and use in BE, IT, UK and FR. For example, access to bank accounts is high in BE and FR because a law exists concerning the right to have a bank account. Another remark is the interest rate for credit that is very high in the UK (ex. 1000% APR!!), so the access is not an issue but the use can clearly be (too expensive). Credits should not be used as a resource, nor as a part of budget: seeing it like that can lead to overindebtedness. Social microcredit can be a solution in some cases, for example mobility, to reach a dignity level (housing elements), training, health in some country context… Social microcredit also allows to give tips on budget management and to prevent overindebtedness. Learn to measure the impact of social microcredit – be convinced that people feel better, have self-esteem and create a new energy. Social microcredit: definition and characteristics in Italy and Europe. What role can public and private actors play to promote such initiatives? (Giampietro Pizzo, President of the Italian Network of Microcredit Operators – RITMI- and Deputy Chairperson of the EMN) Data on social exclusion in Europe is impressive. Different indicators show there are structural problems not only problem coming from the crisis. In Italy, there are strong links between financial and social exclusion. Conditions are present for the correct use of social microcredit. If proposed in the very large range of welfare instruments, there could be misunderstanding: it is important not to fall in this trap. 2/8
Credit card use in Italy has been increasing exponentially since the last 15 years. There is a need to provide a definition of social microcredit. I should be used in three contexts: 1) Temporary accidents: for example you lose your job, social microcredit helps you to rethink what they want to do. Ex. Training to reorient 2) Big expense, no access to mainstream banks, instead of turning to usury, get a social microcredit to avoid such a situation 3) Overindebtedness condition, debts that come from lack of opportunity Social microcredit should help to bridge a gap towards a more stable situation. All social microcredit actors hope to have specific legislation. In 2010, Article 111 was introduced in the Italian Banking Law to set 10.000EUR as maximum amount to grant for social microcredit. Banks should be more accountable, they do not do a credit check. The public authority has a public fund so does not worry. MFIs social demands are under pressure, minimum sustainability should be required. For microcredit to be an efficient tool there is a need to try to understand when it is adequate to use social microcredit. Public authorities should use microcredit because more efficient than welfare. Exclusion is growing: banks should be dealing with these problems, risk co-management. The European Investment Bank could put a part of the guarantee. Every actor takes its responsibility. Social microcredit innovation: information of people’s lives, better risk management. Presentation of three European social microcredit initiatives in Italy, France and England followed by discussion: “Microcredit System in the Province of Pistoia” (Franca Nesti, volunteer at the Outreach Offices) -» see IT presentation Initiative started in 2006, Un Raggio di Luce, Misericordia, Cassa di risparmiento de Pistoia e della Lucchiesa, loss rate 6%. Initial guarantee 1.000.000 EUR. People come for temporary financial issues. They should have a minimum, a will to reorganize their life in a positive way. Loans have a maximum duration of 5 years with a maximum of 7.000 EUR. Social microcredit is addressed to families / individuals motivated to come out of their actual tough situation (occasioned by life accidents). Revolving credit puts you in a difficult situation – a small microcredit is much more targeted to this public. It is not charity but a human credit. Credit managed in a positive way. In the last three years, this is the data for the social microcredit: 564 requests -» 722 interviews -» 304 Evaluation committee -» 204 social microcredits granted. Need to find a standardization to grant more social microcredit to spread the initiative in the other provinces. Need stringent participation, to meet more often, to eliminate slow decision making. Multiplicity of actors sometimes slows the process too much. The idea is to provide social microcredit at the right time to avoid a vicious circle. “Enabling low-income and finally excluded consumers to access affordable credit for life projects” (Patrick Kosman, Volunteer at Secours Catholique--France) -» see EN slide Social microcredit is not an answer to the crisis but part of the response. Social microcredit is not the answer to social exclusion: we do not want a bank for the poor. Banks are the only institutions that can lend money, so they are part of the social microcredit system. Then, Secours Catholique is the contact with the beneficiaries. People that are beneficiaries are people that will repay because the idea is to avoid overindebtedness vicious circle. People explain their “life project”. For example they finish work at 2am so they need a car to come home. Social microcredit can be the answer, it is a valid project. The government (Borloo) did a law to create a fund to guarantee the microcredit, so the State guarantees the losses at 50%. At Secours Catholique, we think that the people should pay 3/8
an interest rate so people are treated as all other people. Also it lets banks earn some money (although benefits on this type of product are low), which is essential for them to be part of the project. 35.000 microcredits in the last 5 years have been granted, which is less than the government’s objective: would like to reach 100.000 microcredits a year. Currently, banks show social microcredit as CSR, not as a product that brings money in. When social microcredit is granted people usually do not want to talk of their money problems. It can be problematic to stop or prevent overindebtedness. Volunteers have an issue because beneficiaries do not usually talk about their private lives. Results: Secours Catholique is a leader in orienting beneficiaries to the system (1.500 social microcredits in France) on 35.000 microcredit operations. Loss rate is around 4-5%. Interest rate is around 3-4%. In France there is a law on usury rate. 2011 Lagarde law aims to reduce the part of revolving credit – seems to be working. Also reduces interest rates. “Enabling low income and financially excluded consumers to access affordable credit for household electrical goods” (Gregory Sheen, Researcher and Lecturer at the Research Unit Financial Inclusion--University of Liverpool) -» see presentation EN In April 2012, big changes will occur in the UK benefit system. One change is that the low income consumer will be responsible to pay housing rent. (Currently it is taken from benefits). A Credit Union (CU) is different from a bank, because it is owned by credit union members. No banks provide guarantee, it is the savings of the CU members that is used. Co-operative Electrical provides affordable goods to consumers through a loan with the CU. No regulation on the interest rate. A consumer can afford a weekly payment although he/she pays 1000% interest. These people live on a very tight budget, so when the cooker breaks down they need credit, even if high cost credit. Local authority orient social tenants towards social credit providers to avoid them running high cost credits and then maybe forgo rent payments. Co-operative electrical then provides affordable electrical goods. The interest rate is 26% which is considered social in the UK. In the hire-purchase scheme, it happens that consumers end up in higher debts then their previous situation and can be without the products (if they do not manage to pay, the store can take the good back). CAPIC showed that the CU where not working accordingly to the Consumer Credit Act. Now this has been adapted. Another issue is the volunteers at the CU not used to sell electrical goods. In the UK, the spirit is quite different; there is a clear social objective but also a sustainability goal. In IT and FR, there is a social objective. QUESTION AND ANSWER PERIOD: Patricia Rodriguez, ACAF, Self-finance communities: Four areas of financial exclusion (bank account, savings, insurance and credit) were presented. Are there savings needed to get the credits you proposed? FR: For savings, no experience, we do not do savings. IT: No savings either. UK: CU promotes savings, and savings culture, people receive loans according to their savings. Paolo Carrara, Un Raggio di Luce: Is there a movement to ask the government to put a cap on interest rates in the UK? No cap on interest rate. Might seem unethical, but a cap might increase shark loans. These credit providers make the government hesitate to cap. The public body prefers to pay to educate consumers. 4/8
Eugenio Occhini, Cofidi Calabria: In the UK, are there two objectives: microcredit and keeping consumption high? For FR, who guarantees the other 50% (as the State guarantees 50%)? UK many benefits: provide social microcredit but also secondary benefits to address financial exclusion by providing more affordable credit. FR: The State guarantees 50%, the other 50% is guaranteed by banks. Franco Picchi, Misericordia di Pistoia, volunteer: To have a loan in a CU, do you need to be a member? Is it a for-profit organization? Need to be or become member to have good rate. The CUs are a for-profit organization: it is a dual social profitable venture. Sergio Pieroni, Fondazione Cassa de Risparmio di Perugia: Listening centers already select people, what are the criteria? Could a public body do the listening center’s job? Indeed, the public body is the first listening center, it could play this role. Each listening center has its criteria, but respects the protocol. For example, people that have no revenue are excluded, people that are already too overindebted or are on the welfare system. Microcredit is for people with small revenues to solve a specific situation. Paola Ciardi, Un Raggio di Luce: Who set the microcredit limit in FR? What is the public body role in the UK? FR: The average granted loan is 1.800EUR, so 3.000 EUR is enough although some banks would like to increase to 5.000EUR (to increase profit, because administrative costs are the same). The limit was decided at 3.000 EUR, legally it is 5.000EUR, some exceptions can occur but normally 3.000EUR on 36 months with maximum pay of 100EUR/month. UK: The UK city council provides grant funding to carry out research, provide contacts and enables the project. Strengths and weaknesses of partnerships in social microcredit initiatives (Marco Santori, President of Etimos Foundation) In the last three years, work has been done in Italy with Banc Ética to better understand how to develop social microcredit. There is a need for a structured action in Italy. According to us, microcredit has to be done with stakeholders or it is not sustainable. We do not believe a same entity has all competences: finding beneficiaries, assessing credit risk and granting microcredit… For example, in the Abruzzo Region, where there was the earthquake: limited territory, in a weak context. One easy condition: understand the territory’s specific needs. Good results. Combining the stakeholders around the table is crucial. Bank managers and industrial with common sense, public bodies and social organization representatives willing to collect data have been meeting. However, there is a small problem: people are not used to speak together. There is a group of population, excluded from the system. To summarize, some objective issues: banks do not like to work with small amounts. They would like to solve a situation but do not have the physical time to process the credit request because of quota objectives. lf they lose a day, then they lose revenue. They are also very risk-adverse. Two basic aspects: microcredit should not replace welfare but it should save public resources so they can be available for start-ups. Public body, social entities and banking institutions do not talk to each other. Some professional methodology is crucial. Banca Ética publishes real time facts on its website, which is quite innovative. Community-based approach helps to solve exclusion issues. It reactivate synergies typical to communities. The initiative is subject to criticisms: it operates in a limited context. 5/8
Conclusion: 1) Microcredit should be territorial, not diffused / disconnected from the region it operates in 2) The banking system has to be involved 3) Networking between different actors is essential to promote tools like microcredit Restitution, Moderator: Cristian Bevacqua Working group 1: How to consolidate and improve microcredit experiences based on partnerships when a mainstream bank is in charge of microcredit provision?, Lina Ercolini, volunteer at the Outreach Office Microcredit System in Pistoia Discussions were on how to consolidate and improve relationships between banks and nonbank entities working together. The banks’ role is often to grant credit, it adds something but it also brings an institutional rigidity. Banks have branches and desks available in the whole territory. Their role is known: grant the credit, which gives them importance. They have a will to know such cases. Local interest banks participate more. Social microcredit appears like a winning instrument because partners are in close contact with beneficiaries. There is an objective and mission sharing. First contact point is the listening centers. Their role is important as a first filter. The file then goes to the evaluation committee, all the while being improved by people that speak a language closer to the bank. This allows the bank to lose less time for the next steps. Another element: depending on the subject, there is information sharing and a tutoring phase. Two cases are then possible: the file is positive, the credit is granted, and the reimbursement is positive. In the second case, the beneficiary does not reimburse correctly. After how many installments can it be considered negative? No agreement was reached during the discussions. Banks vote for few installments and organizations want more flexibility. In the Verona listening center, when the bank finds a delay, the listener call center calls the subject and tries to find solutions to avoid any insolvency procedure with good results. Many needs were debated: − Everybody thanks CAPIC for the opportunity to exchange practices − A group will be created to monitor the microcredit granting, stay in touch and share best practices − There is a strong need to train volunteers that work with microcredit on financial education − Two proposals were suggested: since there is a guarantee fund, the banks do not cover any risk. Banks should be partners and really share the risk. A network should be implement to support younger organizations with best practices found by more experienced organizations. Working group 2: How can different microcredit initiatives based on partnerships share their experience and operate more efficiently?, Anna Ciofi, Province of Pistoia Dissemination, through internal and external communication is essential. When nothing is done the number of beneficiaries decreases. An important point is to find a common language for the different partners (triad). There needs to be an investment in Human Resources through an agreement to train people in financial education. Partnerships communicate externally through brochures and websites to reach beneficiaries. Internally, communication is done through informal relations and meetings.
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A partnership always need a leader to reach agreements. Written agreements are not always necessary but trust and leadership are essential. The tasks must not always be equal, but the different actors must agree with them. The leading role needs to be in close cooperation with other actors. Working group 3: Given the institutional differences among promoters (banks, not for profit organizations, public institutions) what are the main problems of partnerships at national and European level that are common to all or most initiatives?, Paolo Carrara, Un Raggio di Luce Lively debate that came to the following elements: Some difficulties may arise when partners share the same operational roles, since different philosophies can coexist, therefore, a strict distribution of the operational tasks is considered as a good practice. Listening groups and banks have different procedures. In the Belgian partnership experience, the impulsion role was taken by the regional government. The interest rate is 5%. The bank did not want to be more involved and was afraid to incur more costs. The bank was then replaced by a bank foundation, which allowed more flexibility. Once the bank was replaced, the lending has been implemented by the notfor-profit cooperative Credal. In Italy, a partnership is mandatory because only banks can grant credits. However, ideally, a partnership should not be mandatory. Every entity needs to find advantages. Scaling up an initiative is important to dilute costs. Banks’ partnership in the Italian initiative is residual, not core business. If a tax-related advantage could be found, banks’ participation would be better. Listening groups should have partners from public authority because they know better the social groups in potential need of microcredit. The challenge in the UK is to stay sustainable while having a social goal. Banks should be accountable for their involvement and there should be impact assessment. Conclusions: The network should be efficient in involving all partners. Currently, banks do not have a true advantage. This could be changed by creating a tax incentive or cash-flow possibilities from funds or a official rating in terms of corporate social responsibility (inspiration could be looked at from the US Community Reinvestment Act). Impact assessments are crucial: the Belgian initiative demonstrated around 6 months savings of welfare unemployment, which amounted to around 4 times the amount the State devoted to social microcredit… Conclusions, Cristian Bevacqua, Un Raggio du Luce Summary of main questions tackled today: Financial inclusion in Italy Meaning of financial inclusion: access AND use Social microcredit needs to be customized to the real needs of the clients. In Italy, financial exclusion is due to structural problems not only the crisis and has links to social exclusion. Social microcredit is important to face to contingent problems, to give responsibility to beneficiaries and avoid welfare benefits when creditworthiness occurs. Social microcredit is a complex tool that has to be used well. Context: important that recipients have access to social microcredit in combination with information on how to stop households’ overindebtedness. Demand-side: loss of job, overindebtedness, contingent Supply-side: main stakeholders are triads. Availability of guarantees is important and financial institutions have a role to play. Each partner in the partnership should have clearly defined roles and stick to them. Find specific tailor-made solutions to avoid poverty. 7/8
Three cases of social microcredit in Europe were presented: in FR partnership in which public services have an important role; in IT, where many volunteers are present and the UK, which might sometimes seem puzzling, but each action has to be seen in its context. In Italy, the law developments could bring interesting microcredit definitions: social (personal) versus professional. It is important to motivate all types of partners: private or public. There is still a long way to go. There is a clear will to work together, even if there are differences between the actors and it is crucial to support young organizations with exchanges of best practices.
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