Microcredit for Small Businesses and Business Creation : Bridging a Market Gap

This report summarizes the findings of 26 national experts on micro credit and the relevance of these to small enterprises in the European Union. The report discusses the reasons behind existing market gap for micro credit available to small entrepreneur.

The report cites high transaction cost and risk perception as the reasons to provide public support to micro credit lending institutions. While emphasizing the need for micro credit to small enterprises, the report highlights risks involved in making such loans and suggests creation of guarantee funds and tax incentives to encourage institutions to make micro credit available to small enterprises.

The report arrives at following observations after reviewing the work being done in Europe on micro credit:

• Access to credit is a major issue for small and micro entrepreneurs;
• Soft loan approach does not allow micro credit institutions to become sustainable;
• Business service approach must be integrated with credit disbursement;
• New micro credit institutions have emerged as the demand and supply gap has increased in micro credit.

The report makes following recommendation to improve access of credit for small entrepreneurs:

• Strengthening European and National Partnership in microfinance;
• Developing enabling environment and public support;
• Assessing micro credit institutions performance and management quality.