Microcredit in Italy: searching for a model

The main purpose of this analysis is to identify a “best practice” benchmark for the microfinance phenomenon in Italy. Starting from a review of current legislation, I continue the analysis with particular reference to the various types of non-bank lenders in the market and the respective different operating methods used to provide their services. The analysis shows that although each of these operators is able to provide effective solutions in terms of financial inclusion, none is able to offer actual solutions in terms of financial sustainability. No model was found to be uniquely superior to others. Moreover, despite the wide institutional variety, a best practice benchmark cannot be currently identified. Drawing on this research, I identify three main objectives of the microfinance industry: (i) Provide access to capital in order to help vulnerable individuals and families at risk of sliding deeper into poverty and social and financial exclusion; (ii) Provide financial literacy, monitoring, and tutoring in order to avoid excessive debt load; (iii) Prevent and fight the phenomena of usury. I also identify common general issues faced by microcredit: (i) The lack of new and innovative strategies of risk management that also include soft information; (ii) Developing the ability to face high costs which are mainly due to activities aimed at collecting intangible information, promoting financial literacy and guiding the beneficiary throughout the life-time of the loan; (iii) Achievement of the sustainability of the business over time. In order to address the issues highlighted in this analysis, especially achieving the financial sustainability of microfinance institutions, the intervention of the legislator is needed. Indeed, the legislator should not solely focus on the characteristics of the beneficiary but should also help design a viable “loan delivery process” in order to define the key elements of the process of microcredit (i.e., monitoring, scoring, tutoring).