The European Commission has proposed to set up a new microfinance facility providing microcredit to small businesses and to people who have lost their jobs and want to start their own small businesses. The instrument also offers support for young people wishing to establish or expand their own business.

The current economic downturn started as a financial crisis prompted by severe liquidity problems: banks stopped lending to each other and also stopped lending to people to do business and create jobs. The new micro-finance facility aims to make it easier for people who, in the current context of reduced credit supply, might have difficulties in accessing funds for business start-ups.

Workers who have lost their jobs or are at risk of losing them and want to establish their own businesses will have better access to funds and benefit from additional support measures such as mentoring, training and coaching. Disadvantaged people, including the young, who want to start or further develop their own small businesses, will also benefit from guarantees and assistance in preparing a business plan.

An initial budget of €100 million is expected to leverage €500 million of credit in a joint initiative with international financial institutions, in particular the European Investment Bank (EIB) Group. This could result in around 45,000 loans over a period of up to eight years. In addition, the possibility to apply to the loans interest rate rebates from the European Social Fund will make it easier for people to access the funds. The new facility is one of the actions announced in the Commission's communication: 'A Shared commitment for employment'

Micro-credit in the EU means loans under €25,000. It is tailored to micro-enterprises, employing fewer than 10 people (91% of all European businesses), and unemployed or inactive people who want to go into self-employment but do not have access to traditional banking services. 99% of start-ups in Europe are micro or small enterprises and one third of these are launched by people who are unemployed. This facility, in its support for SMEs, continues the line of  supporting small businesses that the European Union is developing from different perspectives,as the European Week for SMEs, held in May 2009.

The Commission expects the new 'Progress Microfinance Facility' to be operational in 2010.