Summary Country Report Belgium

Access to the micro-finance practice

The Belgian banking law offers several possibilities to practice micro-finance. Basically there are no restrictions on the lending side as long as it is practiced out of anything else but deposit(-like) funds. In other words, microcredit is not restricted as such in Belgium and does not require a banking licence. There are however also possibilities on the deposit side. First of all, public banking institutions, such as the Post Office bank, are exempted from the banking supervision. Social pre-saving schemes such as the pre-marital savings schemes are also exempted. It remains open therefore either whether a partnership could be set up with a public bank, or whether the pre-savings schemes could serve as a precedent to set up similar pre-saving mechanisms to serve microcredit. Finally, a discretionary administrative practice adopted by the Banking Commission allows any organisation to gather savings from up to 49 people without this organisation having to be a bank.

Protection of the (micro-) borrower

The credit business as such is regulated on the other hand by the Ministry of Economic affairs, which makes sure that (1) loan contracts are transparent and present the full costs of a loan, and (2) which sets and periodically adjusts the maximum interest rates that may be applied. Unfortunately this control only applies to consumer loan contracts. So-called "professional loans" completely fall outside these protective measures, which leaves micro-finance potentially open to abusive behaviours.

Who does it and how?

Belgium has a large spectrum of financial organisations practising social and micro-loans, non of which falls under any of the above supervising authorities.

• The municipality owned Mont-de-Piété is the oldest micro-lender on the European continent using the traditional pawn broking technique, which is especially appreciated by borrowers for its extreme ease of access. Although not being a microcredit organisation as understood for this study, it has in certain historical periods shown that it could serve as a lender to very small businesses.
• The largest credit organisation for small businesses in Belgium is the government funded Fonds de Participation, serving the unemployed and small businesses at the lower end of bankability. Its major drawback has to do with its public nature, which forbids it to compete with the private sector. It has thereby adopted a complementarity approach to the mainstream banking sector which has helped it reduce its default rates, yet with hindsight one can fear that, paradoxically, it largely contributes to helping the banking sector to retract from the less profitable market segments.
• Those who are reduced to a do-it-yourself approach are inclined to start up with the organisations of an association, of which there are several in Belgium. The constitution costs and management constraints are extremely low. The tax freeness makes it also an easy tool to receive donations and to work outside any spending constraints. Most of these are very small, using the possibility to group a number of less than 50 savers, as tolerated by the Banking Commission. This is fine for organisations which are happy to remain small, but is a clear limitation for those organisations that wish to grow, who also need stronger accounting and management obligations to remain credible.
• A foundation status seems fine to attract larger donations thanks to the tax deduction possibilities it offers. However its is not institutionally designed to make it appropriately accountable to manage a credit system.
• The co-operative status is for those credit organisation that mobilise a larger number of members. It may use the possibility to raise up to 49 (deposit-like) loans. The rest is in the form of co-operative shares that are fairly flexible In that they are retrievable and their total amount flexible.Its drawback is that it benefits of no tax facility, which can be overcome by combining it with another status (association or foundaton).

With the associative and cooperative status, the Belgian legal context offers an interesting combination allowing to start up a micro-finance organisation at small scale and low cost and to mainstream it as a co-operative (combined with the association) with flexible share capital.