György Molnár
Kiútprogram – A Social Microcredit Program for the Roma in Hungary
With support from the EU
A Way Out – and a Possible Way ForwardSocial Microcredit, Financial Inclusion and Self-Employment
Kiútprogram Closing Conference4 September, 2012 Brussels
Motto
With adequate social opportunities, individuals can effectively
shape their own destiny and help each other. They need not
be seen primarily as passive recipients of the benefits of
cunning development programs.
Amartya Sen: Development as freedom
The vision of the program
Enable people living in deep poverty, primarily Roma, to become self-employed, by providing social assistance and financial services
Promote social mobility and Roma inclusion
Microcredit as a tool
Social impact vs. business profit
Benchmark: job creation, employment expansion programs
Aim: to create sustainable micro-enterprises
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Why we choose microcredit?
High employment level before system change, also for Roma
The Roma are the main losers of system change
Low education and employment level
Social exclusion, strong prejudice against Roma, segregated Roma areas
No investment in underdeveloped areas and for poorly educated
Failure of state initiated job creation programs
Low share of services and micro-enterprises in the whole economy, especially in underdeveloped areas
In this situation development of micro- and small businesses could be a viable step national Roma strategies
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The subject of the pilot – what can we learn?
To test the adaptation possibilities of the Grameen Bank model
Significant differences in the environment:
• Premature welfare state
• The capital demand of a new business is higher
• High level of taxes
• High level of bureaucracy
• Lower density of the poor
• Distrust in lending financial institutions
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The launch of Kiútprogram
Initiated by Polgár Foundation in 2008
Feasibility study in 2009
Contracts with the Hungarian government
Kiútprogram became a pilot project of Pan-European Coordination of Roma integration Methods – Roma inclusion: self-employment and microcredit, EU DG Regio, 2010-2012.
Field workers’ training started at the beginning of 2010
Three areas• collapsed heavy industry• agricultural• crisis area of Budapest
First loans: September 2010
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KIÚTPROGRAMPLC
RAIFFEISENBANK
EXPERTS,SHAREHOLDERS
Government
POLGAR Foundation
Loans and savings Loan guaranteeIT system
AdvocacyFeedbackNetworking
Field workAccepting business plansClient and program administrationLoan agencyMonitoring & evaluationQuality control
EU connectionsMain ownerCivil connectionsAnalysing social impact
Financing welfare bridge and other related costsRegulation, laws
World Bank/UNDP
Impact evaluationMonitoring supportAdvocacy
EU DG RegionRoma integration pilot project
Finance (1.43 mill. Euros)Control
Institutional structure
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Main features of the Kiútprogram model
Unsecured loans of relatively small amounts (max. 3500 EUR) Real interest rate around 10% (yearly), weekly repayment, 1 year
loan period Encouraging saving Groups of 5 loan recipients, sequential lending (2 – 2 – 1)
In the formal economy: sole proprietors or licensed primary producers. Important difference from other models in the region.
Field workers play a much bigger role than in the original model– Support in preparing business plans, administration.– Support in the bureaucratic process reduces discrimination – Support in debt management. Financial and business education.
Free of cost book-keeping Welfare bridge
We provide not only financial, but also social capital. The role of trust. 8
The correction of the model
Target group• more attention to entrepreneurial capabilities ("entrepreneurial dream")
• previous informal business acitivities
• social connections
more self-confident and optimistic clients
More flexible group formation
Shorter waiting time in sequential lending
More flexible loan period – but not enough, institutional constrains by the bank
Decrease in the amount of the loans
Introduce network building activities good examples
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Base performance indicators
Settlements screened 202
Persons screened (personal connection with field workers) 900
Number of intake questionnaires 447
Pre-groups 60
Groups formed 44
Settlements with formed groups 38
Group-members 192
Number of loan recipients (clients) 138
Entrepreneurs 75
Licensed primary producers 63
Number of loan disbursements a 153
Value of total portfolio 252 000 EUR
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Performance indicators by batch
1st batch 2nd batch 3rd batch Total/average
Groups formed 12 26 6 44
Loan recipients 41 74 23 138
Still operates as entrepreneur
13 59 23 95
Loan disbursements
49 81 23 153
Average loan per person
2 528 EUR 1 832 EUR 550 EUR 1 825 EUR
Average duration 52 weeks 43 weeks 26 weeks
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Repayment indicators
for clients who received the loans before March 2012
Arrears per payments due, %
PersonsStill operates
as entrepreneur
CurrentlyAt the 120th
day after borrowing
At the 180th day after borrowing
1st batch 41 13 62 28 33
2nd batch 39 31 39 12 20
Total 80 44 (95)a 52 20 27
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a All clients of the 2nd batch not listed here and clients of the 3rd batch still operate their businesses.
Estimated survival rate: 60-70%
Estimated costs in the case of continuous operation
o 300 clientso 20 field agenst and 5 other staff memberso continuous tranining, legal support, external communicationso bookkeeping for the clientso transportation, communication, etc.
gross operation costs: 210 euros per month per client net operation costs (without taxes): 130 euros/month/client
o estimated lending loss 30%, average loan 1800 euros total net cost of continuous operation: 175 euros/month/client
The cost per client is basically equal to the cost per person in the public work programmes.
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