Social credit from the State: Micro-lending in the Netherlands

Micro-lending in the Netherlands is still based on the informal sector of family and friends. Two-thirds of start-ups rely upon own money or money obtained through friends and family. In the official sector conditions are similar to those in Germany.

In the banking sector it is very hard for small entrepreneurs to obtain credit. The more or less standard conditions set by the banks are too strict for start-ups. But there are two exemptions:

The Municipal Credit Banks owned by the cities and the Rabobank co-operative banks.

The Municipal Credit Banks (Social Banks) help the inhabitants of a city or a whole region with financial issues. One of their core activities is helping individuals with their financial problems and trying to reach an agreement with his or her creditors, having been given more power for this goal by new legislation.

The Rabobank Group consists of more than 400 local co-operative banks. The Rabobank stems from the rural co-op movement of Raiffeisen and emphasises their relationship with their customer. The Rabobank has special facilities for micro-entrepreneurs. Its special Stimuleringsregeling is an exponent of the Raiffeissen theory. It is possible to obtain a subordinated loan from the Rabobank for all kind of undertakings. During the first five years there is no repayment obligation.

The state in the Netherlands is also very active in structures that come close to micro-lending. For inhabitants of the Netherlands who have permanent financial problems, and the long-term unemployed in particular, there is a social benefit called " de bijstand" which includes the possibility to start an own small company. New regulations in force since April 2000 give the opportunity to start an enterprise or to help an enterprise which already exists.

Those who want to start a company need to follow a training programme. The training and orientation period is approximately a year. During this period the normal Bijstand payment continues. Costs in relation to the trainee and orientation period can be declared up to the sum of HFL 5.000,-.

After the period of orientation and training there must be a sound plan. If there is, the government is willing to grant a loan of maximum HFL 60.000,- and a periodical grant during a maximum period of 36 months. The interest on the loan is 5 % a year and the maximum period before the loan must be paid back is 10 years. The most likely scenario is that the loan will be obtained through a bank and that the local government will guarantee the repayment of the money to the bank.

If the banks are not willing to grant the loan, the loan will be supplied by the local government itself. During the first year of the enterprise there may be a need for special and expertise and help. Costs for help will be covered up to a maximum Euros 1.400 through the local government.

Some other instruments the government uses are:

• Het Besluit Borgstelling Midden en Kleinbedrijf, that provides sureties for undertakings, which want to borrow money through a commercial institution.

• The Twinning project, that stimulates entrepreneurship by giving expertise and loans.

• The Twinning project, which is a direct aid program from the government to provide venture capital for start-ups in the ICT sector together with information and help.

• The Besluit borgstelling MKB kredieten is a guarantee facility for small and medium size enterprises which are not able to provide the money themselves, have good prospects, are not able to provide their own security for the loan and seek support for a new loan.

Besides this the rules for banking are very strict.

Art. 82 of the bank law (Wet toezicht kredietwezen) forbids obtaining money from the public and extending credit, if the company is not registered as a credit institution.

In Art. 2 of the Uitvoeringsregeling ex artikel 1 van de Wet toezicht kredietwezen 1992 the municipal banks, as well as companies which provide loans to other companies in their own group, are exempted.

A special licence is required by the Consumer Credit Act for those companies which offer credit facilities to consumers

There seems to be some scope for non-banks to get involved in credit projects sometimes on the at the borderline of banking law but with official tolerance and even encourangement.

The facility that stimulates private financing undertakings, called, Tante Agaath (Aunt Agatha), is very popular. It reduces the risk to those who provide a subordinated participative loan to a start-up company. The benefit is that the interest paid is tax free. If the company goes bankrupt the losses can be written off from taxable income up to a maximum of Euros 23.000.

While this addresses the public, Mama cash and Stason are perhaps the best known micro-lending associations. Mama Cash provides money for women start-ups with loans of a maximum of about Euro 23.000 or guarantees for bank loans. As it provides no more than 20 loans or guarantees a year it seems to escape bank supervisory laws. Mama Cash refinances its work from donations, income from legacies and own equity.

Stason is a support foundation for immigrants in the Netherlands. Fund-raising is done quite successfully with contributors such as Shell and the Rabobank. Stason policy is that they provide loans or guarantees to a maximum of DFL 50.000 if a bank or other organisation provides at least the same amount of money.

Factoring and Leasing are widely used in the Netherlands but do not help small companies because the required annual turnover is too high for them. Instead leasing is used widely by small companies. It is a good way - and sometimes the only way - in which credit can be obtained. There is no special regulation for leasing in the Netherlands but it cannot of course provide working capital but only inventory.

In conclusion, credit for micro-enterprises in the Netherlands can be obtained but according to the research of the Institute for medium and small sized companies the entrepreneurs do often not know where to turn. There is a need for an institute in which the government, the corporate sector and others participate to distribute this information and to centralise requests. The institute should help (starting) micro-undertakings with expertise and perhaps even with providing micro-credit under favourable conditions. The government is presently actively seeking further solutions for micro-credit.