Microcredit

Microcredit is a financial tool designed to support micro-entrepreneurship and promote financial inclusion for individuals facing economic hardship. It allows people and very small businesses who are unable to access traditional sources of credit - such as banks or other financial institutions - to obtain small loans. This often includes those who lack collateral and are considered 'non-bankable'.

However, microcredit is more than just a small loan. Under current regulations, borrowers must also receive support services throughout the life of the loan. These include guidance and monitoring before and after the loan is granted, helping borrowers manage their finances and develop their business. Microcredit is therefore an integrated offer of both financial and non-financial services. The key difference from standard credit lies in its focus on the individual and on the soundness and long-term sustainability of the business project.

Types of microcredit

Depending on the nature of the activity and the people it aims to support, microcredit falls into two broad categories: entrepreneurial microcredit and social microcredit.

Entrepreneurial microcredit is aimed at those who want to start or expand a small business or self-employed activity, but struggle to access bank credit.

Full details - including who is eligible and the main features of these loans (such as the maximum amount and repayment period) - are available on the website of the Italian National Microcredit Agency (Ente Nazionale per il Microcredito), in the 'Financing' section.

A key feature of these loans is the public guarantee provided by the Guarantee Fund for small and medium-sized enterprises, which generally covers up to 80 per cent of the loan amount.

This means that if you receive the loan and are unable to repay it, the State will step in and repay up to 80% on your behalf. When this guarantee is granted, financial institutions are reassured that most of the loan will be recovered regardless. As a result, they are more willing to lend to a greater number of applicants - and possibly on better terms (for example, they may offer interest rates lower than those typically found on the market).

You can use the money received to purchase goods and services needed for your business, such as equipment, training courses, or to cover staff costs. Additional services provided by the lender or other partners may include professional advice and support with legal, tax, or accounting matters.

Accessing entrepreneurial microcredit, you'll also be able to access support from a Microcredit tutor, who will help you define and assess the sustainability of your business idea and, once the loan is granted, assist you in running your business effectively.

Social microcredit is intended for individuals experiencing economic hardship and is often promoted by public bodies such as local councils or regional authorities. However, some financial institutions are also permanently involved in social microcredit initiatives independently of public programmes. These loans, typically offered at favourable rates, can help cover essential expenses such as rent, utility reconnections, or healthcare costs.

As with entrepreneurial microcredit, recipients of social microcredit are supported by tutors or service organisations who provide assistance, for example, with managing income and expenses. Unlike entrepreneurial microcredit, these loans are not covered by the State Guarantee Fund, though local authorities may offer guarantees themselves using dedicated public funds.

Since 2022, an important inclusion initiative called microcredit for freedom has been introduced. It is aimed at women who are victims of violence or exploitation, and who are supported by Anti-Violence Centres (CAVs) or staying in women's shelters (Case Rifugio). The goal is to help them gain financial independence and social reintegration. This form of microcredit offers interest-free loans of up to €10,000 for short-term needs (social microcredit) or up to €50,000 for launching a business (entrepreneurial microcredit). Beneficiaries are also supported by a tutor and can take part in free training on financial literacy and self-employment.

How microcredit works

If you are interested in applying for entrepreneurial or social microcredit, you'll need to contact authorised microcredit providers. These operators will assess your application and decide whether to grant the loan, based on your financial situation and your ability to repay the loan - that is, your capacity to make regular repayments until the end of the loan term.

They cannot ask you to provide collateral (such as property or personal assets that could be sold if you default on the loan). This is because the goal of microcredit is to support individuals and small businesses in vulnerable situations - those who are typically excluded from standard credit channels precisely because they lack such guarantees.

If your application is approved, the agreed loan amount will be paid out to you, and you will commit to repaying it in instalments over an agreed period, along with the interest. You may also be required to cover additional charges, such as application processing fees or late payment penalties. Always pay close attention to the total cost of the loan: a useful estimate is the APR (Annual Percentage Rate - Tasso Annuo Effettivo Globale or TAEG in Italian). A full breakdown of all costs must be clearly set out in the pre-contractual information documents, which the bank is required to provide.

The role of Banca d'Italia in microcredit supervision

Microcredit providers - often referred to as microcredit operators - must be authorised by Banca d'Italia, which is responsible for certain forms of supervision. This includes requesting information and documents, carrying out inspections, prohibiting new transactions, restricting operations and, under certain circumstances, ordering a company's removal from the list of microcredit companies. These operators are not subject to the same level of prudential supervision as banks or other financial institutions. In particular, there are no requirements related to capital reserves against loans or internal systems for managing financial risks, which are standard for other types of lenders.

Financial intermediaries operating in this field must be registered in dedicated lists and meet specific requirements of integrity, professionalism, and organisational capacity as set out by law. This oversight ensures that microcredit providers operate transparently and responsibly, helping to build a sustainable and trustworthy sector.

You can find more information on the website of the Ente nazionale per il Microcredito.