This record is a partial extract of the original cable. The full text of the original cable is not available.

141421Z Feb 06

UNCLAS SECTION 01 OF 04 PARIS 000937 
 
SIPDIS 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4212/MAC/EUR/OEURA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV FR
SUBJECT:  PRESIDENT CHIRAC SPURS MICROCREDIT DEVELOPMENT 
 
 
¶1. SUMMARY: As another way to quiet the unrest in French 
suburbs, President Chirac personally turned his attention to 
the development of micro-credit, notably in disadvantaged 
areas.  At a recent roundtable, Chirac proposed giving more 
money to the social cohesion fund ("Fonds de Cohesion 
Sociale" - FCS), handing out more information about the FCS, 
and joining forces with the private financial sector to 
leverage micro-credits.  Participants promised further 
action, in recognition of the President's interest as well 
as market opportunities.  END SUMMARY. 
 
President Chirac Highlights the Role of Micro-credit 
--------------------------------------------- ------- 
¶2.  On February 2, President Chirac convened a round table 
on micro-credits, saying "in the framework of the fight 
against unemployment and exclusion, micro-credit is a 
promising way, and an essential tool to allow job seekers to 
personally take care of their future by finding new jobs or 
by creating their own businesses, especially in 
disadvantaged areas.  Encouraging micro-credit is fully part 
of the government social cohesion policy, which aims to 
revalue work and reward responsibility spirit, notably from 
people with the most modest origins."  He defined micro- 
credit as credit to individuals who lack capital or 
effective guarantees, and who would not otherwise been able 
to get "social" consumer loans (often related to finding a 
job) or business loans to create micro-enterprises.  Amounts 
required are very low but do not provide banks with adequate 
margins to cover lending costs. 
 
¶3.  Participants included Michel Camdessus, member of the 
Social Cohesion Fund ("Fonds de Cohesion Sociale" - FCS), 
Francois Jouven, Director of the financial institution 
Caisse des Depots et Consignations (CDC), and the chairmen 
of several major banks (Societe Generale, the Credit 
Agricole group, which merged with Credit Lyonnais "LCL", the 
Banques Populaires group, Laser et Cofinoga, Caisse 
Nationale des Caisses d'Epargne, and Credit Mutuel).  Also 
present were representatives of the Association of Mayors 
and heads of non-profit associations.  Members of the 
socialist party also were very much in evidence, notably 
Jacques Attali, the chairman of the international NGO PlaNet 
Finance (former President Mitterand's special counselor), 
Christian Sautter, chairman of France Active (Paris Deputy 
major, and former Finance Minister), and Marie Nowak, the 
chairman of the Association pour le Droit a l'Initiative 
Economique - ADIE" (former Laurent Fabius's special 
counselor).  Other participants included heads of the 
Bordeaux Social Fund ("Caisse Sociale de Bordeaux"), the 
Start-up Network ("Reseau Entreprendre"), and the Catholic 
Assistance association ("Secours Catholique"). 
 
During Unrest in Suburbs, Pundits Sounded the Alarm 
--------------------------------------------- ------ 
¶4.  Jacques Attali argued that the development of micro- 
credit should be a government priority.  Camdessus, as the 
head of the FCS's Orientation and Election Committee, 
emphasized the critical role of information in the 
successful development of micro-credit, saying that many 
potential beneficiaries have never dared to imagine that 
they could become entrepreneurs, and could ask bankers for 
credit.  Micro-credit is not well known in France. 
According to an IPSOS's poll conducted in 2005, 66% of those 
surveyed said they had never heard about micro-credit loans, 
associating it wrongly with consumer credit.  Only 18% of 
those surveyed knew of the start-up association ADIE, and 
only 7% of the France Active network. 
 
President Details Actions 
------------------------- 
¶5.  Chirac accounced the GOF would be "giving a new dynamic 
to the FCS", which was created as part of the Social 
Cohesion Plan in 2005.  FCS already is functioning, under 
CDC management, as a guarantee fund for banks granting micro- 
credit loans, and it was allotted 73 million euros over five 
years.  This "new dynamic" will be achieved by: 
-Amending the Return-to-Work bill ("Retour a l'emploi") to 
extend FCS's missions to funding assistance to holders of 
projects, a fragile population that banks are not used to 
deal with.  The Parliament approved the amendment on 
February 9. 
- Devoting more funds to assistance.  At President Chirac's 
request, CDC committed to devote 5 million euros to fund 50 
training-assistance experiments in disadvantaged areas. 
Assistance essentially relies on voluntary help by non- 
profit associations (see para 9 below). 
 
¶6.  Chirac also said the GOF will be "giving a new impulse 
to micro-credit" by removing obstacles to its development by 
promising that the government would do every thing possible 
to improve information to potential beneficiaries of micro- 
credit loans: 
-The Ministry of Social Cohesion will diffuse clear and 
exhaustive brochures, notably in National Employment 
Agencies, Family allowances offices, and local centers for 
social actions. 
-The Bank of France and CDC will create a Micro-credit 
Observation Center, to provide data on the number of micro- 
entrepeneurs and their experience. 
-The government will encourage micro-credit for 
"precariousness problems", with appropriate interest rates, 
guarantees and assistance. 
 
¶7. Chirac said the GOF will be "calling banks and financial 
institutions to fully demonstrate their commitment to social 
cohesion," asking them: 
-To increase micro-credit initiatives, by creating and 
encouraging associations of banking executives and retirees 
who would help borrowers to define and achieve projects. 
Some banks agreed to this commitment. 
-To make available to the public, in their annual reports, 
their achievements in the micro-credit field, their 
assistance in the creation of companies, and their actions 
in disadvantaged areas. 
-To sign conventions with FCS.  In 2005, 15,000 individuals 
benefited from social and business micro-credit loans. 
These loans were made at market interest rates, and ranged 
from 300 to 12,000 euros.  The government objective for 2006 
is to increase social micro-credit loans to 15,000, and to 
provide 60 million euros in professional micro-credits for 
the creation of 12,000 jobs.  In 2007, and following years, 
the government plans to increase FCS's guarantees to 19 
million euros to leverage 150 million euros in micro-credit 
loans made by banks, and boost the number of beneficiaries 
to 40,000. 
 
¶8.  Chirac also announced he is "planning a follow-up" by 
asking Camdessus to observe progress made by banks, and by 
convening a new round table before the end of 2006. 
 
Banks Made Commitments to Involve Further in Micro-Credit 
--------------------------------------------- ------------ 
¶9.  Bankers at the roundtable reacted positively to Chirac's 
proposals, committing to sign conventions with FCS, 
strengthen information, and aid beneficiaries of micro- 
credit loans with their projects.  Camdessus affirmed: 
"bankers are ready to do more."  The head of the Banques 
Populaires group proposed to ADIE that it would make 
available a portion of its 3 million members, saying 
"voluntary workers would guide company starters to 
understand contracts and fulfill forms."  To Francois Xavier 
Bordeaux, the head of a regional social fund, the main thing 
is to create an efficient system "with unique windows to 
distribute loans worth 150 to 12,000 euros." 
 
Mutual Banks are Significantly Involved in Micro-credit 
--------------------------------------------- ---------- 
¶10.  Eleven mutual banks (notably, Credit Mutuel, savings 
banks, and the Banques Populaires group) are involved in 
micro-credit.  Savings banks have granted 50 million euros 
in micro-credit loans since 2001, helping create 5,000 micro- 
enterprises and 5,000 jobs.  The Banques Populaires group, 
which is a partner of ADIE and France Active, signed a 
convention with FCS in January 2006, committing to guarantee 
50% of micro-credit loans totaling up to 150,000 euros over 
the next 3 years. 
 
¶11.  Other banks appear to be much less involved in micro- 
credit in France than mutual banks, with the exception of 
BNP Paribas, which is one of ADIE's partners and has a seat 
at the FCS's Orientation and Election Committee through its 
subsidiary Cetelem.  BNP Paribas started to provide micro- 
credit loans to the unemployed and to re-employment 
beneficiaries (recipients of minimum incomes designed to 
facilitate new employment, "Revenu Minimum d'Insertion 
-RMI") in October 2004.  During the November 2005 unrest in 
suburbs, BNP Paribas CEO Baudouin Prot said he realized that 
large enterprises/banks had to focus on "fast and efficient 
solutions" to address the crisis.  In December 2005, the 
bank, which is present in the suburbs, announced a plan to 
create 700 micro-enterprises in disadvantaged areas, to 
provide assistance to children who have difficulties at 
school, and to support local community life.  BNP allotted 3 
million euros to the plan for the next three years. 
 
Associations Play a Key Role in Introducing Micro-credit 
--------------------------------------------- ----------- 
¶12.  President Chirac applauded non-profit associations for 
their action in the micro-credit field.  Associations such 
as ADIE, France Active and Initiative Reseau build financial 
bridges between the welfare system, the employment- 
enterprise system and banks.  Micro-credit was introduced in 
France by ADIE in 1989 in an unfavorable environment 
characterized by administrative complexity and burdensome 
social taxes for the self-employed.  Banking regulations, 
until recently, only allowed associations to lend their own 
capital, and set a ceiling on interest charges inconsistent 
with costs involved in micro-credit.  The solution was to 
have associations act as intermediary for their clients with 
banks, which fund loans and cover part of the risk, with the 
government and local authorities, which provide the 
regulatory framework, and with the European Social Funds, 
which cover additional costs related to assistance and risk 
taking.  In recent years, an amendment to banking 
regulations further facilitated micro-credit by authorizing 
associations involved in micro-credit to lend and to borrow 
funds they lend (April 30 2002 decree implementing the 5 of 
the article L 511-6 of the monetary and financial code as 
part of the article 19 of the 2001 May 15 law on New 
Economic Regulations). 
 
¶13.  The number of micro-credit loans granted by ADIE has 
increased 20-30% each year.  The ADIE network allowed the 
creation of 34,000 enterprises, including 12% in 
disadvantaged areas, since 1997.  The new public utility 
association status, provided by the State Council in January 
2005, was intended to encourage donations to the association 
(donations are subject to a 60% tax deduction up to a 
certain portion of income, a limit which is adjusted every 
year).  Despite rapid growth in micro-credit loans from 
5,000 in 2002 to 8,000 in 2004, Nowak said that ADIE was 
still only involved in a small portion of the market.  A 
number of associations, notably France Active, Initiative 
Reseau, Cerise, Finansol and Coordination Sud participate in 
the market.  Even the religious non-profit association, 
Secours Catholique, started to sign conventions with banks 
in 2004, notably with Laser Cofinoga, a partner of ADIE and 
France Active.  A representative of Secours Catholique 
explained the key role of micro-credit since "40% of the 
French population has no access to regular bank loans, and 
has to use revolving credit, the cost of which may have 
disastrous effects on over-indebtedness." 
 
Information on Beneficiaries of Professional Micro-credit 
--------------------------------------------- ------------ 
¶14.  Based on ADIE's information, more than 33% of business 
creators in France were the unemployed (excluding those 
involved in informal survival jobs in disadvantaged areas). 
Disadvantaged areas account for 20% of micro-credit loans. 
In theses areas, around 20% of beneficiaries are illiterate, 
and are more successful in achieving their projects because 
of their experience than the 20% who are young people with 
academic backgrounds but who have been laid-off.  94% of 
micro-credit loans to creators of micro-enterprises are 
repaid, a better result than for regular loans to creators 
of companies.  To Nowak, "it is possible to get people out 
from poverty thanks to micro-credit loans."  INSEE, the 
National Statistical Agency, estimates the overall poverty 
rate in France at 6.3% in 2003.  The poverty line for an 
individual was set at 7,740 euros for 2003, which is equal 
to 50% of the median income.  Interestingly, Nowak estimated 
that 10% of the unemployed-inactive people, or around 
300,000 individuals, are potential beneficiaries from micro- 
credits. 
 
Commentators Stress President's Personal Intervention 
--------------------------------------------- -------- 
¶15.  The President's advisers have said that developing 
micro-credit is dear to President Chirac, noting "he is 
changing his gear ratio" to social issues usually supported 
by leftist politicians.  In the same vein, commentators 
underlined that the President wants to put his own touch on 
the government's reduction of unemployment policy, and was 
reaching into leftist ideology to do so. 
 
Comment 
-------- 
¶16.  President Chirac's personal commitment to the 
development of micro-credit, although it can be viewed as a 
preemptive raid on leftist social issues, also reflects a 
real government concern about unemployment (which is still 
high at 9.5%, despite recent decreases) and inactivity (for 
people getting welfare benefits and not having the option to 
integrate into the economy).  The November 2005 unrest 
sounded a warning about the financial situation of the 
unemployed and the inactive; however, the government 
objective for 2006 and 2007 does not look ambitious when 
compared to the potential need estimated by ADIE.  The 
French micro-credit market is likely to develop in the long 
term for the same political, social and demographic reasons 
it gathered steam in the U.S.  France still has a necessity 
to reform welfare and encourage individuals to support 
themselves through employment, including self-employment. 
The French must find ways to grapple greater uncertainty due 
to corporate downsizing and outsourcing jobs.  With micro- 
credit available, self-employment may also develop with the 
increasing percentage of women in the workforce, the growth 
in immigration, an aging population, and a decline of rural 
economies. 
 
STAPLETON#