Financial Blending and Microfinance

INTRODUCTION

A number of funding instruments are available to address issues related to migration flows. However, most of them are not directly accessible to cities. At city level, there is an urgent need to invest in different forms of social infrastructure in order to address longer-term integration challenges.

However, the necessary measures often do not generate revenue, and there is a lack of incentives or delivery mechanisms for financial institutions to offer loans and grant funding for inclusion measures. This has caused the urban partnership on inclusion of migrant and refuges to propose an action to establish a new flexible financing instrument providing direct finance to cities. 

To assess the need for such a new facility a market testing exercise was carried out, to assess cities’ needs and to enable the design of such an instrument. The  market study, (“Market testing for the EU-EIB Blending Facility For Inclusion Of Migrants And Refugees”) carried out by the EIB and Ecorys formed part of the negotiation between the EIB and the European Commission for the future development of such an Inclusion Blending Facility  under the new multi-annual financial framework.

The Establishment of Financial Blending Facilities for cities and SMEs can help to address the identified financing gaps and establish synergies. This Inclusion Blending Facility should enable to combine resources from AMIF and possibly also other EU-funds (like ESIF) with EIB loans or other EIB Group instruments (especially in relation to microfinance and social impact), which would make financing directly available to cities and/or financial intermediaries to implement investments and actions targeted to migrant and refugee inclusion alongside financing for other investments in the city budget. 

The implementation is on a voluntary basis and does not replace other instruments. The Inclusion Blending Facility would potentially finance a wide typology of projects, including financial and non-financial types of support, such as housing provision, healthcare infrastructure, initiatives to stimulate job creation and entrepreneurship and institutional capacity building, all as part of an integrated investment programme. It is recommended that the Inclusion Blending Facility offers a suitable variety of financial products, including equity, loans and guarantees at favourable financial conditions and adequate tenors, building on the experience from other financial instruments and ensuring added value.

KEY TIMELINE

May 2017
EIB Group proposes two Actions within the Partnership’s Action Plan under the Better Funding pillar

June 2017
Start of Market testing exercise for the Inclusion Blending Facility

December 2017
Finalisation of Market testing exercise

January 2018
Partnership’s adoption of report’s conclusions and recommendations, and start of still ongoing talks with DG Home about a possible implementation (including legislative actions)

June 2018
EC proposes new AMIF regulation for the next MFF which would allow to create an Inclusion Blending Facility 

December 2018
Presentation of the Inclusion Blending Facility as well as of the EaSI BDS Pilot for Microfinance at the Partnership’s Final Conference

March 2019
First Microfinance Workshop organised by the city of Barcelona

OUTCOME 1 - LEGISLATION WORK

New Legislative recommendations are being discussed that will enable the implementation of an Inclusion Blending Facility for cities. 

The Inclusion Blending Facility should enable to blend EU grants with loans (from EIB or  other international financing institutions) to make financing directly available to cities and financial intermediaries to implement investments for migrant and refugee inclusion. 

Funds mobilised through the Inclusion Blending Facility would be targeted at several priority areas, from infrastructure investments to social inclusion policies. It would potentially finance a wide typology of projects, including financial and non-financial types of support, such as housing provision, healthcare infrastructure, initiatives to stimulate job creation and entrepreneurship, and institutional capacity building, all as part of an integrated investment programme. 

It is recommended that the Inclusion Blending Facility offers a suitable variety of financial products at favourable conditions, building on the experience from other financial instruments and ensuring added value. This evidence contributes to the ongoing discussions on the legislative package for the next programming period (2021-2027) which will set the conditions for funding (including allowing an Inclusion Blending Facility for cities) after 2020. 

Although the EC proposal for the AMIF regulation foresees the possibility to create such a facility, the negotiations between Council and European Parliament are still on-going, and the final text will probably be known in 2020

OUTCOME 2 - FULL REPORT CREATED

A report on Financial Blending for Cities was conducted by EIB and ECORYS. Multiple interviews were conducted in 17 Cities across the EU. Below is a summary of some of the findings:

Cities welcoming refugees and migrants: General challenges and needs
As an overarching challenge, many interviewed cities reported a need for political will and political commitment towards the reception and integration of migrants and refugees. Cities also highlighted the importance of working within clear policy contexts on immigration, including clearly outlined financial means and guidelines. Similarly, a number of interviewed cities reported the need for a more human-centred approach in comparison to the current system of integration and perception of migrants and refugees. At a more practical level, interviewed cities reported a number of specific challenges with: 

• Housing -  Providing adequate and affordable housing for migrants

• Employment - Enabling migrants and refugees access to the job market.

• Health and well-being

• Integration activities

• Capacity building cities - human resources and funding-related knowledge expertise is perceived as a fundamental element.

Cities suggestions to improve access to funding
Cities underlined several aspects of the current financing system that impair the securing of the funding necessary for projects targeting the inclusion of migrants and refugees. Based on the interviews, below a set of recommendations on how to address such shortcomings is outlined:

• Ensure direct access to funding

• Involve cities and target groups in decision-making procedures on funding

• Increase flexibility in funding allocation and use

• Consider ad-hoc investments in key areas 

• Simplify administrative requirements to access funds

• Cover administrative expenses

• Coordination across stakeholders

• Provision of other (non-financial) public sector support

INTRODUCTION - MICROFINANCE

Microfinance can play an important role in giving migrant entrepreneurs access to finance, helping them develop their own businesses, fostering their inclusion into the host community.

Microfinance is an integrated approach, combining financial services with business development services (training, mentoring, coaching) in a dedicated effort to enhance the access to finance for vulnerable groups, including migrants and refugees.

Migrants and refugees often encounter problems accessing banking loans for a variety of reasons such as lack of familiarity with administrative and legal requirements to start a business in the host country,  lack of credit history or secure legal status, lack of proper collaterals. The Partnership on the Inclusion of Migrants and Refugees wants to tackle these issues by fostering the blending of EU grants (e.g. from the Asylum, Migration and Integration Fund (AMIF) or the European Social Fund (ESF)) with loans, making funding more directly available to cities to implement various programs for migrant and refugee inclusion and by making microfinance more available to migrants and refugees.

Several cities (Amsterdam, Athens, Barcelona, Berlin, and Helsinki) are planning microfinance dedicated workshops. These workshops will allow local authorities to present and discuss concrete measures supporting microfinance with partners, financial intermediaries (e.g. banks, microfinancing institutes), stakeholders and migrants.

OUTCOME 1 - €1,000,000 PILOT

€1,000,000 Pilot for Migrant Entrepeneurs

One of the key objectives of the EU programme for Employment and Social Innovation (EaSI) is to stimulate the financial and social inclusion of borrowers wishing to set-up or develop their micro-enterprises and who may have limited or no access to the conventional credit market. Under the EaSI financial Instruments, the offering of non-financial support in the form of business development services (“BDS”) as a complement to the microloan disbursed to micro-borrowers and micro-enterprises, is an important requirement for selected financial intermediaries.

As part of the EaSI programme, the EU has launched in January 2018, an EUR 1 million pilot, aimed at strengthening the provision of BDS to refugees and migrants. This pilot provides partial coverage for the costs incurred by intermediaries when providing such services for migrants and refugees, with the aim to boost entrepreneurship amongst these vulnerable groups. 

Concretely, financial institutions that have entered into an EaSI Microfinance Guarantee agreement will be eligible for a lump-sum of EUR 400 for each migrant/refugee that received BDS associated with a microloan. The maximum aggregate amount of BDS Support payable to a single financial Institution shall be set out in the relevant Guarantee Agreement but, in any event, it shall not exceed  EUR 100 000 .