Borrowing seen as way out of poverty trap

Wednesday, August 23, 2006

From a concept first used in the developing world, microfinance has recently expanded to Europe. Hundreds of government- and private-funded initiatives have sprung up to fill the void opened by the reluctance of European banks to lend money to the poor or unemployed. Excerpt: An elegant Parisianwoman sipping her cappuccino in a caf?on Boulevard de Bonne Nouvelle is one of the last people you expect to launch into a passionate tirade about microfinance.

Yet Maria Nowak is no ordinary Parisienne. Not only is she one of Europe’s top authorities on microfinance – small loans for poor people excluded from the banking system – but the 69-year-old Polish-born economist is also the founder of France’s first microfinance lender.

“In France, we lend only to the rich,” says Ms Nowak. “There is a failing in the market. When you are unemployed or on welfare, you immediately get a negative reaction, an assumption you are a waster, not interested in work.”

From a concept first used in the developing world, microfinance has recently expanded to Europe. Hundreds of government- and private-funded initiatives have sprung up to fill the void opened by the reluctance of European banks to lend money to the poor or unemployed.

The European Commission says ?3.5bn ($4.5bn, ?2.5bn) of microfinance – defined as loans to small business below ?25,000 – was provided in the European Union’s 25 member states in 2001. Romano Prodi, the Commission’s outgoing president, says: “The scope for microcredit in Europe is enormous and constantly expanding.” The United Nations will today declare 2005 as the International Year of Microcredit.

“Almost all new job creation comes from individuals, not from big companies, as most people assume,” says Ms Nowak. The Commission reckons 90 per cent of the 2m businesses created in Europe every year have fewer than five employees. A third are launched by the unemployed.

Source: Financial Times (link opens in a new window)