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EC Microfinance Focal Point emfw2010


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A presentation delivered at the European Microfinance Week 2010

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EC Microfinance Focal Point emfw2010

  1. 1. European Microfinance Week<br />Luxembourg, 1 Dec 2010<br />Overview of the EC approach to microfinance support<br />Alessandra Lustrati<br />EC Microfinance Focal Point<br />
  2. 2. EC Support to MicrofinanceDevelopment objectives<br />Linking microfinance to broader development objectives:<br /> Social development<br />Financial inclusion of poor/low-income unbanked households <br />(e.g. access to savings, payment services, microinsurance, financial literacy, …)<br /> Economic development <br />Access to finance for micro/small-scale enterprises and smallholders <br />(e.g. financial product development - appropriate loans, leases, etc. - based on enterprise/farm needs, cycles, seasonality…)<br />
  3. 3. EC Support to MicrofinanceDevelopment objectives (points for reflection)<br />Social and economic development, poor household and micro-enterprise strategies are often interlinked<br />Some types of microfinance may help in ‘coping’ with poverty, others in ‘reducing’ income poverty or other forms of deprivation<br />Microfinance for enterprise development usually needs to be complemented by non-financial BDS<br />EC work in microfinance partly connects/overlaps with its action on broader ‘access to finance’ (for MSMEs) <br />Sufficient rural outreach remains a challenge <br />
  4. 4. Access to Finance for MSMEs<br />Financial services for productive, service or trading activities of the poor<br />Microfinance<br />EC Support to MicrofinanceRelationship to broader Access to Finance <br />
  5. 5. Business Enabling Environment<br />Business Development Services<br />Microfinance<br /> MSE<br />EC Support to MicrofinanceRelationship to BDS and BEE<br />
  6. 6. 6<br />EC Support to MicrofinanceKey policy aspects<br />Main focus on institutional capacity building<br />institutional capacity is a bottleneck<br />comparative advantage of EC (grant-giving donor)<br />main focus at MFI level (but increasing attention for financial infrastructure and policy, in line with broader work on access to finance)<br />Funding of MFI capital needs only in exceptional cases<br />better left to specialised financial institutions<br />design appropriate specific « exit » strategy if credit is revolving<br />
  7. 7. EC Support to MicrofinanceFocus on capacity building at different levels<br /><ul><li>Strengthen financial institutions (capacity building to diversify products, expand outreach, reach sustainability)
  8. 8. Build strong support infrastructure for MFIs (training, information infrastructure, payments systems, advocacy)
  9. 9. Promote a favourable legal and institutional environment for microfinance (balancing financial access, stability and client protection)</li></li></ul><li>EC Support to MicrofinanceGuidelines (background)<br />Published in 2008<br />Based on EC experience and lessons learnt<br />Aligned to donor consensus on microfinance (‘Pink Book’)<br />Complementary to EC guidelines in PSD/access to finance <br />Mainstreamed through trainings, ‘quality support’, events<br />
  10. 10. EC Support to MicrofinanceGuidelines (outline)<br />Key definitions, policy focus (capacity building)<br />Examples of areas/levels of intervention <br />Requirements for grant recipients (experience, expertise)<br />Performance indicators (explanation of financial, reference to social)<br />Criteria or onlending through specialised financial institutions and NGOs (special circumstances)<br />End-of-project strategies for revolving funds<br />
  11. 11. 10<br />EC Support to MicrofinanceGuidelines - example<br />Requirements for grant recipients<br />experiencewith microfinance operations<br />>3 years<br />at least 3 similar actions<br />technical expertise<br />in-house qualified staff dedicated to microfinance<br />
  12. 12. 11<br />EC Support to MicrofinanceGuidelines - example<br />Measuring results<br />Definition of performance baseline, targets and key indicators <br />Standard performance indicators should cover at least the five core areas:<br />(1) breadth of outreach<br />(2) depth of outreach<br />(3) portfolio quality<br />(4) efficiency<br />(5) sustainability <br />
  13. 13. 12<br />EC Support to MicrofinanceGuidelines - example<br />Providing on-lending capital<br />Involving specialised financial institutions or, exceptionally, specialised NGOs (following a call for proposals) <br />Limited to the following cases:<br />there are no providers (remote areas, post-conflict) and the "start-up” MFI can fill the gap<br /> an existing MFI extends operations into rural areas <br />Funding must be complemented by capacity building<br />End-of-project (“exit”) strategy to ensure sustainable access to finance<br />
  14. 14. EC Support to MicrofinanceOverview of portfolio<br />Current portfolio approx 200 MEUR (at 31 Dec 2009)<br /> (Allocation stable over previous five years)<br />Almost 200 projects <br />Over more than 80 countries <br /> (in ACP, Neighbourhood, LA, Asia)<br />Funding levels: about 90% at micro level, under 10% at meso, macro and wholesale <br />Types of activities: wide range, in both rural and urban areas, mostly focused on the objective of supporting micro-entrepreneurs and smallholders. <br />
  15. 15. EC Support to MicrofinanceOverview of portfolio <br />Funding sources:<br /> NSA budget line (centralised and local CfPs), country and multi-country programmes (under EDF, DCI, etc.), Food Security budget line / EP pilot projects, Food Facility, Investing in People.<br />Partners and beneficiaries:<br /> mainly MFIs and NGOs/NSAs, but also meso-level organisations (financial infrastructure, networks, training providers, rating agencies), and government, central banks, supervisory authorities.<br />Collaboration with EIB for Investment Facility (equity+TA for MFIs)<br />(‘flagship’ initiative: EU-ACP Microfinance Programme)<br />
  16. 16. EC Support to MicrofinanceAdditional information<br />For more information on the EC and microfinance:<br />“Guidelines on EC support to microfinance”<br />EC Microfinance project database (maintained by EC Microfinance Focal Point)<br />Specific country-level information from EU Delegations<br />EC Microfinance on Capacity4Dev:<br /><br />For comparison with other funders:<br />CGAP Funder Survey (EC contributes data yearly)<br />
  17. 17. Thank you!<br />