Greek Law 4701/2020: Framework for Microcredit provision, financial sector regulations and other provisions

The new Greek Law 4701/30.06.2020 (Government Gazette A’ 128), titled “Framework for Microcredit provision, financial sector regulations and other provisions” introduces a new regulated entity, the Microcredit Institutions, subject to the provisions of the European Code of Good Conduct for Microcredit Provision, and provides the option of raising capital up to the total amount of twenty five thousand euros (€ 25.000).

Necessity and Purpose of the Regulation

The growing demand for new alternative forms of financing, as reflected at European level, has created the necessity for an institutional framework to facilitate very small businesses in accessing funding, as well as to strengthen social groups to tackle unemployment and social exclusion. The purpose of this Law is to establish an institutional framework for the activity of granting microcredit, in order to provide access to alternative forms of financing to seemingly excluded groups from bank lending, such as very small and start-up businesses, professionals and socially vulnerable groups. The ultimate goal of this legislative intervention is the integration and activation of inactive resources that will contribute to the restart of the Greek economy, while at the same time a structured and supervised management of the provided microcredits will be ensured.

Provisions of the New Law

The main provisions of the new Law provide the below:

• Establishment of rules for the undertaking, exercise and supervision of the activity of granting microfinance.

• Field of Application: microcredit institutions having their registered seat in Greece, as well as their branches operating in the European Union. The following entities are excluded from the scope of the field of application of this Law: credit institutions, including their branches, financial leasing companies, factoring companies and credit companies.

• Main Definitions:

•"microcredit" or "microfinance": credit of a maximum amount of € 25,000

•"microcredit institution": legal entity having its registered seat in Greece, which receives a license to grant microfinance from the Bank of Greece

•"very small entity": As per the meaning of art. 2 par. 2 of Law 4308/2014 ("Greek Accounting Standards, related regulations and other provisions"), a legal entity which, at the time of concluding the microfinance agreement, do not exceed the thresholds of at least two of the below criteria: (a) total assets of € 350.000 (b) total net turnover of € 700.000 (c) average number of employees during the latest fiscal year 10 employees.

• Licensing Procedure for Microfinance Institutions:

• The Bank of Greece (BoG) is responsible for licensing and supervising microcredit institutions

• Corporate form of operation of Microcredit Institutions: legal entities in the form of S.A., LLC, Private Companies, or civil law partnership. In any case, the legal entity’s sole purpose, should be the provision of microcredit

• Coverage of initial capital equal to at least the amount of two hundred and fifty thousand (250,000) euros and obligation to maintain equity of at least equal to the initial capital

• The BoG is obliged within four (4) months from the receipt of the complete application (including all accompanying documentation) to grant the license by virtue of a Decision on the competent governing body or reject the application

• Shareholders’ Assessment: written notification to the BoG, before the acquisition, for the amount of the proposed participation and evaluation by the BoG of the “fit and proper” of the proposed acquisitions of special participation within 30 working days. In particular, anynatural/legal person, who individually or after "joint action" decides to acquire or increase further direct or indirect special participation in a Microcredit Institution, so that the proportion of voting rights or capital shares it owns reaches or exceeds the limits of 20%, 1/3 or 50%, or if the Microcredit Institution becomes a subsidiary, is obliged to send a written notification to the BoG.

• Establishment of a Microcredit Institutions

Registry: maintained on the official website of the BoG.

• Beneficiaries

The beneficiaries of microcredits are the following: (a) very small entities

(b) natural persons for the establishment of very small entities

(c) natural persons engaged in selfentrepreneurship and

(d) Institutions of Social and Solidarity Economy, established by Law 4430/2016.

The abovementioned beneficiaries may receive microcredit relating to the following activities:

1. all forms of credit up to € 25,000, either to cover investment needs or as working capital

2. financial leasing products up to € 25,000 for the acquisition of equipment

3. autonomous guarantees up to € 25,000, which should not be used to obtain loans from other financial institutions.

Moreover, the following categories are also included as beneficiaries of microcredits:

(e) natural persons belonging to socially vulnerable groups, with at least ten years of tax residence in Greece, as well as

(f) natural persons for the purposes of covering expenses related, directly or indirectly, to their education, or post-education.

These beneficiaries may receive microcredit relating to the following activities:

1. forms of credit intended to strengthen public policies or the social and financial integration of socially vulnerable groups, up to € 25,000, and which relate, in particular, to tackling unemployment, or suspending, or reducing working time for reasons beyond their control.

• The new Law also stipulates the obligation of Microcredit Institutions to provide consulting services of business education and guidance to microcredit beneficiaries

Main terms of granting microfinancing:

• No collaterals are required

• The beneficiary may receive from one or more microcredit institutions new microfinance, provided that the total amount of the initial and new microfinance, regardless of the granting institution, does not exceed € 25,000 for each beneficiary •Ability of requesting a guarantee before the granting of microfinance

• The repayment period of the granted microcredit may not be less than twelve (12) months, and may not exceed ten (10) years

• Early repayment right and relevant reduction of the total cost of microcredit Microcredit agreements are exempt from any stamp duty as well as the Levy of Law 128/1975

• Subject to a decision of the Minister of Finance, a maximum interest rate can be set.

The broader regulatory framework

It is noteworthy that the Law introduces an important provision, which will contribute to the financial education of the most financially weak parts of the economy, stipulating the obligation of the Microcredit Institutions to provide consulting services of business education and guidance to beneficiaries. Thus, minimum rationalization will be achieved in terms of the absorption and utilization of microfinance by the beneficiaries, reducing not only the credit risk of Microcredit Institutions, but also the creation of a new type of non-performing exposures in the wider financial system of the country.

Finally, it should be noted that this Law is the latest venture towards the regulation of alternative financing forms in a series of such legislative initiatives over the last decade. Specifically, over the past years, new types of financial entities have been added to the Greek legal framework, above and beyond the usual European practices, in order to facilitate access to alternative forms of financing, as well as better general management of the financial system. Indicatively, the double approach made through Laws 4351/2015 and 4416/2016 in terms of regulating Crowdfunding, Law 4354/2015 for the Credit Servicing Firms and the establishment of the Alternative Market of the Athens Stock Exchange are notable.

In conclusion, it is worth mentioning that from a legal point of view, the Law presents some points which require clarifications, something that is expected to happen through the issuance of the relevant regulatory acts of the BoG, which also possesses the role of the supervisory authority towards Microfinance Institutions.

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