microStart – the French model of micro-credit spreads to Belgium
The first microStart office opened in St-Gilles in the south of Brussels in February 2011, and the second office opened across town in Schaerbeek in June. Since then it has contacted 750 clients, made 133 loans worth a total of €655,000 (average size €4,900), and achieved a repayment rate of 97%. CEO Patrick Sapy told the story at a recent EIPA seminar.
microStart sprang out of the 20-year-old partnerships between ADIE, the initiator of microcredit in Western Europe, and three banks which have since merged: BNP, Paribas and Fortis. ADIE’s expansion into Belgium goes back three years, to the days when Fortis was still a Belgian bank, when it approached ADIE with a view to starting a microcredit operation in Belgium. The result is that microStart’s capital of €1.21m comes from three sources:
- BNP Paribas Fortis holds 78.5% as well as making credit of €1.3m available at 2.25%
- The EIF holds 20.5% under the EPMF and guarantees loans at the rate of 75%
- ADIE holds the remaining 1%
However this capital structure does not make MicroStart a subsidiary of BNP – because it is a co-operative, voting is one-member one vote, and ADIE, on account of its massive know-how, nominates the majority of the directors.
Co-operative & associative structure
The structure is dual. One the one hand is the lending operation, MicroStart scrl-fs, which is a social enterprise (a Belgian co-operative with a social objective), and employs nine staff. On the other hand is the business support service, MicroStart Support asbl, which is a non-profit association run by some 50 volunteers. MicroStart scrl-fs borrows from BNP Paribas Fortis for on-lending to clients, and benefits from an EIF guarantee. Meanwhile MicroStart Support accompanies the clients free of charge.
MicroStart offers two type of loan:
- Individual: loans of between €500 and €10,000, over a period of between 6 and 36 months, at an interest rate of 8.25% and with up-front fees of 5%. A personal guarantor must be found for half the loan amount.
- Group: loan of up to €1,500 per person for 12 months, also at an interest rate of 8.25% and with an up-front charge of 5%. Here, the guarantee is through a group of supporters.
The loan approval system is very client-oriented. MicroStart asks for no written documents – after all 16% of its clients are illiterate. Foreign nationality is not an issue – 90% of clients are born outside Belgium. No specific business activity is excluded and no equity is demanded. Step loans are offered – a small starter loan may be followed by a larger one once it is paid back. And service is quick – the time from application till disbursement is 10 days.
MicroStart reaches out proactively to its target market: staff make presentations to community groups, and contact potential clients – such as vendors – in person. It also offers internships to people from ethnic community organisations, so as to build up a pool of intermediaries.
The clients are predominantly out of work – 58% are unemployed or inactive. But a surprisingly high share of 29% is self-employed, and the remaining 13% are employees. Just four of the loans so far are to groups, a fact Mr Sapy links to the fact that many of the borrowers in Belgium have origins in Central Africa, and don’t have the familiarity with collective financial structures like tontines that are common in West Africa, where many of ADIE’s French clients have their roots. The three biggest three sectors that clients choose to set up in are unsurprising: 39% go into commerce, 13% catering and 15% other services.
The business support comes in the form of personal coaching plus regular group sessions – permanences – on different topics, such as the basic management qualification that people starting a business in Belgium generally need to obtain.
The ethics of taking security
The subject of security evoked a sharp reaction from staff of the Italian microcredit authority, who pointed out that under Italian law, it is illegal for microcredit providers to ask for security. The logic behind this is that microcredit is meant to serve those whom the banks refuse, and it you ask for security then you are failing to reach the “poorest of the poor”. Recent immigrants in particular don’t have the large social networks that make finding a guarantor easier. Mr Sapy responds that the French system has worked that way very well for 20 years. Moreover, in practice the guarantees are never called in. What happens is that if a repayment is late, microStart contacts the guarantor – and pretty soon thing are sorted out. In addition, microStart doesn’t interpret the concept of security so rigidly as most other banks, so it is not so much of an excluding factor. It is much more interested in the strength of the personal relation between the borrower and the guarantor and, for instance will take unemployment benefit into account when calculating whether the guarantor has sufficient revenue to pay up if it comes to the crunch. So in reality there is no overlap with banks, which is what the Italian legislation is designed to prevent.
microStart is still far from sustainable – with a 6% margin and nine staff it would need to make 5,000 loans a year to break even. There is an irony that the main funder, BNP Paribas Fortis, seems to suffer from schizophrenia, for by supporting microStart it is lending to the very customers that its mainstream operation turns away. Mr Sapy points out that the bank does in fact benefit in several ways. Quite apart from the moral reward of seeing the good that it does, it improves its image and also, by bringing in ADIE’s hard-won know-how, gives a start to businesses who, in time, may well become its commercial customers.
See also: Video of MicroStart client and baby carrier maker Diane Mbarushimana: http://ec.europa.eu/social/main.jsp?catId=950&langId=en&videosId=2562&vl=en&furtherVideos=yes
Source: Presentation by Patrick Sapy at EIPA seminar “Better Access to Finance: Using the EU Microcredit Initiatives”, Brussels 29-30 March 2012