Microfinance: small amounts, big impact. For 20 years now, Luxembourg has been committed to microfinance.

In most emerging countries, access to banking services is difficult, and this is a major obstacle to development. Microfinance is seen as one of the main solutions to this problem.

Breaking the vicious circle of poverty in emerging countries is the main mission of Luxembourg's cooperation. Luxembourg pursues this goal in seven countries, namely Burkina Faso, Cape Verde, Laos, Mali, Nicaragua, Niger and Senegal, where it focuses its solidarity effort in the form of subsidies.

In 2019, 420.80 million euro - or 1.04% of gross national income (GNI) - was released to support the economic, social (education, training, health) and environmental development of these partner countries, while adapting to their specific situations and needs.  

An ecosystem that favours the development of the sector

For more than 20 years, the cooperation has been involved in the field of microfinance, which has experienced unprecedented development during this time.   

Over the years, Luxembourg has even become an essential global hub for this sector through its investments in the creation of inclusive finance and providing favourable conditions for the emergence of microfinance. Today, almost a third of microfinance investment vehicles (MIVs) are based in Luxembourg, representing more than 50% of the sector's assets under management worldwide. It should also be noted that approximately 60% of microcredits pass through Luxembourg.

As the inclusive finance sector has arisen, a wide range of players have also emerged in this ecosystem. International partnerships have been forged, institutions and NGOs have flourished, microfinance investment funds have been developed, all benefiting from the label LuxFlag Microfinance, and even academic training through the Microfinance Chair is being offered today. 

Luxembourg cooperation covers the fields of basic education and supports initiatives such as the project of the NGDO Guiden a Scouten fir eng Welt at the Madina 3 school in Niamey (Niger).
© SIP
In 1996, Burkina Faso was chosen as a partner country for Luxembourg's bilateral cooperation.
© SIP

Microfinance in support of the most fragile

Microfinance brings money where there is none. At the origin of this phenomenon, microcredits were mainly granted in the form of small loans to small entrepreneurs or craftsmen. Today, microfinance, or inclusive finance, also benefits households that are close to the poverty line. It provides these people with access to basic financial services such as credit, savings, money transfer and insurance in order to give them the opportunity to plan for their future, protect themselves against life's risks or increase their autonomy.

Within the framework of Luxembourg's support, finance programmes are mainly focused on women and young entrepreneurs in rural areas. But inclusive finance, which is one of the pillars of Luxembourg's En route pour 2030 general strategy, also targets the development of financing and insurance tools in the agricultural sector as well as in combating hunger and malnutrition

Highlights of microfinance

  • The Bangladeshi economist Muhammad Yunus was the first to develop microcredit in Bangladesh in the 1980s. 
  • Muhammad Yunus and his Grameen Bank were awarded the Nobel Peace Prize in 2006 for their efforts to foster grassroots economic and social development.
  • The 17 sustainable development goals were adopted in 2015 by all United Nations member states as part of the United Nations Programme for Sustainable Development for 2030.
  • The World Bank estimates that as many as 1.7 billion adults are excluded from the banking system worldwide.
Three women farmers present the vegetables of Tiné Ndoye in Senegal, they are beneficiaries of microfinance to start their market gardening activity. Worldwide, 1.7 billion adults are excluded from the banking system.
© SIP/Charles Caratini
In 2008, the Minister for Cooperation and Humanitarian Action, Jean-Louis Schiltz, received Muhammad Yunis, 2006 Nobel Peace Prize winner, founder of the Grammeen Bank and economist from Bangladesh.
© Zineb Ruppert

Bankers for the poor

In the wake of the microfinance sector's strong growth in Luxembourg for more than 20 years now, many NGOs and institutions have emerged. The Luxembourg NGO ADA (Appui au Développement Autonome), created in 1994, was placed under the High Patronage of Grand Duchess Maria Teresa in 2007. This NGO very soon succeeded in combining the dynamism of the financial centre with development cooperation. With the ambition to become the spearhead of the sector, it is today a key player in the field of microfinance in Luxembourg. The NGO, which is active in some fifty countries, celebrated its 25th anniversary in 2019.    

ADA and several other microfinance and inclusive finance players and institutions are hosted in the Maison de la Microfinance: the European microfinance platform (e-MFP), the Luxembourg Inclusive Finance Network (InFine.lu), the Luxembourg Microfinance and Development Fund (LMDF), the Microinsurance Network (MiN) and Microlux. The latter is the first institution that was established as a public limited company. Microlux targets financial exclusion in Luxembourg and offers microcredits of up to 25,000 euro.

European Microfinance Award

Organised since 2005, the European Microfinance Award acknowledges innovative projects in inclusive finance and has two objectives: to reward excellence and to identify and disseminate the most relevant practices with a view to their application by others.

This prize for excellence, endowed with 100,000 euro, was won by Muktinath Bikas Bank Ltd. Nepal's leading National Development Bank serves low-income households and women in rural areas through a department dedicated to this target population.

The assistant CEO/Chief-Small and Micro Banking of Muktinath Bikas Bank Ltd, Govinda Bahadur Raut, has 24 years of experience in the microfinance and development sectors.
© Muktinath Bikas Bank
The bank serves low-income households and women in rural areas.
© Muktinath Bikas Bank

Three questions for ...

Govinda Bahadur Raut, assistant CEO/Chief-Small and Micro Banking of Muktinath Bikas Bank

1. You have received the European Microfinance Award 2020. What does this award mean to you?

Since its creation, our organization has been adopting a principle of ''जनता बैंकमा होइन, बैंक जनतामा जानु पर्दछ'' i.e. people do not come to the bank, the bank should go to them. The Muktinath Bikas Bank was an exception at the time of establishment, adopting the microfinance model to reach the lower part of the population as a traditional bank. The bank management was committed to nurturing the poor people to bring them into the mainstream of the financial ecosystem, however, it was costly to provide and continue these services. The bank was guided by its social mission to deliver impactful financial services. The Bank was very clear about Impactful Banking which was not possible without reaching the rural and deprived people. We as bankers without uplifting the living standard of people through various services, cannot be extraordinary bankers in the crowd of regular bankers. This award has been a confirmation of our perseverance and dedication towards our principle and encouraged us to continue to serve our clients/ members. 

2. The Prize also made you win €100,000, which is a lot of money in microfinance. How are you going to invest this money?

COVID-19 has been a mirror for all of us. It shows how important digital infrastructure is in times of pandemics. At present, the telecommunication reach is nationwide and the majority of the people carry mobile phones and use 3G or 4G services. Hence, if we are able to communicate with them through mobile phones and deliver services through the same, onboarding those prospective clients to the bank will be quite easy. Further, we can reduce the traveling time of people to come to the bank to avail various banking services. Though the bank has already developed a platform of the first level of digital banking, which still needs a lot of customization to make it easy to use for rural illiterate people as well. Thus, with the money of this award, the bank will work on its digital infrastructure especially improving its SMS services, mobile banking, QR payment system, internet banking, financial cum and digital literacy, as well as its credit score card, always keeping in mind the rural population. 

3. How will winning the Microfinance Award impact your work in the future?

The Award provided a platform to showcase our work in front of the whole world, for which MNBBL will always be grateful to the European Microfinance Award. This award not only provided us with recognition but added also responsibility to do better in the future for our customers/clients/members.  In the future, we will reinforce our presence in Nepal through opening more service points and new branches in places where people lack access to financial sectors (like Sudur Paschim (far-western) Province). We will forge a partnership with other EGI  organizations (working on efficiency, growth, and impact). We have already started field visits to various parts of Nepal for identifying locations for branch expansion and the approval process with our central bank is in line. Further, meetings with various organizations working for rural people and smallholders are ongoing. Therefore, this microfinance award has put more energy and fuel into our work and is being vital for making people understand our banking model.