The development of Microcredit in Italy

1 
 
 
 
 
 
In the future the question will not be     
‘Are people credit-worthy’, but rather, 
‘Are banks people-worthy?’ 
 
Muhammad   Yunus 
 
 
 
1. INTRODUCTION
1
 
Microfinance and microcredit are concepts frequently mentioned in 
recent talks about financial inclusion, economic and human 
development. Their relevance is particularly significant in correlation with 
socially useful goals, such as alleviating poverty and stimulating local 
entrepreneurship within a country, especially in the developing and poor 
ones. Although these concepts are often used interchangeably, they do 
not mean exactly the same thing. Indeed, microfinance can be 
considered an economic branch of the financial contracts and includes 
different components, such as: microcredit, microsavings, 
microinsurance and functioning of dedicated institutions. On the other 
hand, the broad definition of microcredit is the collection of lending and 
saving methods alternative to traditional forms of credit. 
Nowadays, microcredit is often associated with Mohammed Yunus, 
Nobel Prize for Peace in 2006. Since seventies of last century, he 
proposed a financial instrument of credit access for poor communities, 
                                                           
1
 Niccoli, A., Presbitero, A., F., Microcredito e Macrosperanze, 2010, pp. 1-6.
2 
 
by creating economic and social development from below. However, 
the first experiences in such direction can be traced back to the fifteenth 
century in Europe with charities and private initiatives. 
Microcredit is actually growing in importance in many developed 
countries as well as in Italy. In the European context, the communitarian 
political will is definitively playing an important role across member States 
to sustain the small-medium enterprises (which represent about the 80% 
of firms in Italy) through different ways, such as supporting the creation of 
start-ups, promoting growth policies and making available the liquidity 
that they usually lack because of the credit rationing
2
. 
These and other aspects of the cultural and historical background are 
analyzed in the following chapter.  
In the third chapter, the recent development of microcredit in Italy is 
explored, starting from the structural factors of the Italian economy, 
passing through the historical evolution of the lending system, and 
finishing with the recent regulation designed for microcredit. 
The final chapter proposes a transnational comparison between two 
MFIs: The Italian PerMicro and the French ADIE. Before the comparison, it 
is provided a description of both MFIs and it is mentioned the French 
regulation about/upon microcredit, the oldest in Europe. 
The methodology used to write this thesis is a personal elaboration and a 
synthesis of the information searched on the institutional and 
noninstitutional websites and free-access documentations (on-line and 
libraries). 
 
 
                                                           
2
   The reasons behind it may be multiple, such as inflation, monetary devaluations and so on. 
However, the most important reason in recent years is the economic downturn caused by the 
financial crisis of 2007-2008 and followed soon after by the sovereign debt crisis in Europe.
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2. HISTORICAL EVOLUTION OF MICROFINANCE 
 
2.1  Scope of the financial system 
The modern economic system is based on a relatively free circulation of 
money (capital) and resources (from consumption goods to production 
inputs) across countries, in order to allow both individuals and businesses 
to satisfy their current needs or invest in profitable projects. However, the 
scarcity of many resources makes it difficult to achieve a fair distribution 
of them among the population, causing an intrinsic higher value in 
relation to both their local and global demand.  
In the specific case of financial markets, the higher value of money is 
usually recognized through the provision of a premium or interest to 
those who make its funds available. Thus, money – which is the 
circulating medium of exchange for the other resources and for itself – 
may be difficult to access in the measure it is needed by everyone 
(Ingham, 2003). This difficulty may depend both on individual conditions 
(e.g. none or low salary, no valuable inheritance from parents) and to 
collective reasons (e.g. small monetary base of the country, 
devaluations of currency, inefficient financial markets, and so on).  
Many experts and surveys of national and international institutions agree 
that the actual differences in financial endowments among countries 
are mainly determined by three factors: size of each economy, per 
capita income levels, and the capability of attracting foreign direct 
investments (FDI). Therefore, the economy of a country depends on its 
financial endowments, which, in turn depend on how rich the country 
already is, how comparatively rich are the people living in that country, 
to competitive factors and comparative advantages, that are essential 
for attracting investors in an industry (Visco, 2015).
4 
 
Therefore, the financial system cannot solve problems of real nature, 
such as low competitiveness and insufficient productivity levels, but it has 
an indirect role in facilitating the processes of transformation, growth of 
the productive system. It is up to businesses and their management skills 
the responsibility to achieve a more balanced financial structure 
(Panetta, 2015). 
In this context, a fundamental role is played by the policy maker since he 
can create the environmental conditions for a better circulation of the 
resources, or simply avoid any potentially harmful thinning of them. The 
most important interventions are the regulation of the national financial 
system (e.g. framework of financial providers, financial consumer 
protection, and so on) and its integration at global level (harmonization). 
Financial education, information and awareness campaigns are 
becoming important, too (Lewis and Messy, 2012). 
Furthermore, in order to enhance the economic development within a 
country, a policy maker needs to provide some basic services. The 
simplest vision of the World Economy is that developed countries stand in 
a better position since their long-run economic development – or a 
better capital accumulation – has been accompanied by strong 
developments in their infrastructures, financial system and human 
capital. This vision does not really explain the differences of income 
among rich and poor countries, because it does not consider some 
aspects of the historical competition among countries, the different 
factor endowments and their different cultures (Ray, 1998). 
However, reversing the causality of the first statement in this paragraph, it 
enlightens the reasons for country backwardness, which are inadequate 
infrastructures, a weak financial system and a poor human capital. 
Therefore, the financial system may be seen as the regulated 
aggregation of financial institutions, ranging from local private operators
5 
 
to international public institutions that guarantee a constant provision of 
monetary flows, or securities, and other financial services to individuals 
and firms around the world. The grouping of similar securities and other 
related services gives origin to a specific financial market, a place 
(usually virtual) in which different typologies of institutions can interact to 
allocate surplus money where is needed. In particular, there is a large 
variety of financial providers operating at different levels and differing in 
their organizational structure and governance, in the types of products 
and services offered, in the legal form and in the authority’s supervision. 
The last important factor is the financial supervision. Supervision is 
needed to monitor behavior of agents and to enforce the rules. 
Supervision can be grouped into three broad categories
3
:  
• microprudential supervision: surveillance of the safety and 
soundness of individual institutions; 
• macroprudential supervision: monitoring the exposure to systemic 
risk, identifying potential threats to stability arising from 
macroeconomic or financial market developments, and from 
market infrastructures; 
• customer protection (nonprudential): monitoring business conduct 
and the disclosure of information to customers and other 
stakeholders. 
In general, it is possible to distinguish between prudential regulation, 
which involves the monitoring of the financial soundness of related 
businesses and the countermeasures when problems arise, and 
nonprudential regulation, which is a sort of code of conduct for 
businesses. There is wide recognition that compliances and 
enforcements with prudential regulation are usually more complex, 
                                                           
3
 Rossi, S., Towards a European Banking Union: a euro-area central bank supervisor as a first step, 
2015, p. 5.
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difficult, and expensive than nonprudential regulation, for both the 
regulator and the regulated institution (CGAP, 2012). 
“Designing the optimal model of a regulatory and supervisory 
architecture is a daunting task. The empirical evidence does not prove 
the dominance of any particular model over the others, although several 
studies have pointed out that weaknesses in regulation and supervision 
might be factors leading to a financial crisis”
4
. 
 
2.2  Determinants for financial exclusion and inclusion 
On the basis of the temporary opportunities of investment, and in 
response to the need of money for individual consumption, the most 
important financial market is Credit, defined as the trust relationship 
which allows one creditor part, also known as lender, to provide money 
or other resources to another debtor part, also known as borrower, in 
exchange of a higher quantity of money or other resources at a later 
date. The interest (premium) is usually established in advance. 
Although credit is associated with deferred payments, it cannot act as a 
unit of account for itself like money. In the end, it does not necessarily 
require money. Indeed, the credit concept can be applied in barter 
economies as well, based on the direct exchange of goods and 
services
5
. 
A related concept is that of financial inclusion, which, according to the 
CGAP
6
, generally refers to the state in which all working age adults have 
effective access to credit, savings, payments and insurance from formal 
service providers. In many developing countries and transitional 
                                                           
4
 Cihák, M., Demirgüç-Kunt, A., Martinez Peria, M.  S., and Mohseni-Cheraghlou, A., Bank 
regulation and supervision in the context of the global crisis, 2013, pp. 733-746; reference from 
Rossi (2015). 
5
 Ingham, G., The Nature of Money, 2004, pp. 12–19. 
6
 CGAP, A Guide to Regulation and Supervision of Microfinance. Consensus Guidelines, 2012, p. 1 
plus note 3.