JOB CREATION BY BOOSTING ENTREPRENEURSHIP

HOW TO STIMULATE AND FINANCE THE CREATION OF MICROENTERPRISES ?

CICERO FOUNDATIONMarch, 11 2005

A - Why is it so difficult to stimulate the creation of

micro enterprises in Europe ?

« It is not easy to find a black cat in a black room, especially if the cat is not

there » (Confucius)

March 11, 2005 Cicero Foundation 3

36

163

1084

7447

9320

Informal sector

250 + employees

50 to 249 employees

10 to 49 employees

1 to 9 employees

No employees

Thousands of enterprisesSource : EUROSTAT

In spite of their importance, micro enterprises are not recognized in a

« wage labour » and a « welfare state » culture

March 11, 2005 Cicero Foundation 4

CCAS CLI

DDTE

City Hall

Prefecture

Chamber ofcommerce

URSSAF

ORGANIC

CANAM

ENTREPRENEUR

1

2

3

4

5 7

8

9

10

11

Taxcollectionoffice

6

• creates high fixed costs for small enterprises• increases need for administrative and business advice

Complexity of the regulatory and administrative framework

The real problem is not lack of entrepreneurship but a hostile

institutional environment

March 11, 2005 Cicero Foundation 5• results in an « informal sector trap »

Family allowances

Health insurance

Pensions

Micro enterprise BAnnual income : 13 850 €

Micro enterprise AAnnual income : 4 600 €

Micro enterprise CAnnual income : 12 290 €

Insurance contributions

2 339 €(51% of the income)

5 622 €(42% of the income)

7 427 €(41% of the income)

High national insurance contributions and difficult administrative transition

from unemployment to enterprise creation

March 11, 2005 Cicero Foundation 6

Access to credit and risk capital limited

o Banking sector regulations set a « usury rate ceiling » and give the right of borrowing and on-lending to the banks only

o Banking sector is reluctant to develop micro credit because of high operational costs, lack of collateral, lack of experience as regards a low-income clientele

o Majority of micro enterprises and especially micro enterprises created by unemployed have no equity

o Majority of micro enterprises are sole traders not eligible to risk capital

B - How to develop micro enterprises ?

Lessons from ADIE’s experience

3 success 'factors

March 11, 2005 Cicero Foundation 8

1) A demand-driven, bottom-up approach

o Association created in 1988 by three volunteers, without any capital, inspired by the Grameen bank experience

o Adie’s mission : help unemployed to create their own job

o A 5 years pilot phase allows to find clients, identify obstacles to self-employment, work out methods and control risk

o Initiative and entrepreneurship of the unemployed are the engine of the programme. ADIE provides access to financial and non financial services.

March 11, 2005 Cicero Foundation 9

2) - Partnership with banks

o Under the banking law an association can lend only out of its own funds.

o The banks are keen to extend their clientele and improve their social image if the association takes in charge all social and financial intermediation, controls the risk and externalizes the additional costs.

o The partnership with Credit Mutuel (1994) is extended to other cooperative banks and some commercial banks.

o The French Association of Banks helped ADIE to pass a law authorizing associations financing the micro enterprises created by unemployed to borrow and on-lend. The Government tries to eliminate the « usury rate ceiling » but faces the opposition of the Parliament.

March 11, 2005 Cicero Foundation 10

3) - Public support

o The additional costs of front-office, business training and advice are taken in charge by the Government, the European Social Fund and the Local Governments.

o The risk (6,5%) is shared between the banks (30%) and ADIE (70%).

o ADIE is counter-guaranteed by a public Guarantee Fund (FGIE) and the European Investment Fund.

o United Nations have chosen 2005 to be the International Year for Micro Finance: a true recognition

C - Results and lessons to be drawn

March 11, 2005 Cicero Foundation 12

Target population : qualifications

University Degree; 21%

Bachelor Degree; 19%

Professional Degree; 42%

I lliterate or almost

illiterate; 18%

March 11, 2005 Cicero Foundation 13

Poor workers4%

Others8%

Beneficiaries49%

Long-term unemployed17%

Other unemployed22%

Target population : social status

March 11, 2005 Cicero Foundation 14

Types of activities

Examples : Carpenter Painter Market seller Grocery shop Beauty shop Hair dresser Multi-services Mechanics Massage Tattoo shop

Services; 31%

Craft; 8%

Building; 11%

Agriculture; 5%

Trade; 45%

March 11, 2005 Cicero Foundation 15

Loans Granted

34 91 159 278 388698

852

12761492

1929

2844

3563

4618

53495587

0300600900

12001500180021002400270030003300360039004200450048005100540057006000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

March 11, 2005 Cicero Foundation 16

A well developed local network

o 22 regional delegations

o 104 offices o 300 rep officeso 6 initiative shops

o 287 employeeso 700 volunteers

March 11, 2005 Cicero Foundation 17

Diversity of financial products

o Loans for the creation and development of micro businesseso 5 000 euros maximumo Market interest rates (currently 5,2 %)o + Solidarity contribution (0.1% per month)o Term 24 months maximumo Personal guarantees from friends or family cover 50% of

the loano Progressive loan amounts and solidarity groups for income

generating activities in deprived areaso Complementary products

o Quasi-equity funds : interest-free subordinated loanso Regional grants associated with ADIE loanso Equipment loans to test the projects

March 11, 2005 Cicero Foundation 18

Other services

o Business training sessionso Marketing and legal adviceo Administrative, supporto Micro business circleso Internet forum and micro-entrepreneurs’

virtual association aimed at :o Exchange of experienceo Mutualisation of certain serviceso Information and training o Proposals to the government

March 11, 2005 Cicero Foundation 19

Operational results

o Active clients : 10010o Outstanding loans : 23,6 million euroso Number of loans disbursed : 30 000o Recovery rate : 94%o Number of micro enterprises created : 25 500o Number of jobs created : 30 614o Cost of creating a micro business (risk and

operational costs, including business support) : 2000 euros = 1/10 annual cost of an unemployed

o Survival rate (2 Years): 64%o Success Rate: 75%

March 11, 2005 Cicero Foundation 20

Pierre Electricity Amir

Open Market seller

Samira Street Shop

Vincent Internet

Why we exist?