Banking Regulations Must Also Factor in the Growing Role of Microcredit

This paper examines the legislative and regulatory obstacles to the growth of microcredit in Europe. Development of microcredit in Europe is hindered by social legislation and banking regulations that restrict lending, Europeans often unfavorable perception of individual initiative, and MFIs small size and often suboptimal management conditions. The paper states that banks and MFIs are not implementing enough practices that are best suited to promoting financial inclusion. Since banking is at the heart of the economy, banking regulations must take the growing role of microenterprises and microcredit into account. The paper proposes:

• Initiating action to remove obstacles to microcredits development;
• Organizing a European Forum that would interact with member states financial authorities and encourage them to make the required reforms;
• Providing specific incentives for banks to develop microcredit;
• Encouraging the implementation of the Jasmine project initiated by the European Commission that would provide technical assistance for MFIs.