The scope of this factsheet is to serve as guidance for European Social Fund (ESF) managing authorities that decide to set up a microcredit financial instrument. In order to support vulnerable persons and micro-enterprises, a microcredit is a suitable financial instrument to combine European Union (EU) funds with public and private resources to provide access to finance, in particular, loans for business purposes, to vulnerable groups usually excluded from mainstream finance.
A microcredit should target vulnerable persons and micro-enterprises who have limited access to finance, while small-sized loans normally carry higher interest rates. A dedicated financial instrument backed by ESF would bridge the financing gap and provide more funds at preferential conditions, together with non-financial services.
The factsheet constitutes a step-by-step guidance on the key points of setting up a financial instrument based on the experiences and lessons learned in the 2007-2013 and the present programming period and is articulated in ten steps which answer to the following questions:
- WHY and for whom a financial instrument?
- Choosing the aim of the financial instrument
- Defining the target group – final recipients
- WHO is involved?
- The managing authority’s role
- Identify the implementing bodies
- WHAT kind of financial product?
- Define the financial product
- Lending policy
- Pricing policy
- HOW shall the financial instrument be implemented?
- Non-financial services
- State aid implications
- Reporting and targeted results
For each of the ten steps, besides providing synthetic operational suggestions, alternative implementing options are presented and discussed. In addition, to better understand the overall framework and to stimulate further thinking, data and additional technical information are contained in a short paragraph (facts and insights) at the end of each step.