MIQUA: Microfinance for Poor Quarters in German Cities

The awarding of microfinance by regular banks to SMEs hardly happens in Germany any more. However, these small companies are the oil on which the local economy thrives. Nonetheless, they are often considered highly risky investment options, and thus have a near-zero chance of obtaining a loan.


For this reason, the German Communication and Innovation centre (KIZ) has developed the so-called “Ostpolkrediet”. This local system for micro-financing is based on the cooperation model that was developed by the German Microfinance Institute (DMI).

Issue: a standardised  yet locally sensitive inter-municipal microfinance system

Before the project started, it was already clear that microfinance can be an important method for strengthening the local economy. Still there are several problems involved in setting up a local microfinance system:

  1. Preparation challenges
  • Microfinance functions on the cross-section of urban, social and economic development and employment. As all challenges relating to a local system for microfinance are highly innovative by nature, municipal decision-making procedures are very time consuming;
  • Many municipal actors do not view microfinance as their job, and are reluctant to overcome political and juridical obstacles;
  • The local government views the regular banks as the most suitable partners for allocating loans, though these banks actually are very critical about requests from the target group.

2. Lacking self-employment

  • Even if all the hurdles described are overcome, the issues of sustainability and economic management arise. It is known that for the system to survive at least 150 loans per year must be granted. In a single neighbourhood, such a figure cannot be achieved. With the “Ostpolkredit” the KIZ has developed a system that can easily be duplicated, so that the market for loans can be enlarged.

MIQUA established a sustainable structure for an inter-municipal microfinance system. Each system is tailored to local specificities, yet at the same time the system is standardised to such a degree that a crucial synergy is achieved. The aim is to include additional neighbourhoods in the system.

Approach: intensive support to the neighbourhoods involved

MIQUA means to stimulate local economic vitality, and to increase the level of economic activity in the neighbourhood. Target groups for microfinance are SMEs and independent workers who are already active in the neighbourhood, or aspire to become so.

The so-called “neighbourhood counsellor” is the central person engaging the target groups. This counsellor is not responsible just for microcredit issues, but can be approached for all questions relating to entrepreneurship.

In a step-by-step sequence, MIQUA has been implemented in the following manner:

  1. Involving interested municipalities;
  2. Network development;
  3. The appointment of neighbourhood counsellors;
  4. Product development: advice to partner neighbourhoods, support in local decision-making processes, the development of a local fund, the inclusion of (local) banks, cooperation between the various neighbourhood counsellors;
  5. Marketing: flyers, a homepage, a campaign, an information stand, active informing of the target groups, publicity activities;
  6. The loan procedure: advice, request and payment;
  7. Advice for entrepreneurs;
  8. Tools for the granting of loans.
Results: over 100 loans granted

MIQUA is now active in five cities, and integrated in regional structures as well. A neighbourhood counsellor is active in each district, and these people exchange experiences on a regular basis. Between 2009 and 2011, over 100 loans have been granted that help local economies to grow.

Influence Cohesion Policy: a vital contribution to crucial capital

The project has been financed through the German programme “Building Economic Activities in Neigbourhoods” (BIWAQ), which in its turn is financed through the ESF and national funding. Without the ESF contribution, MIQUA could never have been implemented, as it is difficult enough already to find the necessary capital.

Lessons learned: microfinance needs to be accompanied by supporting measures

The project has generated several important lessons:

  • Microfinance is an appropriate tool for buoying up the economy in disadvantaged neighbourhoods;
  • Active demand for microfinance is rather hesitant: this is an expression of the malfunctioning of the local economy which this method should help to develop.

This “catch-22” type of situation can be avoided only when microfinance is accompanied by supporting measures. In the current project, good experience was gained by:

  • The neighbourhood counsellors who dealt with all entrepreneurial questions from the local target group;
  • The organisation of local networking activities and seminars;
  • A central, physical contact point;
  • A good selection of properties where new SMEs could be established.

An important point is that when only the local, already existing entrepreneurs are included in the project, there will be only a small demand for loans, and seminars and network-building will be organised for a small public. In these circumstances, an innovative climate is hard to achieve. For this reason, it is useful to widen the scope of activities to neighbouring areas. Thus, the quarter becomes known as a “nexus of development”, on which basis the settlement of new SMEs in the neighbourhood can be stimulated.


Bernd Curtius
Tel. 069 - 667796-104
Mail: berndcurtius@kiz.de