Since 2010 Europe has introduced the European Microfinancing Mechanism “Progress”. This Mechanism enables selected microfinance providers in the EU to increase their lending by taking the following steps: by providing guarantees to microfinance providers (and therefore jointly assume the risk of loss), and by financing the increase of amounts available for micro-loans.
Since the first of July 2020, the world established microfinancing concept has been voted in the Greek Parliament as the 4701/2020 law, and the framework for granting short loans will have been configured during the fall, and by the end of 2020, is expected that the microfinancing will commence, in the Greek market.
What is microfinancing?
The microfinancing notion refers to a credit of 25,000 euros, and the purpose of the newly introduced law is to form the regulations referring to the rights and obligations of micro-funding corporations as well as of the beneficiaries, along with any transparency issues that may arise during the process.
Microfinancing institutions and beneficiaries.
According to Greek law, microfinancing institutions that are established in Greece can participate in the procedure after acquiring an operating license issued by the Bank of Greece. The decision on a micro-financing license is granted three months after the submission of the supporting documents and any necessary supplements. Moreover, the initial capital that they are obliged to deposit in the Bank of Greece was set at 250,000 euros.
On the other hand, microfinancing beneficiaries are very small entities, individuals engaged in individual business activity and Institutions of Social and Solidarity Economy, individuals belonging to socially vulnerable groups with at least ten years of tax residence in Greece, beneficiaries of public policy implementation programs, as well as individuals with the purpose to cover expenses related, directly or indirectly, to their education or training or apprenticeship.
Licensing requirements
For the Bank of Greece to license the constitution, there must be a submission including the following information about the interested corporation: Articles of Association, data referring to the company’s identity, its participants, the corporation’s activity and inside organization, its credit risk management, its establishment and branches (in Greece or else), its Information Systems, etc. Beyond the above, any other necessary supporting documents are specified in each separate case by the Bank of Greece.
The assessment will be also based upon the corporation’s reputation, robustness, the ability of compliance with the existing regulations, and reliability in general.
What kind of microcredit is provided to be granted by law?
Microfinance institutions may grant micro-credits as follows: all forms of credit up to twenty-five thousand (25,000) euros, either to cover investment needs or as working capital, leasing products up to twenty-five thousand (25,000) euros for the acquisition of equipment, stand-alone guarantees of up to twenty-five thousand (25,000) euros, which must not be used to obtain credit from other financial institutions, appropriations aimed at strengthening public policies or the social and economic integration of socially vulnerable groups, up to twenty-five thousand (25,000) euros, and which concern, in particular, the due to their own will.
The repayment must be delivered in a period of 12 months to 10 years and the interest rate will be adjusted by the decision of the Minister of Finance.
Microfinancing benefits for the Greek market
There are several studies on the financing gap in the market, ie which companies can not get loans (and therefore could benefit from microcredit). As for how much money could be channeled in total to the Greek market, the Undersecretary of Finance has explained that he considers it realistic to allocate about 150 million euros per year for small loans. Investors will certainly enter microfinancing by claiming licenses. Especially, the new landscape formed after the pandemic crisis could be covered by microfinancing, reducing the existing funding gap. Given that in microfinancing there is no collateral, a relatively high interest rate that will fluctuate at 11%, is expected,
Our law firm is following the developments concerning this institutional framework following a relevant case assigned to it and is available for any consulting or guidance concerning microfinancing and the newly established Greek law.
The information provided on this article does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on it are for general informational purposes only. This information may not constitute the most up-to-date legal or other information.
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