Research unit produces European Commission ethical code for credit providers to small businesses

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A financial and social inclusion research unit at the University of Salford has produced a code of conduct on behalf of the European Commission for organisations providing low value loans to small businesses.

Written by Professor Karl Dayson and Pål Vik of Community Finance Solutions (CFS), the European Code of Good Conduct for Microcredit Provision aims to set out good practice guidelines for ‘microfinance’ organisations – predominantly non-bank institutions such as credit unions, co-operatives, charities and non-governmental organisations (NGOs) – which lend money to businesses with up to nine employees that cannot access finance from traditional, commercial banks.

The Code covers organisations loaning up to €25,000 and has been developed in close consultation with representatives from the banking and non-banking sector, including microfinance providers, academics, investors, customers, regulators and the European Commission.

Recognising that, given the differing regulatory frameworks in EU member countries, there was a need for a shared set of standards common to the microcredit industry, the guidelines are intended to better enable the sector to face the challenges of accessing long-term finance, maintaining and raising the quality of services, and moving towards sustainability. It will also inform the European Commission’s strategies and funding arrangements for regional development, enterprise and employment.

The Code is divided into five sections, covering customer and investor relations, governance, risk management, reporting standards, and management information systems, and is designed to be a practical guide for microcredit providers and their customers.

Professor Dayson, Executive Director of CFS, said: “The supply of credit to small businesses is drying up across Europe. As our future recovery is dependent on the creation of a new wave of dynamic small firms we need new providers of credit. The European Code of Good Conduct for Microcredit Provision sets a framework for investment credit that treats small business people as customers with specific needs. The aim is to encourage a new breed of lenders that are transparent and deliver a high quality service to help build tomorrow’s Europe.”

The European Code of Good Conduct for Microcredit Provision can be viewed or downloaded from http://ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_id=6978.