Micro credits in Italy
IN ITALY NO SPECIFIC PROVISIONS SUPPORT MICROFINANCE
• there is no specific rule recognizing and regulating Microfinance and Microcredit. Both are ruled by the Act Testo Unico Bancario;
- Microfinance and Microcredit are not included among cooperation activities;
- Some regional or provincial provisions back up decentralized co-operation interventions but do not make out what Microcredit means.
“Provisions to reorganize the regulation concerning civil and fiscal law for bank foundations and to regulate Ethical Finance”.
This bill was proposed to the Senate in 1997; it gave a definition of what Ethical Finance should mean:
All the asset flows assigned to the promotion of social-economic initiatives for the development of underprivileged areas and communities, both on national or international basis, with the objective to assure all people the satisfaction of the fundamental needs, respecting environmental and social values.
The draft of law also specified that:
Ethical Finance relationship are not possible with enterprises dedicated to the production or trade of weapons or substances hardly dangerous for health or environment, or implying child labour.
The bill did not have any consequence.
In November 1998 it was absorbed by another law for the reorganization of the provisions concerning civil and fiscal law, which was approved in December 1998. In this Act there is no reference to Ethical Finance, neither to the promotion of micro-entrepreneurship through international co-operation.
Who grants Microcredit in Italy?
Mag Co-operatives:
- MAG co-operatives, financial self-managed cooperatives with no profit principles.
- These financial co-operatives support small enterprises development, through small financing (up to €20.000).
- The Act regulating the Italian credit system also applies to MAGs, even if its terms are hardly adaptable to their needs.
- MAGs must register at the Ufficio Italiano Cambi in order to be recognized as authorised brokers.
- MAGs are subjected to a minimal capital commitment of about €500.000.
- In 1994 the Testo Unico Bancario introduced the prohibitions for MAGs to collect savings from its members. This limitation concerns only members as natural persons and not as legal ones.
Commercial Banks
Banca d’Italia (Italian Central Bank) worked out a survey about Italian families’ balances. 85,9% owns at least one financial activity and 14,1% is considered in condition of financial exclusion. This part of the population does not have any interlocutors within the official banking system.
Recently some Commercial Banks have joined Microcredit projects:
- Co-operatives Banks,
- Big Banks testing Microcredit programmes
- Banca Popolare Etica.
Co-operative Credit Banks
• Operate with mutuality and solidarity, collecting money over the territory with a long term perspective, turned to future generations.
• The Co-operative Credit Bank of Rome in partnership with Farmacap (the society managing municipal pharmacies in Rome) and XI Municipio of Rome have started a Microcredit program directed to immigrants and old people to facilitate the employment, the purchase and the chartering of vehicles, the access to medical cures.
• Farmacap created a €500.000 guarantee fund to cover eventual bad debts.
• In Brescia was signed an agreement among 11 provincial Cooperative Credit Banks, the Province of Brescia, trade-union representations, 3 administrators engineering enterprises near bankruptcy condition and the National Institute for Social Security (INPS)
• Co-operative Credit Banks granted individual financing without imposing any interest rate or any charge.
• The reimbursement time was correlated to the settlement time, by INPS, of the contributions of the extraordinary redundancy payments.
Banca Popolare Etica (BPE)
It is a credit institution offering financial services to the Third Sector:
- Social co-operation and organised social work;
- Environmental associations and organic agriculture;
- Development co-operation in third world countries, fair trade;
- Cultural educational initiatives.
Banca Etica Microcredit services are divided into:
- Microcredit for Enterprises;
- Consumption Microcredit.
Microcredit for Enterprises
- Unsecured loan for amounts up to €25.000, repayable in 60 instalments with a 6% fix rate.
- No guarantees are demanded to the micro-entrepreneurs.
- Special guarantee fund provided by partner agencies.
- Directed to microenterprises working in economically depressed areas.
- Target: disadvantaged subjects or people living on the margins of the society.
- Supports start-up, consolidation and capitalisation of microenterprises.
Consumption Microcredit
- Provides maximum amounts of €7.500 repayable in 36 monthly instalments with fix rate not higher than 5%.
- No specific assurances are asked.
- Goal: to promote and support the housing inclusion (cautions, contract registration fees, rent, furniture purchase), medical fees, scholastic expenses, other family extra charges.
- Directed to immigrants, precarious workers, single-income families, nomads.
BPE’s activities
- BPE works in partnership with no profit agencies and public bodies.
- Has started some Microcredit projects with the collaboration with Italian Caritas at a national level.
- This agreement was signed to grant loans to subjects belonging to weaker target of the population and it is directed to Italian or immigrant families living in one of the dioceses involved.
Microcredit Characteristics
• Maximum amounts: €5.000.
• Maximum duration: 36 monthly instalments.
• Fix cost of fees: €20.
• Housing inclusion, subscriptions, medical fees, scholastic expenses.
• Diocesan Caritas has to perform tutoring and accompanying functions and manage local projects.
Compagnia di San Paolo
• No profit foundation with banking origin, which pursues aims of public interest and social use.
• In 2003 it promoted the project “Social Microcredit”.
• Target: Italian or foreign people going to start or expand businesses, but having difficulties in gaining access to the traditional credit network.
• The project took place in 5 areas. It involved local bodies of reference in:
1. Province of Rome;
2. Province of Naples;
3. Province of Turin;
4. Province of Genoa;
5. Province of Venice
• Bodies of reference collect requests, carry out preliminary questioning and tutoring activity.
• Amount: from €1.000 to €20.000 (if natural person) / €35.000 (if legal co-operative);
• Rate: Interest Rate Swap + 0,5%.
• Guarantee fund covers 100% of the single granted financing.
• San Paolo IMI and San Paolo Banco di Napoli make final exam on the credit rating.
• The banks monthly communicate to the bodies of reference the statement of the financing in progress.
• In case of bad debt of 3 consecutive monthly instalments, the banks act the guarantee for the total remaining credit made up with capital and interest rates
Monte dei Paschi di Siena
• Started - in partnership with the Foundation Monte dei Paschi and the Misericordia from Siena - a Microcredit project for people not eligible for ordinary credit such as families with low income.
• The convention, signed in 2003, assigned an important role to the “voluntaries” responsible for assisting the grantees. They also carry out banking financing inquest and submit the requests to the Central Credit Commission.
• They are professionally prepared and assist financed subjects through a tutoring activity.
Loan characteristics
• maximum amount: €7.500;
• redeemable in 60 monthly instalments;
• rate: ABI Prime Rate in force at the time of the grant but reduced of 0,5%;
• rate kept unchanged for all the period of contract;
• no further charges or fees on financing.
According to research carried out by rhythm (Italian Network of Microfinance), micro-credits granted in Italy have quintupled in the last two years, a demonstration of how microcredit has much potential as a tool for social inclusion and combating poverty, although to date developed without an appropriate reference standard (the only reform proposal TUB ontiene also rules on micro-credit).
Ethical Bank, through its Cultural Foundation, adheres to the rhythm (Italian Network Micro Finance) and in relation alleconsultazioni convened by the Ministry of Economy and Finance on the draft legislative decree, Ugo Biggeri (President of Banca Popolare Etica) explains: “In that context we have argued, based on our experience, the importance of recognizing the two types of microcredit: that aimed to employment and start-up of small individual enterprises, but also social welfare to address the economic difficulties of socially weak groups. But we see that the text of the government – while acknowledging the existence of micro-credit welfare – he considers residual and less impact: a choice that seems short-sighted in the current loss of purchasing power of households, and rising unemployment ” .
But Banca Etica itself endorses the choice to include in the government recognized the importance of “ancillary service” that characterize the activities of credit, such as listening to people in need to help them overcome the crisis and into a sustainable economic status and dignity and support in the creation of new economic activities.