EUKN - European Urban Knowledge Network - “Micro credit programmes should not just cover structural investments, but also operating costs”

“Micro credit programmes should not just cover structural investments, but also operating costs”

29-03-2007

The Italian regional development agency BIC Lazio is running a micro credit programme in which so called honour loans are provided to unemployed people with entrepreneurial ambitions. The programme has proven to be very successful so far. Since the beginning of the programme in 2001, almost 1,300 companies were established creating a total of 1,600 jobs in the region. Mr Luigi Campitelli, managing director of BIC Lazio, comments on the programme’s success and shortcomings.

What was the main reason to start the programme?

In 1999, the Lazio regional authorities charged BIC Lazio with managing the honour loan programme. This programme was constituted under the Regional law n. 19/99. BIC Lazio was a logical choice for executing the honour loan scheme. The programme perfectly fitted BIC Lazio’s mission to support enterprise creation in the region.

Is the programme based on other programmes around the world? With other words, what was the inspiration for the programme?

In the past there were several funding laws at the national level with the purpose of financing young entrepreneurship, for example through honour loans. A downside of these measures was that they were limited to specific geographic areas. They did not cover all of Italy. People living in our region could not apply for funding under these laws.

This was one of the reasons why the regional government decided to start its own honour loan programme.

The programme seems to be very successful: over 1,288 self-employment initiatives were started, over 1,600 jobs for unemployed people have been created. Are there any downsides to the programme? For example, have people had problems to repay their loans? How many of the 1,288 self-employment initiatives have proved to be sustainable over time? Have people involved in the self-employment initiatives been able to make a living of their new found entrepreneurial activity?

The programme has been very successful indeed. It has helped many people to find their way into paid employment with only a relatively small government investment. One of the shortcomings of the programme is, however, that it does not handle the access to easy terms finance, managed by credit institutions. A crucial point is to cope with bid bonds requested by banks. (In bid bonds, banks review the qualifications, background experience and personal solvability of the applicant - EUKN)

BIC Lazio provides its clients with a pre-feasibility study aimed at evaluating the economic and financial plan of the proposal. This activity ensures a positive productivity for the first three years of the new company. A tutoring service supports the company during the start-up phase. This helps applicants in getting the additional bank loans needed to start up their businesses.

Apart from the statistical evidence of the programme’s success, are there any specific success stories to be told? Which initiative started up with an honour loan was most successful?

The programme has encouraged the start up of many successful SMEs. For example, there is a company that is now in the start up phase. They just presented a business plan for the production of a new brand for young people, which will be sold exclusively by means of e-commerce. The majority of the loan we provide will be used to set up the digital infrastructure and website. This project looks very promising. A company that has already proven its success is La Bio Bottega. It is an SME that produces a wide range of organic products, ranging from bags and accessories to organic food. All products are sold online and delivered at people’s homes.

The business category mainly financed in the honour loan programme are beauty centres. These companies seem to be most likely to make a profit as well.

Do you think BIC Lazio’s honour loan programme is transferable to other regions and cities as well? Would you recommend to other cities to implement such a programme?

The principles of the honour loan programme are, we think, easily transferable to other regions. The programme offers solid support to unemployed people with entrepreneurial aspirations, but who are lacking the financial resources to act upon these aspirations. We would recommend the programme to other cities. One of the strong points of the programme is the low level of bureaucracy involved - the form that future participants have to fill in is considered very user-friendly and less bureaucratic than others.

When implementing a project such as the honour loan programme, what are the pitfalls?

Firstly, the honour loan programme in the Lazio regions requires that the financial support for the company comes from two sources. One is a grant directly managed by BIC Lazio and the company, the other is a loan deal by all banks involved in the programme. This second source can create barriers for further success for fragile start up companies.

Secondly, from our experience we recognise that it would be better if the entrepreneurs would be able to use the financial support to cover a part of their operating costs during the start up phase. At the moment the money provided by means of the honour loan can only be used to cover material investments such as machinery, equipments, software and furniture.