The first goal of the foundation is to build instruments to counter one of the main negative effects of the present financial and economic crisis, that is, the credit crunch, which prevents—more than ever before—many individuals with few resources from accessing bank loans however deserving their need and/or feasible their projects may be. The FWA favours access to micro-credit
by so-called non-bankable persons, that is, ones with little or no chance of accessing bank credit because of a lack of guarantees and/or past records as “bad payers”.
Two basic types of micro-credit
“Social credit”, reserved for persons who—especially, but not only because of the crisis—cannot afford expenses such as the payment of university fees for their children or unexpected healthcare costs
Credit for self-employment, in order to overcome unemployment or underemployment or severe job precariousness
is accessed through a network of selected local bodies operating as “front desks”, which intercept needs. The idea is not to create new structures or offices besides the existing ones, but rather to work with organisations already dealing with poverty and vulnerability in the city so that they become the “operational branches” of the FWA. These bodies are asked to stand “moral surety” for the families that they introduce to the foundation. They carry out a first screening of applicants and may direct them to other welfare agencies (managed by public or third-sector bodies) that may be more appropriate for their case. If the case appears to have a profile that fulfils the requirements for access to micro-credit, a second interview is organised with an expert of the Association of Bank Volunteers for Social Initiatives (Volontari Bancari per le Iniziative nel Sociale, Vo.b.i.s.). During this interview, an analysis of needs and/or the project is carried out, a feasibility study is formulated, and a business plan is outlined in the case of enterprise development. If the person is accepted into the microcredit scheme, moral and bureaucratic support is provided throughout the project’s development.
The sums loaned range between 2,000 and 20,000 € per applicant. On the basis of the preliminary inquiry, the front desk submits the application to a commission of the FWA, which may or may not approve the project. If the project is approved, the FWA issues a guarantee of 80 % of the capital. With this guarantee, applicants can apply for credit at one of the banks that have signed the agreement
with the foundation,Footnote 3 which in principle should process the application within 30 days and—if it is approved—allocate the money. The aim of FWA at this stage is to ensure that the banks have no reason to refuse the credit request.
The loan is granted essentially on the basis of a trust relationship. The interest rates are much lower than the average bank rates, and they are differentiated by type of credit: 4 % for social credit (against an average rate for credit to persons of 11.2 % set by Banca d’Italia) and 6.5 % for self-employment credit (against an average rate of 10.2 % for credit to firms). The repayment terms are such that they should be sustainable by all borrowers: during the first year, only interest is repaid; capital repayment begins after the first 12 months and can be spread over up to 6 years. In the case of insolvency, the foundation covers up to 80 % of the capital. This level will soon be changed to 75 % because new laws have imposed a maximum level on guarantee percentages.
According to the analysis of the applications received in the first 2 years of the programme, between October 2011 and December 2013, a total of 881 applications were officially registered, 71 % of them for social credit and 29 % for self-employment (Bramanti and Spina 2013). About 347 credits were issued, representing 40 % of total applications (85 % for social credit and 15 % for self-employment ones) for a total of 2,271,900 €. More than 50 % received a negative evaluation by the FWA’s technical committee, because of unfulfilled requirements or excessive indebtedness (Mallone 2012).
Three quarters of applicants were resident in the municipality of Milan; they were rather balanced by gender (56 % men and 44 % women in the overall period), but diversified by age: 33 % were aged 41–50; 26 % 31–40; 22 % 51–60; while those aged over 60 represented only 6 % of applicants in 2012 (Bramanti and Spina 2012). Applications by young unemployed persons living with their parents were generally refused because such applicants did not match the profile of beneficiaries that could overcome a temporary difficulty with the FWA’s help.
Among social credit applications, the main reasons for them were housing expenses, debt discharge or reduction, and family needs
, followed by training
expenses, healthcare expenses and mortgage loans. Indebtedness of the household was responsible for most of the applicants’ situations, together with job loss by one of the family members, or the presence of atypical contracts (Mallone 2012). Social credit was granted to migrants in 47 % of cases, and to Italians in the remaining 53 %. The amounts awarded were rather modest: 60 % of applications for social credit were in the lowest amount range, between 2000 and 5000 €, even if the average sum was 5625.93 € (Bramanti and Spina 2013).
Applications for self-employment credit concerned start-up projects in half of the cases; in the other half, they were made because of economic difficulties or the need of already-existing businesses to purchase goods or services. The amounts paid were higher than in the case of social credit: 43 % of self-employment applications were for between 17,100 and 20,000 €, but the average sum paid was 15,768.52 €. Most beneficiaries of this kind of credit were Italians (69 %). The selection for self-employment micro-credit
is rather strict: around 30 % of applications were accepted in 2011–2012 (Mallone 2012), and less than this percentage thereafter. Most start-ups
are in the personal services sector.
According to the most recent information on repayments, the vast majority of beneficiaries of micro-credit loans are repaying their debts without problems after the first 12 months. Only a few of them are in arrears or already in litigation. An interesting fact is that 60 % of recipients are employees, which shows the extent to which the FWA is working to fill the gaps in the existing welfare system. In 2013, the number of micro-credit recipients decreased markedly, partly because the programme had no longer been advertised since its launch.