MICROFINANCE MARKET STUDY IN THE NETHERLANDS

Transcription

1 MICROFINANCE MARKET STUDY IN THE NETHERLANDS On behalf of the European Microfinance Network for the European Investment Fund within the framework of JEREMIE SEON Foundation SEON Foundation European Microfinance Network Stationslaan 4 4 Bd Poissonnière 3701 EP Zeist, The Netherlands Paris, France Tel: +31 (0) Tél: +33 (0) Fax: +31 (0) Fax: +33 (0) Triodos info@seon.nl Facet Text styles for reports and tenders 1

2 EXECUTIVE SUMMARY Microfinance is not new in the Netherlands and neither are micro credit and savings. Already in the beginning of the past century local cooperative savings and credit initiatives were launched and some have eventually become the basis of what is now one of the few triple AAA banks in the world. Still it is surprising to note how little attention has been given to microfinance as an instrument to promote entrepreneurship and facilitate social inclusion in the past decades. The acceptance of it and the understanding of the possibilities however have been low, even more surprisingly since so many Dutch professionals have been engaged in micro credit and microfinance programmes in developing countries. Up to now activities and publicity focused on Dutch involvement in developing countries without taking note of some major government programmes in the Netherlands that have already been in existence for quite some time and that can be categorised as microfinance programmes. Lately a growing number of private foundations and other nongovernmental organisations have started microfinance projects in the Netherlands often supported with EU co-financing (mainly ESF, Equal) and more often with local funding (public and sometimes private). In 2007 Microfinance has gained a real place on the agenda of politicians, policy makers and practitioners. A special advisory Council on Microfinance in the Netherlands was established by the Ministry of Economic Affairs in early This council consists of high ranking individuals from the government and the private sector including microfinance experts. The main task of the Council (in the first year of its existence supported by a Knowledge and Information Centre 1 ) is to make policy recommendations to the Netherlands Government through the Minister of Economic Affairs and formulate solutions to improve the access to microfinance in the Netherlands. It has furthermore a role of ambassador to promote the use of microfinance nationwide; it promotes networking amongst parties 2 who are active in micro entrepreneurship development and microfinance. The first advice has been tabled and since early 2008 a special Support Bureau for microfinance Initiatives has become operational within the same Ministry. Funds have been made available allowing creating a central facility to support local initiatives. The government has adopted the advice of the National Advisory Council on Microfinance and is now developing a comprehensive programme including coaching, mentoring and a guarantee scheme. In this scheme the participating banks will provide micro loans directly, based on a prescreened business plan and an ex-ante guarantee. A growing focus will be placed on coaching and mentoring to assist people in formulating of business plans rather than the mere provision of micro credit. In the Netherlands there is a deviation from the general European definition concerning the maximum amount of what is considered micro loan/ credit. Rather than adhering to the universally accepted limit of there is tendency to stretch the limit up to This is needed as the major government support programmes for micro entrepreneurs uses this limit. Information available in the Netherlands is mainly based on this limit, which should be taking into account while reading this report. In the Netherlands about 7.3% of the population is considered as low income group. Following the EMN model one arrives at the following estimates: Total potential demand for micro loans/ credit is persons (with an average loan size of corresponding with 739,636,000). Total potential non-bankable demand e.g. loans below is persons (with an average loan size of corresponding with 208,840,000) Total potential bankable demand e.g. loans more than but less than is persons () with an average loan size of corresponding with 382,866,000) 1 This centre was organised by Senter Novem, but as from early 2008 its work will be integrated into the Microfinance Support Bureau. 2 See the special website SEON 2008 Microfinance market study in The Netherlands Executive Summary

3 A major problem at present (2008) seems to be the small number of applicants that actually apply for a micro loans on the one hand and the high rejection rate of micro loan applications by both the non financial institutions and banks on the other hand. People are not really aware or informed about the services and hence the possibilities that exist and the banking sector has a strong belief that micro financing is too costly and too risky. In the Netherlands there are many different initiatives offering microfinance. They differ by region or target group. Most initiatives are financed by the government (both national, provincial and at municipality level), often with European Funding. There is a lot of willingness amongst private banking institutions and the public sector to (jointly) develop programmes and systems to offer microfinance / credit on a wide(r) scale. This does not mean that all possible target groups will be reached and attended. Coaching and mentoring potential entrepreneurs are seen as essential services to assist people who wish to start their own business. A well designed process for the assistance of micro entrepreneurs in the Netherlands will result in a rise in applications for micro credits; improved preparation of the prospective entrepreneurs and their plans will result in less rejections. SEON 2008 Microfinance market study in The Netherlands Executive Summary

4 TABLE OF CONTENTS 1 INTRODUCTION BACKGROUND OF THE COUNTRY STUDY BY EMN- SEON FOR EIF MICROFINANCE IN THE NETHERLANDS AND LIMITATIONS IN THE STUDY STRUCTURE OF THE REPORT THE MICROFINANCE ENVIRONMENT IN THE NETHERLANDS POVERTY AND INCOME AND POTENTIAL DEMAND FOR MICRO CREDIT NO POLICIES YET TO PROMOTE MICRO ENTERPRISES IN THE NETHERLANDS REGULATORY FRAMEWORK FOR MICROFINANCE ORGANIZATIONS Central bank regulations for lending with funds from the public Interest rates limited for consumer loans Social security rules with respect to additional income Fiscal rules NATIONAL POLICIES FOR MICROFINANCE SUPPORT BY THE ACADEMIC WORLD INVESTORS IN MICROFINANCE Government Banks Private organisations and foundations Private persons International development organisations SWOT ANALYSIS OF MICROFINANCE IN THE NETHERLANDS DEMAND FOR MICROFINANCE IN THE NETHERLANDS STUDIES ABOUT MICROFINANCE IN THE NETHERLANDS RELATED TO POTENTIAL - DEMAND Number of starting enterprises stable over the years Starting enterprises requiring micro credit Already operating enterprises requiring micro loans Number people who are thinking to start their enterprise Actual number of micro credits approved by non financial institutions and banks A European comparison EMN Data CALCULATION OF POTENTIAL DEMAND FOR MICROFINANCE IN THE NETHERLANDS SEGMENTATION OF POTENTIAL DEMAND PROVIDERS OF MICRO CREDIT IN THE NETHERLANDS THE BANKING SECTOR Commercial banks Municipal credit banks GOVERNMENT PROGRAMMES Programmes for the Unemployed, the BBZ Programme and a new pilot scheme Guarantee scheme for SMEs (BBMKB) not yet reaching micro borrowers PRIVATE INITIATIVES MFIS SLOWLY COMING UP SPECIAL PROGRAMMES AND PROJECTS ESF- Equal support project only for a brief duration Local support offer new chances Project with Bank support under CSR arrangements OTHER FINANCIAL SERVICES State Guarantee Scheme for SMEs nor yet for micro lending Micro leasing- micro insurance not yet developed Innovative ICT based services coming up BUSINESS DEVELOPMENT SERVICES...22 SEON 2008 Microfinance market study in The Netherlands Table of Contents

5 5 CONCLUDING REMARKS FRAGMENTED SUPPLY OF MICROFINANCE IN THE NETHERLANDS STRIKING GAP BETWEEN SUPPLY AND DEMAND MARKET GAP OBVIOUS BUT IT CAN BE OVERCOME MEETING DEMAND AND SUPPLY, REQUIRING DIVERSITY AT LOCAL LEVEL WITH CENTRAL FACILITIES REFERENCES ANNEXES Annex A: Terms of Reference Annex B: Micro Credit Provision in the Netherlands SEON 2008 Microfinance market study in The Netherlands Table of Contents

6 1 INTRODUCTION 1.1 Background of the country study by EMN- SEON for EIF The European Investment Fund (EIF) will provide Member States authorities assistance with setting up innovative financial instruments for inclusion in the National Strategic Reference Framework , in particular the initiative Joint European Resources for Micro to Medium Enterprises ( JEREMIE ). As one of the preparatory steps to implement the programme, the EIF has contracted the European Microfinance Network (EMN) and a selected number of its members to carry out country specific studies on the demand and supply of micro credit and on the evolution of the microfinance industry in particular. The outcome of those country studies are expected to serve as input for the action programmes of the EIF EMN selected SEON Foundation in the Netherlands to carry out the respective study (for terms of reference see annex A). A team of experts working for and with SEON has participated in this study. In order to get the information to answer the above questions, SEON undertook a market study through both telephone interviews and desk research. The information on the supply side was mainly gathered by contacting all different suppliers of micro credit and coaching services to micro-entrepreneurs in the Netherlands as well as the newly established National Knowledge Centre on Microfinance. For the demand side the information was mainly gathered by desk research. The draft report has been discussed with the leading microfinance experts in the country and staff of Triodos Facet. 1.2 Microfinance in the Netherlands and limitations in the study Although microfinance has always existed in the Netherlands 3 there has been little awareness about the possibilities and opportunities it offers. Microfinance has for many years been seen as an instrument to be applied in developing countries. Only for the Dutch un-employed there existed in the past decade a special support programme offering mentoring, coaching and financing for those who were expected to start a small or micro enterprise. However, in recent years we see microfinance projects being started by foundations and other nongovernmental organisations 4. In the Netherlands micro credit has always been provided in combination with business services (training, coaching, and assistance in writing a business plan). At present the Dutch government is developing and promoting a comprehensive programme including coaching services and a guarantee scheme. In this programme the participating banks will provide the micro loans directly, based on a pre-screened business plan and an ex-ante guarantee. For a good understanding of the study results it is important to understand the context of microfinance in the Netherlands: a. There are very few non-bank organisations providing microfinance. In this report we focus on the organisations that provide microfinance themselves in order to allow comparison with other countries. b. The Dutch definition of microfinance differs from the general European definition in terms of the maximum amount of what is considered a micro credit: the European definition uses a limit of , while the Dutch limit goes up to Lobbezoo M. and Molenaar N. Microfinance in the Netherlands for EMN research working group, unpublished Microfinance is the total package of financial services for micro entrepreneurs including microcredit but also for instance micro insurance, micro leasing. SEON 2008 Microfinance market study in The Netherlands 1

7 Savings are not included in this report as a separate microfinance tool. Access to a bank account is not a problem in the Netherlands as it is guaranteed through a covenant of the banks in the Netherlands 5 and no specific saving programmes for micro-entrepreneurs exist. The availability of information was limited for this study due to several reasons: - The reporting systems of microfinance providers in the Netherlands do not meet the international standards of microfinance yet. Microfinance is a rather new phenomenon in the Netherlands and still at a small scale. - Banks do not easily provide information about their client base to third parties for privacy reasons. - Banks do not have specific information on micro credit. Micro and small enterprises are often seen as clients of retail banking rather than corporate (or wholesale) banking and do not appear as a separate figure in the annual reports of banks. 1.3 Structure of the report The report consists of three major parts. In Chapter two a description is given of the present income levels in the Netherlands and the relevance of micro loans for social inclusion, followed by an assessment of the present policies, regulatory framework and the various sources of funding for microfinance in the Netherlands. Chapter three provides an assessment of the possible demand for microfinance services in the Netherlands. In Chapter four we discuss the supply of microfinance services (both financial business development services). It contains an overview of the main characteristics of the current financial and business development services of both governmental and private organizations. In Annex B detailed descriptions are provided of the main service providers in the Netherlands as identified by SEON. The concluding remarks (chapter 5) focus on the potential gaps between demand and supply and the possible interventions needed. 5 NVB, covenant inzake een pakket primaire betaaldiensten, (Dutch Association of Banks, Covenant for a package of primary services), SEON 2008 Microfinance market study in The Netherlands 2

8 2 THE MICROFINANCE ENVIRONMENT IN THE NETHERLANDS 2.1 Poverty and income and potential demand for micro credit In the Netherlands about 7.3% of the population is considered as low income group (figure 1). Indeed this is a relative issue since people in the Netherlands without work and income are supported under a well developed social welfare system. The actual social welfare benefits are relatively high, which creates the often mentioned social welfare trap. For micro credit programmes it entails a barrier that is rather difficult to overcome: one needs to give up relatively high social benefits when starting a new business. Hence people (for economic reasons!) are not so easily inclined to start something very small with low external funding. It is therefore argued that real micro credit programmes will not take off unless the Dutch government will allow people to earn an additional income with small / micro economic activities. 6 Figure 1: Income distribution in the Netherlands From the income statistics and the data on geographical distribution, two phenomena can be detected that eventually determine the actual demand and the possibilities to reach out to the market: 1. The lowest income groups predominate in a limited number of neighbourhoods in the main cities of the Netherlands (Amsterdam, Rotterdam, The Hague, and Utrecht) 2. The lowest income groups can also be found in a number of less populated provinces in the Netherlands (Northern provinces and in Limburg (south) and Zeeland (Southwest) 6 Income statistics in the Netherlands, CBS, 2006.; Low income is defined as income just below or around the social minimum of 860 (monthly social benefit for single persons). SEON 2008 Microfinance market study in The Netherlands 3

9 For banks and MFIs the first group offers a good opportunity: in the larger cities they can easily open up programmes in the immediate vicinity of the target groups with few costs and with the involvement of a wide group of stakeholders that are well rooted in the area of operations. Examples are the Startersfondsen, Hands On and Start Smart (see Annex B). Additional external support can give those programmes a real boost and help them to become of real importance. In the less populated regions very few organisations dare to take a plunge and hardly any programmes are yet in operation. The programmes set up will have a relatively low number of clients. In addition, the clients will face problems in finding adequate markets. It is in these areas where innovative approaches are most needed (using IT based lending programmes such as Booper or BiZner). Secondly, it would be good to concentrate on the more densely populated towns and cities in those districts. 2.2 No policies yet to promote Micro enterprises in the Netherlands Although more that 90% of all businesses in the Netherlands can be considered small or micro enterprises there exist no special policies to promote and or regulate them. The general policy of the Government has always to abstain from target group focused policies and preference is given to general policy guidelines. In order to boost self-employment Governemnt introduced the possibility to register as ZZP (Zelfstandige Zonder Personeel Self employed without Personnel). This form is expected to fill the gap between formal empyed and being considered an entrepreneur. It did not (yet) result in special policies to promote self employment or micro entrepreneurship. Of late there is a tendency to discuss and eventually develop policies to promote New entrepreneurship (Nieuw Ondernemerschap). At first sight it looked like the Government would develop policies for ethnic entrepreneurs but a closer look at the debate learns that issues as citizenship, diversity, mobility and mainstreaming are becoming more important in policies Regulatory framework for microfinance organizations In the Netherlands there are no special laws or regulations for microfinance institutions and microfinance programmes. There are however a number of specific rules and regulations that might affect MFIs and MF programmes and eventually the borrowers/ users of the same as well. This is an issue that is now been taken up by the National Advisory Council. Furthermore the Centre for Microfinance and Small Enterprise Development of the University of Applied Science INHOLLAND has developed a research project on this issue. The rules and regulations most noteworthy at present are: Central bank regulations for lending with funds from the public Dutch National Bank (DNB) has set limitations and restrictive regulations for private organisations that use the money 7 (savings, deposits) from the general public as a source of funding for lending programmes. Using funds in trust or administration from for instance the European Union, the municipality or from other donors made available for lending is therefore subject to these laws. This is why these kinds of projects and funds can be seen most often in the Netherlands. As soon as an organisation wants to take savings they will have to adhere to all laws and regulations in this field and an operating license is needed either from the DNB or the Authority of Financial Markets (AFM) 8. 7 Defined / described by the DNB as. funds obtained outside closed circles and other then professional market parties 8 and telephone conversation Dutch National Bank, 9 January 2007 SEON 2008 Microfinance market study in The Netherlands 4

10 2.3.2 Interest rates limited for consumer loans In order to protect the general public from over indebtedness the Government has introduced an interest cap on consumer loans (that are however widely and aggressively offered by various private companies). The interest cap for consumer credit 9 is set by government at the Statutory Interest Rate 10 set by the Dutch National Bank (DNB) plus 12 interest points. By July 2007 that implied a cap of 18% which has not been fluctuating widely since. With micro credit in the Netherlands there is a thin line between regarding this as consumer credit or as real enterprise credit. The National Council for Microfinance has calculated that the average interest rate for micro enterprise lending would be around 12%%. It has argued further that for social and micro economic reasons such rates would not be recommendable and has advised not to go beyond approximately 12% (points on top of the discount rate) Social security rules with respect to additional income The Social Welfare system in the Netherlands is well developed and very structured governed under National laws and administered by the municipalities. There are indeed support programme within the system assisting people to find formal employment and even star one s own small business (under the BBZ programme see paragraph and Annex for details). The latter groups - those wishing to start a business face difficulties with the prevailing regulations: once the register their small company with the Chamber of Commerce obliged by law for anybody who wish to start a businesses they loose their social welfare status and income generated is deducted from the social benefits Fiscal rules There exist no special fiscal facilities for micro borrowers / micro entrepreneurs. There is the possibility to register as ZZP (Zelfstandigen Zonder Personeel e.g self-employed without personnel that in turn can offer some protection to the new entrepreneurs if the businesses fail within a given period. One can then fall back on social welfare entitlements. Secondly there exist a fiscal facility for third persons to make special tax deduction for loans to relatives and friends (Tante Agaath). Again this is a general facility not necessarily designed and appropriate to promote microfinance (see also chapter 5), The registration with the Chamber of Commerce (obliged by law as reported earlier) also implies that the respective person is considered by the Fiscal authorities as (small or starting) entrepreneur. This again has far-reaching fiscal and thus income implications. Sometimes those can be to the benefit of the starting entrepreneur when (s) he can is allowed to make special deductions from the income generated. However such is often not the case and effect might be rather negative and / or imperative to actually start. 2.4 National policies for microfinance Only late 2007 the Netherlands Government adopted a national policy on microfinance. Till that date there were no special policies to promote and use microfinance in the country. The number of private initiatives by foundations and enterprise support organisations, or organisations that support the specific target groups with microfinance is growing. Although the support of start-up entrepreneurs through offering Business Development Services (such as training, mentoring, coaching, advisory services, information) has a long history in the Netherlands it has not always been easy to link that type of support services directly to (micro) financial services. Incidentally special credit funds have been set up more often within the context of an ESF, Equal or local government funded project. In many cases such programmes were set up for special target groups either the unemployed (long term, young people), migrants, women or handicapped. The initiatives were mostly taken by local organisations and not as result of a general policy. 9 Law on consumer credit, interest rates. SEON 2008 Microfinance market study in The Netherlands 5

11 In 2006 the central government acknowledged the possible role of microfinance but understood as well that the efficiency and effectiveness of microfinance in the Netherlands need to be increased in order to be of significance. In order to boost the process it established the Advisory Council for Microfinance in The Netherlands 11 in February This council consists of members holding high ranking positions in both the public and the private sector including microfinance experts and is co-chaired by HRH Princess Máxima. The main task of the Council (in the first year of its existence supported by a Knowledge and Information Centre 12 ) is to make policy recommendations to the Netherlands Government through the Minister of Economic Affairs and formulate solutions to improve the access to microfinance in the Netherlands. It has furthermore a role of ambassador to promote the use of microfinance nationwide; it promotes networking amongst parties 13 who are active in micro entrepreneurship development and microfinance. One of the first indirect results of the work of the Council was the incorporation of microfinance in the policy plan 14 of the present government. Later the Council presented its first official advice in October 2007 that was fully adopted by the present Government. In that advice it is argued that microfinance need to be promoted and developed further as it is expected to be of significance to promote and support entrepreneurial initiatives in three distinct areas: 1. The social inclusion of the unemployed not yet actively participating in society (unemployed) 2. The promotion of economic initiatives by school-leavers and young graduates (boosting enterprising initiatives) 3. The improvement and upgrading of 40 so-called focus districts in larger cities. The council proposes a national facility that can be used to promote and support local initiatives. In the programme to be promoted there are four distinct strands 15 : ii. Micro lending is offered by the participating banks that have access to a guarantee facility that is supported both by the banks proper and the central government. iii. Mentoring and coaching are an essential element of promote micro enterprises and must be offered by locally operating private or public professional organisations. In those organisations professional advisers/ coaches and volunteers can be active to offer such mentoring and coaching. Volunteers are trained in those areas as well. iv. Locally operating organisations (operating under a franchise ) can receive guidance and support in the development stages, e.g. institutional development support v. Microfinance is centrally promoted to the general public under one brand/ slogan. vi. Local organisations will be able to use a franchise label and make use of the support services offered by a small central project organisation. The programme is supported by a special Microfinance Bureau staffed with experts who can assist the partners in development local micro initiatives. The set-up intends to lower the costs incurred by the actual providers of micro credits but is still unclear on how it will lower the costs of the entrepreneurship development organisations (or BDS providers) who will have to put in an extra effort 16 by taking on part of the screening and coaching activities normally done by the micro credit providers, and more specifically banks, themselves. The actual targets set by the council is an increase with in the number of people who actually start a micro enterprise of whom are expected to have difficult to no access yet to formal (banking) financing. The investment and loan size in this group is foreseen to be approximately to Staatscourant, February 2007, page This centre was organised by Senter Novem, but as from early 2008 its work will be integrated into the Microfinance Support Bureau. 13 See the special website 14 See 15 The model promoted has clear similarity with the UNDP Micro Start model and the EU Initiative on Micro Credit for the full text of the advice. SEON 2008 Microfinance market study in The Netherlands 6

12 The programme needs to reach out to the lower income level households e.g. with a monthly net income of less than (See also chapter 4). The Council acknowledges the importance to focus as well on the lower end and develop initiatives that will result in offering micro loans I the range of to However in the absence of MFIs in the Netherlands that are capable and equipped to reach out to real small borrowers in large quantities this is not yet feasible. And in order to develop such initiatives social welfare and fiscal regulations need to be adjusted to allow people to embark on economic activities (while for instance depend on social welfare) that generate only additional income. 2.5 Support by the academic world The academic world has demonstrated a growing and more structural interest in microfinance. In November 2006 the First Seminar on Microfinance in a European Context was organised by INHOLLAND University of Applied Sciences. The participants explored how microfinance can be developed and supported in the Netherlands and which lessons can be drawn from experiences in other European and developing countries. Following the recommendations made at that seminar in October 2007 an associated professorship on Microfinance and Small Business was established by that same university 17. The research programme of the University will focus especially on the question how transfer of knowledge from the South (...where so much knowledge and insights about microfinance has been accumulated and generated already..) can be ploughed back to the North ( and cab be used after appropriate adaptations taking into account the prevailing social, cultural and economic conditions.) 2.6 Investors in Microfinance Government The Dutch government (both at national, departmental and municipality level) is one of the main investors in (funds for) Microfinance. The most significant programme is the one to assist the unemployed to start a small businesses (BBZ) (see Annex B) There are no segregated data on the BBZ programme since the programme is administered at municipal level and the total allocation is used for a variety of services ranging from subsidies on training and mentoring, income support to financing starting micro enterprises. As to the latter the estimates for 2007 indicate that approximately 66 million on loans has been approved. In addition much public finding is made available within the framework of programme cofunded by the European Union (ESF, Equal) or by local authorities (at municipal level), There are no aggregate data for the various projects and programmes initiated and the total financial support by local or regional authorities made available in the form of co-financing Banks Banks invest large sums (but cannot divulge the real volume of it) in lending to individuals (with ABN AMRO and the RABO Banks as the leading ones) while not being aware that such can be labelled as investment in micro lending. They do not report particularly about very small loans and it is difficult to detect the actual funds invested in lending below Such lending (often in the form of an overdraft or personal loans) is not yet seen by them as an activity in the arena of micro credit. Outside their regular business, banks tend to become more active as investors in microfinance in the Netherlands. However, most of their programmes are with special funds while acting often more as administrators than actually putting their own funds into the initiatives SEON 2008 Microfinance market study in The Netherlands 7

13 Exceptions are: Fortis Bank that has started a microfinance project and channelled a small amount of its own funds ( ) in that project. Some of the Gemeentelijke Krediet Banken (Municipal Credit Banks) that started in 2007 to develop special facilities for micro borrowers (amounts not yet known) Under the new programme set up under guidance of the Council of Microfinance the larger banks have agreed in principle to absorb 50% of possible losses of the new guarantee mechanism. The size of this investment is not yet known Private organisations and foundations Then there are foundations with their own funds like Start Foundation and VSB Fund who invest in microfinance initiatives. Often they co-finance programmes that are also supported with public or multilateral funding (EU). In 2008 Start Foundation published the results of a critical assessment of the effect of its work in this field. The main findings were: Revenues generated in micro enterprises are relatively limited in comparison to social welfare benefits Part time engagement in micro enterprises generating an additional income is still not possible under prevailing social welfare regulations There is limited understanding of the possibilities that micro credit offer and more communications is needed Members of target groups have limited understanding of the requirements related to starting one s own business There is a need for central facilities that support local initiatives respecting the diversity in approaches at local level There is need to promote the transition from informal to formal work Mentoring and coaching are as important or even more so as extending credit In micro credit programmers due care must be exercised to avoid over- or under financing as a result of the methodologies chosen In micro credit programmes entrepreneurship promotion must be one of the prime objectives Fiscal facilities are needed to make adequate use of micro credit Private persons There are an unknown number of private individuals who support micro lending in their own. The past years more of such initiatives are seen, but no data are available of the significance, volume or type of activities supported. It is interesting to note that Hands-On organisation faced no difficulty at all to raise private money that is used to support its operations 18. Amongst the migrant population residing in the Netherlands there are also locally operating savings groups financing local initiatives. Again no (official) data are available on the significance of this phenomenon. It must however be assumed that those forms of local financing will become more important in an ever more diverse society International development organisations Development organisations are becoming more interested to use the expertise they have built up in developing countries for use in the Netherlands. Oxfam Novib for instance has plans to start a project in 2008 focussing on migrant women, with FORUM a local organisation working with migrant women Private persons were requested to make a contribution of per person; funds that are being used to finance the MFI operations SEON 2008 Microfinance market study in The Netherlands 8

14 CordAid is looking into linking experiences with Social performance measuring for MFI in Developing Countries with MFIs in Europe The European Microfinance Network (EMN) plays implicitly a catalytic role in this process since it offers a platform to practitioners to exchange their experiences. 2.7 SWOT Analysis of Microfinance in the Netherlands The situation with respect to the microfinance industry in the Netherlands is a very peculiar one. The industry received very little attention till two years ago. Since then it has been studied, and debated intensively and a variety of initiatives have been launched ranging from national policy advises, starting up of academic programmes to the set of private microfinance institutions. In the Triodos Facet report it was already argued that the Netherlands could turn the lack of attention and experiences into its advantage by plugging back lessons learnt from abroad. And this is now really taking place in a very intense scale. Strengths Access to a bank account is guaranteed for every Dutch citizen by a covenant of the banks. Many different suppliers of microfinance and coaching Good distribution of bank branches over the country Well developed banking sector Strong funding possibilities among private and public sector Access to (body of) knowledge High educational level of general public Opportunities Governmental focus on supporting the financing of start-ups through guarantee schemes. The installation of a knowledge centre for microfinance and a Council for microfinance to increase the knowledge about MF in the Netherlands. Supported by leading public figures (including HRH Princess Máxima) From the point of social cohesion, especially in disadvantaged districts in the Netherlands, the Dutch Government wants to increase entrepreneurship in the Netherlands and since 2007 picked up MF as an instrument to do so. Interest amongst municipalities and local organizations to engage in MF Upcoming innovations applying ICT possibilities (BizNer, Booper) Large number of professionals with practical experiences in MF in Developing countries Research facilities at University of Applied Science International networks amongst policy makers and professionals dealing with MF Absolute volumes of micro lending in the NL relatively low (in comparison to balance sheet totals of banking sector) Weaknesses Restrictive regulations by the Dutch National Bank for the use of private money for microfinance funds. Little knowledge with potential entrepreneurs about the possibilities of microfinance in the Netherlands. Rigid social welfare regulations and taxation regime Burdening of entrepreneurs with Governmental regulations and administrative rules Reluctance to make use of EU funding Automatic evaluation systems with banks High cost level (of staff, systems) Weak reporting on financial performance Threats The Netherlands is not an entrepreneurial society. Insufficient knowledge by potential entrepreneurs on how to write a business plan and how to start a business. Social welfare system in the Netherlands that makes people afraid of starting their own business and loosing their social benefits. High level of expectation (amongst service delivery organisations) Limited funds for BDS and coaching Limited understanding of limitations of MF Wrong connotation of MF (as panacea for all problems ) SEON 2008 Microfinance market study in The Netherlands 9

15 Looking at the SWOT analysis and the issues discussed in the preceding paragraphs one may highlight a few things: The fast development over the past years with a growing interest in microfinance in general. This implies that one must be extremely careful with the launching of microfinance programmes. If they fail the general reaction will be quite negative. The advice presented by the Council for Microfinance is very much built on the recognition of the many string points and the wish to exploit those. The Council is however aware of the various issues remaining to be addressed and has include in its Action Plan for 2008/ 2009 the wish to come forward with an opinion and advises about the prevailing rules an regulations affecting the microfinance industry and its clients. Secondly it wishes to advocate the use of innovative approaches in lending based on the present and future state of the art in communication and information technologies. The limited number of private organisations yet active in microfinance but indeed the growing interest of individual to launch such MFIs and thus the need for external support (both from the national facility as well as from for instance the EU Initiative The reluctance in the Netherlands to make use of EU co funding ; an issue that need to be taken up in order to ensure that strands under the EU initiatives are used effectively. The importance of local initiatives and the need to recognise the importance of variety in approaches and methodologies. SEON 2008 Microfinance market study in The Netherlands 10

16 3 DEMAND FOR MICROFINANCE IN THE NETHERLANDS There does not exist a generally accepted definition for micro credit/ micro loans in the Netherlands. There is however a growing tendency to follow the European definition for micro credit is used (up to ), but sometimes the limit is set at There is a clear acceptance that microfinance relates to financial services for those persons that do not have yet access to the formal banking sector. In order to arrive at a balanced opinion about the potential demand, an overview is given of the number of micro and small enterprises in the Netherlands and its geographical distribution. This is followed by a discussion of the various parameters that may determine the estimate of the potential demand. In order to do so we make use of the results of a number of studies that were recently conducted about the micro credit, microfinance and the micro enterprise sector in the Netherlands. Those parameters are then used as input for the integral calculation of the demand following the methodology developed by EMN for this study. 3.1 Studies about microfinance in the Netherlands related to potential - demand Over the past four years micro credit and microfinance in the Netherlands received growing attention from policy makers and practitioners. The question arose whether this financial instrument could eventually play a role in either the search for further social inclusion of people left aside in society, in boosting the economy in general, in promoting entrepreneurship or in urban development (e.g. improving the quality of life in selected urban areas). The debate has been fed with data from various studies most of them commissioned by the Netherlands Ministry of Economic Affairs and of late by the National Advisory Council for Microfinance in the Netherlands. From those studies, each with a slightly different focus, the parameters can be derived that are relevant for determining of possible demand for micro credit Number of starting enterprises stable over the years Over the past five years the actual number of enterprises that have started fluctuated between to This figures only increased significantly in 2007 with reported to have started. This increase is attributed to the fact that in that year a new form of enterprises the ZZP Self-employed without Personnel- was recorded. It remains to be verified in the coming years whether the growth figure has now increased structurally. It is known that 90% of the starters are small and micro entrepreneurs, thus again this figure fluctuates between and Starting enterprises requiring micro credit Triodos Facet / SEON 20 investigated among others how enterprises financed the start of their company. On the basis of registered enterprises at the Chambers of Commerce in Amsterdam, Rotterdam, Utrecht and The Hague (table 1) According to this 22,9% of the operating small enterprises started their own company with a micro loan from banks (20,7%) or from the government (2,2%). 20 Triodos Facet B.V. Een nog onontgonnen gebied, microkredieten in Nederland, kansen en uitdagingen voor banken en starters, ( Micro credits in the Netherlands, opportunities and challenges for banks and start-up enterprises), Ministry of Economic Affairs, SEON 2008 Microfinance market study in The Netherlands 11

17 21 Table 1: Financing start of the company Financing start of their company N=178 Little investments needed 16,2% Own finances 36,3% Family, friends, relatives 14,0% Company taken over from father/parents 10,6% Bank loan 20,7% Loan with government/ BBZ 1,1% Private loan at the bank 1,1% Source: Micro credits in the Netherlands, a green field, chances and challenges by Facet / SEON, 2006 The above table shows that 53,1% of the starting companies did not need additional money to start their company; 22,9% of the starting entrepreneurs received a loan from a bank or the government and 14% asked their family, friends and relatives for a micro credit. Some of these entrepreneurs were refused by a bank but others preferred to ask their family, friends or relatives in stead of asking a bank loan because of the conditions. Relating the 22,9% to the number of started enterprises in 2007 means that of the starting companies in needed a micro credit from a bank when starting their company. Part of the persons who finance their businesses with external funding from friends or relatives can be considered potential and unmet demand from the banking sector. Triodos Facet estimates this to be 50% of those who finance now with own funds and again 50% of those that borrow from friends and relatives e.g. 50% *(35%+15%) = 25.5% and the calculate that to be people Already operating enterprises requiring micro loans Bartels (2004) 22 reports that on average 28% of the loan requests are rejected by banks, while 39% of the loan requests up to are rejected. They also report in a study among enterprises that 40 enterprises (e.g. = 2,6% or 40 of 1.519) on a yearly basis submit loan request up to (see table 2). Table 2 : Operating businesses requiring external financing/ loans Size Very small enterprises Small enterprises Starters Operating enterprises Growers Total (N=84) (N=73) (N=83) (N=157) (N=23) (N=240) Micro credits up to euro Larger credits varying from euro 39% 30% 42% 37% 17% 39% 33% 18% 17% 24% 12% 22% Total 36% 19% 27% 28% 13% 28% Source: Small Credits to Small Enterprises by Buro Bartels, This was confirmed by the study by EIM (2007) focused on small and medium enterprises up to 500 employees in existence already for more than 2,5 years. They report that 14% of those companies indicated to be interested in finance between and and 18% of these companies were also interested in a loan from a bank. 21 The information in the table below reflects the experiences of operational enterprises only. It is unknown how many entrepreneurs could not start / continue their company because they were lacking the required start-up capital. 22 Bureau Bartels B.V, Kleine kredieten aan kleine ondernemingen (small loans to small enterprises), Ministry of Economic Affairs, June It is striking that the results of the studies by Bartels and EIM reveal nearly the same percentage (2.6%, 2.5%) of existing enterprises applying for a micro credit at a bank and the conclusion is that approximately already existing companies will in 2008 need a micro credit from a bank when starting their company. Further assessment of these data are required to find out to what extent one is quoting the other. SEON 2008 Microfinance market study in The Netherlands 12

18 Extrapolating these data on the assumption that 2,5% of companies this implies that 2,5% of companies are interested in a bank loan between and , so already existing enterprises will apply for a micro credit in Number people who are thinking to start their enterprise McKinsey Consultants carried out a study (2007) for the National Council on Microfinance based on the biggest national on-line survey They estimate that about 25% of the economically active population thinks about starting one s own company e.g. 3 million persons. Of them, 20% e.g people have actual plans to start their own business in the next five years. (See figure 2). Figure 2: 3% of the 3 million people thinking of starting an enterprise, actually Of a total of 3 million people who consider to start only 3% actually do so (data in 1.000s) Wage Empl. >12 hrs, wk % Wage Empl <12 hrs wk / 100% unempl. Housewifes/ - men Ambition annually Others % extra enterprises Consider Start SME Specific plans Start - business Source21minuten.nl, 2006, KvK Ondernemerschapsbarometer 2007 Source: 21minutes.nl, Mc Kinsey Company So on an annual basis 1% of the population has actual plans to start their own company. This figure implies that persons (= 1% x (Dutch population between years) yearly have concrete plans to start their company. This figure is far higher then the results of the barometer as presented by the Chamber of Commerce in In their survey distinction has been made between people considering starting their own company and people with already specific plans to start their own company. The barometer reports that 2% of Dutch population (18-64 years) during the time span of 5 years have plans to start their own company. That implies that annually 0,4%. e.g persons (= 0,4 % x of the Dutch population between years) have concrete plans to start their company. A closer look at the Mac Kinsey data and that of the Chamber of Commerce relating them as well with the number of businesses started annually in the Netherlands (for years fluctuating between SEON 2008 Microfinance market study in The Netherlands 13

19 and ) we dare to state that the Chamber of Commerce barometer data are most probably related to people with real plans to start and the Mac Kinsey data with intentions to start. That would indeed imply that there might be an enormous reservoir of potential starters e.g. clients for micro lending (and other services) Actual number of micro credits approved by non financial institutions and banks The actual number of micro credit in the Netherlands is still rather low (not taking into account the small loans extended by the formal banks). The organisations and funds that claim or intend to be active primarily to offer micro credit have only extended 200 micro loans in On top of this one needs to add the loans under the BBZ programmes. These figures however do not reflect the actual demand. The rate of the approved loan requests (Triodos Facet 2006) is on average about 25%, so rather low 25. The participating non-financial institutions and banks have an open mind for supplying micro credit as they have chosen themselves for this type of project. Therefore the high rate of rejected micro-loan requests 75% is at least remarkable and indicates that the quality of the business plan and / or the characteristics of the entrepreneur are far below the required standards (or that the applied evaluation systems are too rigid). An important conclusion is that the potential demand for micro credit by people who want to start their own enterprise is far higher than the realistic demand for micro credit A European comparison EMN Data For several European countries the number of micro loans (in the lower range e.g. 400 to 2.000) per inhabitants are presented in Table 3. They arrive at an average of 0.83 micro loan borrowers per inhabitants for a selected number of European countries. As said in paragraph 3.3 the Council of Microfinance concluded on their background information that the number of actual approved micro loans in the Netherlands amounts 200 per year (the BBZ start-up loans in the range of not taken into account). Extrapolating this figure would imply that the number of micro loans in the Netherlands could be significant higher than at present, namely versus the actual 200. Table 3: European comparison of demand for micro credit Country Population million 2007 Number of Micro loans in 2006 Number of micro loans per inhabitants France 63, ,26 Germany 82,4 5,983 0,73 UK 60, ,49 AVERAGE 0,83 Netherlands 16,6 200 It remains doubtful whether this extrapolation is reliable as it does not cover the number of micro loans and/ or other forms of external financing besides the ones reported by existing MFIs. 3.2 Calculation of potential demand for microfinance in the Netherlands The results and data of the respective studies and researches described in the foregoing paragraphs serve as parameters to determine the potential demand for micro credit. We have therefore used the new methodology for calculating the potential demand for micro credit as developed by EMN. This methodology is based on the reasoning that the demand for micro credit is determined by: 24 This can only be proven to be true with piloting programnes following the theory of demand follows supply as argued by Ms. Nowak accompanied by in-depth probably longitudinal - research. 25 One bank, the SNS, even reported the rate of approved loans of only 3,5%. SEON 2008 Microfinance market study in The Netherlands 14

20 1. The number of people excluded from traditional commercial loans 2. The number of people having started already their company or wish to do so in the following year 3. The annual need for a start-up or development loan in the following year 4. Having set the upper limit for the external financing sought at for the Netherlands Other features of this methodology include the fact that it attempts to calculate annual demand and that it initially separates the demand for start-up loans from the demand for development loans. The methodology also attempts to differentiate between non-bankable demand (less than ) and bankable demand (between and ). It is quite debatable whether this definition of bankable- non-bankable can hold ground for the Netherlands. The studies earlier on mentioned report that the access to banking services is limited for any person applying of a loan below Nevertheless it is believed that it makes sense to make a distinction between two ranges of micro loans e.g. below and around The first category relates mainly to economic activities that generate an additional income for the client. In the second category we come across people who wish to set up viable businesses that generate decent work and a reasonable level of income. This category is better services by banking institutions jointly operating with organisations rendering support services such as mentoring and coaching. The first category can be catered for by non banking financial institutions such as NGO like MFIs (of which there are very few in the Netherlands). The National Advisory Council on Microfinance acknowledged this fact and propagates this two stream approach as well. For that reason it is advisable to determine the demand for both categories Starting point is the number of people considered to live with a (relatively) low income. The income situation in the Netherlands as per 2007 has been used as reference (see chapter 2) reporting 7.3% of the households considered as low income households. For the Netherlands the calculations are further based on data and parameters from the studies on microfinance in the Netherlands by McKinsey (2007) and Facet (2006), and where needed corrected and/or refined based on the other studies discussed here. A. Number of poor people ( active people in the Netherlands * 7,3% (% low household income) B. Percentage of people who wish to start their own 25% according to McKinsey (see chapter 3.4.1) company C. Among those who wish to start their own company, 20% (see figure ) percentage of people who wish to start their own company in the following year D. TOTAL (A*B)*C Number of poor people who wish to start their own company in the following year E. Among those wishing to start their own company in the near future, percentage of people needing to borrow in order to start their company F. TOTAL D*E % (according to Facet study the following people would borrow money if they could: 36% starts with own money 15% will borrow from family 22% will ask the bank In total there are people in the Netherlands who are poor, wish to start their own company in the following year and who will require a loan. SEON 2008 Microfinance market study in The Netherlands 15