>@EIB/Ministère des finances
©EIB/Ministère des finances

The Grand Duchy of Luxembourg and the European Investment Bank are joining forces on a third technical assistance operation in support of microfinance. Luc Frieden, Finance Minister, and Philippe Maystadt, EIB President, today signed a new cooperation agreement that will bring together the expertise, networks and resources of the EIB and the Finance Ministry in order to develop microfinance and the private sector in the African, Caribbean and Pacific (ACP) countries.

The Finance Ministry of the Grand Duchy of Luxembourg has pledged to earmark a new envelope of EUR 3m (EUR 1m a year until 2013) for technical assistance projects supporting EIB investments in microfinance companies and institutions, i.e. intermediaries that provide retail financial services to small businesses or micro-enterprises. The technical assistance will take the form of support and training in the fields of accounting, administration and risk management as well as sound governance of those intermediaries.

Under their cooperation agreement, the EIB, through its participation in the investment funds that it supports, identifies for the Grand Duchy of Luxembourg the technical assistance projects that merit financing. On the basis of the EIB’s recommendation and following an examination, the Finance Ministry funds the technical assistance operation directly. Monitoring and evaluation are conducted jointly at a later stage.

Over the past five years, under two previous agreements, 15 microfinance projects received aid and technical assistance totalling EUR 5m in nine countries: Cameroon, Uganda, Chad, Ghana, Democratic Republic of Congo, Senegal, Tanzania, Namibia and Afghanistan.

The Luxembourg Government was very quick to recognise microfinance’s potential in the field of combating poverty. At the signature ceremony Minister Frieden stated: “Microfinance is a key component of the Luxembourg Government’s development cooperation policy. However, we have observed recent developments in the sector and drawn the necessary conclusions. The third cooperation agreement with the EIB therefore places particular emphasis on the social performance of microfinance institutions. Against that backdrop, we are delighted to be able to count on the EIB’s expertise, experience and networks.”

EIB President Philippe Maystadt expressed his satisfaction regarding the relevance of these agreements, which draw on the EIB’s long experience and broad knowledge of this sector. Concerning the results of the previous operations, he remarked: “The investments made by the Luxembourg Government, which complement the EIB’s financial commitments, were a key factor in the joint operations conducted. Although the EIB now also has resources to be set aside for technical assistance, these are far from meeting all requirements. The very strong demand in the microfinance sector for such assistance proves that there is a genuine need for it and this cooperation agreement will serve to continue the joint action undertaken over the past five years.”

Supporting information

Microfinance is defined as the provision of small-scale financial services – such as savings, loans, insurance or other basic financial services – to customers with no income or on a low income who are excluded from the traditional banking system. These modest financial services help the beneficiaries to earn a daily living, carry out productive projects and, if possible, save money, thereby building a future.

The EIB has actively supported the microfinance sector and small and medium-sized businesses in the ACP countries (Africa, Caribbean, Pacific) for over 40 years. It is also active in this sector in the southern Mediterranean countries and the European Union itself. Its range of operations include the acquisition of participations in holding companies that aim to create or develop microfinance institutions, i.e. formal or semi-formal intermediaries offering retail financial services to micro-enterprises or small businesses. These investments give an important boost to the development of the private sector and economic growth in general. However, in order to ensure the sustainability of these ventures and to help microfinance institutions become both commercially and financially independent, it is vital to underpin the investments with parallel technical assistance and training projects that will serve to bolster their institutional and management capacities.