EMN 2008-2009 Overview - Réseau Européen de la Microfinance

5.4 Guarantees
Risk can be mitigated by securing loans
through collatera 28 , guarantors 29 , guarantee funds,
personal savings and peer group pressure. In
Eastern EU countries such as Hungary, Bulgaria,
Latvia and Romania, where achieving operational
sustainability is a major goal, most organisations
make secured loans through collateral.
For clients, however, the need to provide
financial or in-kind guarantees may be difficult
if not impossible and potential borrowers may
be excluded. According to EMN (2006b), this
appears to be an issue of particular importance
to women and immigrant borrowers. Taking into
account the significance of these two risk groups
in the microcredit sector in Europe, it may not be
surprising that 59% of respondents (16% more
than the last survey), make unsecured loans with
the aim of providing financial funds to those with
no access to credit due to their lack of income or
assets. These types of lender offer microloans
observing the main principles of microcredit
without guarantees.
Many countries require guarantees that take
the form of the State, the European Union or other
banks that guarantee funds, which could be a
Graph 28: Loan security
No guarantee
Bank/ public/eu
Guarantee Programme
Collateral
Guarantee
Friend or Family
Peer Group Guarantee
Borrower contribution
Personal Savings
5.5 Loan size
The standard definition for microloans in
Europe is loans of 25,000 euros or less. However,
the average loan size provided by the microlenders
surveyed ranges from 220 euros to 37,000 euros.
Loans above the 25,000 euro limit are offered by
result of new strategies that are being undertaken
by governments or the European Union to
strengthen the microcredit sector through specific
programs. Due to these requirements, 52%
of respondents stated that banks, national or
supranational programmes are used to guarantee
loans. Another way to secure a loan is with
collateral or by obtaining a guarantee from a friend
or a family member (guarantor) who accepts legal
responsibility for all or a portion of the value of
the loan or loan balance and fees at the time of
default. Collateral and guarantees were required
by 49% and 41% of the respondents, respectively.
Microcredit using peer guarantees is used less
than with other types of guarantee in Europe,
probably due to the individualistic nature that
makes it different from the type of community
based lending seen in other parts of the world.
Personal contribution in the form of savings or
other personal contributions is the least common
form of guarantee. This is not surprising given that
microcredit works with that part of the population
that is most vulnerable to external shocks that
could inhibit their capacity to save regularly and
put aside a portion of their savings specifically for
the microcredit product and not for other, more
pressing needs, like lifecycle events.
0% 10% 20% 30% 40% 50% 60% 70%
13%
12%
PeRCeNT oF ReSPoNDeNTS
25%
one institution in Belgium, two in Hungary and
another in United Kingdom that all support job
creation and microenterprise promotion.
The average loan size across the entire
sample is 9,641 euros (please see previous
Graph 68 of average loan size per country),
almost 1,300 euros less than the previous
28 Collateral refers to physical assets such as a home, a car, business equipment that is offered to secure the loan.
29 Guarantors refers to a guarantee provided by someone known to the borrower (friend or family member) who is willing to assume full or partial
responsibility for repayment of the loan (sometimes this person is called a “co-signer” or “guarantor”).
41%
49%
52%
59%
43