microfinance and business start-ups · microfinance in europe and start-ups • 77% of mfis serve...
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Microfinance and Business Start-upsReview of the Current Practice in Europe
Webinar on 23 January, 2018
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Introduction
• Nicola Benaglio, Policy and Research Officer, EuropeanMicrofinance Network (EMN) [email protected]
Presentation of the key results
• Justyna Pytkowska, Research Manager, Microfinance Centre (MFC) [email protected]
Q&A session
INTRODUCTION
Research Objectives
Aim of the study:
• Exploring the conditions for business creation and start-up development and the role of microfinance vis-a-vis start-ups
Focus areas:
• the national strategies supporting entrepreneurship
• the role of governmental programs in supporting business creation
• overall financial and non-financial support offered to start-ups by financial institutions and other relevant actors
Methodology
11 country level case studies:
Albania, Bulgaria, Germany, Hungary, Italy, Macedonia, Montenegro, Romania, Serbia, Spain, UK
Start-up Ecosystem
Country level case studies:
• Desk study
• Interviews with key stakeholders
• Group discussion
KEY RESULTS
Entrepreneurship and Start-ups
• Similar levels of enterprise ownership across the countries – 5-7% of adultsrun a mature business (more than 3.5 years old)
• Different level of engagement in early stage entrepreneurial activity (4-10% of adults) with Romania and the UK in the lead
• Large differences in the entrepreneurial intentions with Romania and Macedonia in the lead
6.2 7.0 6.2 5.2 6.1 5.5 7.2 7.5
5.2 4.6 4.8 4.4
8.8 7.9 6.5 10.8
5.1 6.2 7.1 10.1
9.1 15.1
24.9
29.0
Spain Germany Bulgaria Italy UK Hungary Macedonia Romania
Entrepreneurial Intention
Total early-stage Entrepreneurial Activity (TEA)
Established Business Ownership Rate
Business creation rate as % of adult population
Source: GEM 2016
Entrepreneurship and Start-ups
Motivation for starting a business
• Different motivations to start a business:
• Personal preferences to be self-employed – UK, Bulgaria, Italy, Germany, Spain
• No other work alternatives – Albania, Macedonia, Montenegro, Serbia
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Neither of the two reasons
Combination of both
No other alternatives for work
Mainly through own personal preferences
Source: European Working Conditions Survey 2015
Entrepreneurship and Start-ups
Barriers to entrepreneurship and early-stage business development:
• Finding customers
• Access to finance
- Insufficient collateral
- Bureaucracy
• Starting a business conditions
- Number of procedures
- Time
- Cost
Source: Worold Bankąs Doing Business 2016
0
1
2
3
4
56
78
910
less than 2 years old
2 and more years
Severity of problems affecting young and mature SMEs
75
80
85
90
95
100
Starting a Business Score (Distance to Frontier)
Source: SAFE 2014
Start-up Ecosystem
• In every country studied a national strategy supports entrepreneurship, but the nature and scope varies among the member states.
• Focus on:
• Innovation, STEM industries
• Specific target groups
• Business creation (start-ups) or growth of mature firms
• Ecosystems for start-ups exist in every country and include a variety of institutions, public and private
• Funding for start-up support from public sources (national budgets, EU programs, non-EU foreign aid, EU country-to-country) and private (ownfunds of commercial banks, non-profit and not-for-profit institutions
Start-up Ecosystem
Source/Implementer State institution Commercial company
Non-profit, not for profit
Public (national, EU, international)
Employment officesBusiness development agenciesDevelopment fundsEntrepreneurshipcentres
Banks Business incubators
MFIs (Bulgaria, Germany, Hungary, Italy, UK)
Private X Banks MFIs (Albania, Bulgaria, Hungary, Macedonia, Montenegro, Romania, Serbia, Spain, UK)
Microfinance in Europe and Start-ups
• 77% of MFIs serve business start-ups and 16% of MFIs serve pre-start-ups
• Start-ups usually constitute less than 40% of the clients, although in case of 19% of MFIs start-ups are a predominant client group.
• In terms of the numbers, the majority of MFIs serve less than 1,000 start-ups each
• MFIs in Western Europe are more involved in serving start-ups
36%
9%
26%
49%
30%
17%
4%
9%
4%
17%
Eastern Europe Western Europe
>1,000 clients
500-1,000 clients
100-500 clients
1-100 clients
none
Source: Microfinance in Europe: A Survey of EMN-MFC Members. Report 2014- 2015
Distribution of MFIs by share and number of pre-startupsand start-ups among business clients
Start-up Ecosystem
Approach Examples of MFIs
Predominant focus on business start-ups
Youth Enterprise ScotlandSeed Capital Bizkaia Micro
Mix of start-ups and operating businessclients
Most of the MFIs
Ad hoc or special projects for business start-ups
Besa Fund
No start-ups among MFI clients About a quarter of the MFIs
Degrees of MFI involvement in serving start-ups:
Challenges
• Lack of clarity what is considered a start-up– No common definition makes it difficult to understand and compare
the approaches of institutions
• Limited access to funds– State funds committed to start-ups are used by state institutions, EU
funding is difficult to access by small MFIs
• Undermined sustainability of MFIs– High cost of serving start-ups aredifficult to recover without subsidies
• No products and services– No special products responding to the needs of businesses not
generating positive cash flow from the start
Challenges
• Limited capacity– No skills and methodology for assessing businesses without business
track record and credit history
• Limited non-financial services– MFI non-financial services available only in a few countries, rarely seen
in Eastern Europe
• Legal and regulatory sphere– Legal restrictions in several countries are a barrier to sector
development
Options for Strenthening the MFI Role in Start-up Ecosystem
• Definition of a ‘start-up’– Develop the common grounds for categorising businesses according to
their growth stage, rather than age
• Access to funding– Enable access to low-cost or free public funds – national and EU - to
reach more start-ups at an affordable price
• Risk support– Enable access to guarantee funds (national or EU) to reduce MFI risk
burden
Options for Strenthening the MFI Role in Start-up Ecosystem
• Financial products to better match the needs of start-ups– Develop products that combine features of a cash flow loan and equity
investment.
• Know-how on assessing risk– Develop alternative credit scoring tools that allow to assess risk in
absence of business history
• Business support services for start-ups– Add non-financial services to equip entrepreneurs with business skills
QUESTIONS AND ANSWERS
Read more …
• To read more, please visit MFC website to download the researchpaper:
Microfinance and Business Start-
ups: Review of the Current Practice
in Europe
http://mfc.org.pl/mfc-publications-
microfinance-centre-research-results/
Thank You!
This research has received financial support from the European Union Programme for Employment and Social Innovation "EaSI" (2014-2020). For further information please consult: http://ec.europa.eu/social/easi