Updated European Code of Good Conduct for Microcredit Provision Enters Into Force

The transition period of the updated Code, published on 30 June 2020, will end on 31 December 2020. As of 1 January 2021, all new Code evaluations of microfinance institutions will be made based on the updated Code.

In addition, the Code Steering Group, chaired by the European Commission, has adopted on 27 November 2020 the following changes regarding the Code evaluation and award process linked to the updated Code:

  • Extension of Code award period and mid-term progress reporting

The award period has been extended from three years to four years for future Code awards and renewals, applying to institutions evaluated and awarded based on the updated Code. Awarded institutions will be required to submit a ‘mid-term progress’ form two years into the four-year award period. This form will provide important information to the Code Steering Group report on any relevant structural changes and on the progress made by the institution in implementing recommendations where relevant.

  • Completion of business description form at the pre-evaluation phase

Institutions requesting an evaluation for their compliance with the Code will be required to submit a ‘business model description’ form to the evaluator. The purpose of the form is to provide the Code Steering Group with a better understanding of the institution undergoing the Code evaluation prior to an award decision. This will help minimise additional information that may be requested from the institutions at a later stage.

  • New mechanisms for appeals and non-compliance reporting

The Code Steering Group has formalised two mechanisms:

  1. an appeals mechanism regarding its award decisions. Any appeals must address the basis for the Code Steering Group’s decision and should be substantiated by evidence and documentation supporting the appeal.
  2. a non-compliance reporting mechanism, enabling stakeholders to report instances of awarded microfinance institutions that do not comply with the provisions of the Code.

Related forms and further guidance was published on the Code page (see Related Documents)

Background

The European Code of Good Conduct for Microcredit Provision (the “Code”) defines a unified set of standards for the microfinance sector in Europe. It serves as a self-regulation tool and a quality label for microfinance institutions committed to ethical finance.

The Code has been developed based on recognised best practices in the sector in close consultation with stakeholders. Signing up to or endorsing the Code is a prerequisite for microfinance institutions and banks to benefit from EU financial support.

The Code was updated with the extensive involvement of key stakeholders, including practitioners, trade bodies (the European Microfinance Network, EMN, and the Microfinance Centre, MFC), EU institutions, banks, and experts, to reflect the changing market realities and capture the wide diversity of providers within the microfinance sector in Europe.

The updated Code was published on 30 June 2020 and comes into force on 1 January 2021.

The Mid-term progress form and the Business Model Description form, and updated the Code FAQ, are all published on the Code page (see “Related Documents”).

Source and more information in the official European Commission’s press release