Fabrizio Santoboni

EU Cohesion Policy and Microfinance

The aim of ensuring a balanced development of the territory of the European Union as well as equal social and economic opportunities to all individuals in the EU member states led European Union institutions to activate a number of financial instruments that may allow reducing the current structural economic gaps between different regions in Europe and establishing a regional development policy based on the concepts of economic, social solidarity and cohesion.1

Microfinance and Capacity Building in the EU Policy

Microfinance instruments, in particular microcredit, play a key role in the implementation of the European strategies to support entrepreneurship, employment, social and financial inclusion.1,2 These instruments, in fact, can support start-ups through the provision of microloans characterised by simplified administrative procedures and absence of collateral requirements, offering to socially excluded and disadvantaged subjects an opportunity to ensure dignified living conditions for themselves and their households. The economic crisis that has hit the European economy in recent years resulted in high social costs that call for the adoption of specific measures to support the weakest segments of the population as well as effectively contribute to the economic recovery through the creation of new development opportunities. Today, individuals at risk are not just those outside the labour market due to disadvantaged conditions, but also other numerous subjects — young people, women, immigrants, off-workers, those ejected from the labour market — who, although in possession of professional skills, are unable to enter (or re-enter) the labour market due to a scarce demand for jobs by enterprises and the impossibility to access credit. In this context, the European Commission regards microcredit as a key instrument to fight unemployment and combat the new forms of poverty, to promote access to credit and, more generally, to financial services, a necessary condition to fully participate in the social and economic life of the community.

The availability of consumer credit during financial crises

This paper aims to provide an outline of the main factors characterising the demand and the offer of consumer credit in modern financial markets: more in particular, by focusing attention on the management policies and commercial solutions adopted by the leading Italian operators during recent years, we aim to establish the most relevant concerns that have affected the market of consumer credit in the aftermath of the recent financial crisis. In order to achieve this result, we proceeded to the definition of a survey, created through a careful sampling methodology choice, which we conducted between late 2012 and the first semester of 2013, as of the preparation and subsequent submission of a specific questionnaire to a wide sample of Italian financial intermediaries. As expected, among other results, we find that the financial crisis strongly reduced the capability of consumers to achieve any financing for their consumption purposes, even if significant differences arise from specific characteristics of loans and customers creditworthiness. Because of some features characterising the Italian market and the survey we elaborated, we consider the evidence we obtained of a particular interest in order to determine the mechanisms which characterise the credit consumer market over a widespread number of countries.

Country Risk: Measurement Approaches and ECAIs Rating

Default of a sovereign entity was usually considered an extremely rare event. Similarly, countries were not commonly supposed to go bankrupt and, therefore, government bonds are usually considered a good proxy of risk-free rates, notwithstanding the more or less recent cases of default and debt restructuring that have occurred in several emerging countries. Consequently, sovereign risk assessment models were mainly addressed to deepen interest rate or liquidity risk, rather than default risk. Among the approaches used to assess the default of sovereign issuers, a pivotal role is played by rating agencies, which issue “Sovereign Credit Ratings” on States’ future capability and willingness to fulfil its obligations. International financial crisis has triggered a negative spiral between sovereign risk and the credit risk of banking intermediaries, exhibiting the different transmission channels through which sovereign risk may affect bank funding. Starting from summer 2011, sovereign downgrades have direct negative repercussions on the cost of banks’ debt and equity funding, because this is a channel through which sovereign risk adversely affects banks’ funding costs. In particular, sovereign ratings generally represent a ceiling for the ratings of domestic banks. This complex of factors has brought into the limelight, within the financial system, the so-called country risk, and has shown that the determinants of this risk have become more complex, intensified, and strongly interrelated as a consequence of the international financial crisis. From this perspective, the present paper aims at: a) outlining a frame for the definition of country risk and its determinants, b) carefully examining the qualitative and quantitative information included in the different sovereign External Credit agencies’ (ECAIs) rating methodologies; c) analysing the country risk measurement frameworks existing in practice and/or literature, applying some of them to the Germany, Spain, Italy, France, and Greece.