Microfinance Focus Europe, 24 August 2013: In September of 2011, TrustLaw, a legal news service run by Thomson Reuters Foundation, released a report titled “Creating Jobs in Europe: Legal and Regulatory Frameworks of Microenterprises and Microcredit in Europe.” French microfinance organization, Adie International worked with TrustLaw Connect to bring together 20 law firms to map existing barriers to development of microcredit, microenterprises and self-employment in all 27 Member States of the European Union.
In the wake of discussions concerning regulatory frameworks and environments for small business heard at this year’s EMN conference, we at Microfinance Focus felt it was appropriate to revisit the TrustLaw study. This study is particularly useful for potential borrowers and entrepreneurs in Europe, because a detailed analysis of regulatory frameworks of each member state is included in the final report.
If entrepreneurs are informed of the business environments in each jurisdiction, they can make better decisions on the location of their business. Additionally, the growth of small-businesses in countries with better environments for microfinance and start-ups could potentially cause other countries to rethink their policies.
The following is a list of some, but not all, of the regulations impacting small businesses studied, with excerpts from the report. To read the full report and detailed analysis per jurisdiction, click here.
1) Types of vehicles available and limitation of responsibility: “In most of the jurisdictions surveyed, the entrepreneur has a choice between operating a micro-enterprise as a self-employed individual or setting up one of several available types of corporate vehicles.”
2) Income support during start-up period: “The concept of the €˜start-up period€™ is not clearly defined in national legislation and the duration of welfare allowances may vary depending on the jurisdiction. The majority of the 27 EU jurisdictions provide that new entrepreneurs may qualify for unemployment allowances during the €˜start-up period€™ provided that they meet certain requirements. This possibility is provided for either through national legislation or European programs, as is the case in Greece.”
3) Loans and grant programs during start-up period: “Most of the EU jurisdictions (Austria, Bulgaria, the Czech Republic, Denmark, Estonia, Germany, Ireland, Italy, Lithuania, Luxembourg, the Netherlands, Poland, Portugal, Slovakia, Slovenia and Sweden) have launched programs that aim to help new entrepreneurs set up a micro-enterprise, generally through public loan programs.”
4) Availability of business development services: “Business development services may be provided jointly by governmental agencies, associations or specific authorities such as unemployment agencies. These organizations provide development training and assistance to new entrepreneurs in the course of the €˜start-up period’.”
5) Specific laws applicable to micro-enterprises: “Save a few countries (such as Romania, France, Hungary, Italy, Latvia, Lithuania and Slovenia) most EU jurisdictions do not have specific laws and regulations applicable to micro-enterprises.”
6) Specific laws applicable to microcredit: “The specific nature of microcredit is not generally taken into account in national or EU legislation. Indeed, in most jurisdictions, the provision of microcredit is considered a financial activity and falls in the scope of general applicable laws on financing and providing loans.”
7) Existence of a banking monopoly: “Many Member States have a banking monopoly, such as Austria, Cyprus, France, Germany, Hungary, Luxembourg and Slovenia. However, there are exceptions and certain jurisdictions offer the possibility for non-banking institutions to grant microcredit (as is the case in France).”
8) Type of institutions delivering microcredit: “Microcredit in all Member States is predominantly provided by commercial banks and credit unions, although it may also be provided by associations (which is the case in France through the association Adie, and in Italy where non-profit organizations have recently been allowed to provide microcredit), governmental agencies (as is the case in Sweden where microcredit may be granted by a state-owned corporation ALMI, which grants loans at a higher interest rate so as not to compete with private investors) or other non-bank institutions.”
9) Sources of funding for microfinance institutions: “Microfinance institutions predominantly receive their funding from public sources at national or regional level and various European sources. Additionally, funding in most Member States is provided through equity investments, member contributions to savings and credit cooperatives as well as lines of credit provided by banks.”
10) Existence of tax incentives: “Micro-enterprises and microfinance institutions in very few Member States benefit from exemptions from or reductions in income or corporation tax. Notably, lower tax rates are available to Romanian micro-enterprises as well as legal entities and the self-employed in Latvia who have been designated €˜micro-enterprise taxpayers€™.”