Inclusive and innovative finance
Luxembourg’s financial centre has considerable expertise, which may also be made available to international development. For more than 25 years, Luxembourg’s Development Cooperation has been actively supporting the development of microfinance and inclusive finance to reduce global poverty, to promote economic development, inclusive growth and the socio-economic inclusion of women and young people. In this way, Luxembourg has become a key centre of excellence for inclusive and innovative finance.
Today, microfinance investment instruments based in Luxembourg account for over half the assets under management in the sector. These funds are mainly invested in developing countries and thus constitute a significant proportion of the direct foreign investment in these countries. This is an example of the leverage that private funds can have in promoting sustainable development across the world.
In 2020, Luxembourg’s Development Cooperation continued its support to various players active in inclusive finance.
Through the Catapult seminar: Inclusion Africa, the Luxembourg House of Financial Technology (LHoFT) supports African fintechs and facilitates the scaling up of the most promising solutions through the creation of partnerships.
As part of the fight against the COVID-19 health crisis, which affected businesses globally, a COVID-19 response fund to support microfinance institutions and their clients was created with ADA, the MFA’s main partner in the inclusive finance sector. Luxembourg’s Development Cooperation also supported the coordination of investors with a view to ensuring sufficient liquidity for actors on the ground during these difficult times.
In partnership with five of these impact investment funds, the Smallholder Safety Nets project Upscaling Programme (SSNUP) was launched by Minister Fayot on 2 October, during a visit to the House of Microfinance. This project, implemented by ADA, receives co-financing from the Swiss Directorate for Development and Cooperation.
A new agreement was signed with the global microinsurance network, Microinsurance Network (MiN), whose secretariat is based in Luxembourg.
On 5 October 2020, the Alliance for Financial Inclusion (AFI), a global network made up of about 100 finance sector regulators, joined Luxembourg’s inclusive finance ecosystem by opening its Luxembourg office.
The year 2020 also featured the European Microfinance Week, an annual fixture for experts in the sector, whose flagship event is the presentation of the European Microfinance Award. On 19 November, at an online ceremony, the award was presented to the Muktinath Bikas bank in Nepal, in recognition of its integrated savings model tailored to clients’ needs.
In January 2020, Luxembourg, with Bamboo Capital Partners and a coalition of partners, launched the SDG500 investment platform, dedicated to the financing of the Sustainable Development Goals (SDGs). The platform’s aim is to collect USD 500 million for six funds in order to invest in the hundreds of businesses in the emerging and border markets or developing markets. Luxembourg is participating in three of these sub-funds through concessional financing: the ABC fund, the BLOC Smart Africa fund and the BUILD fund.
The Luxembourg Microfinance and Development Fund (LMDF) is a public-private microfinance investment fund whose activity consists of targeted support for small and medium-sized microfinance institutions. Through its investments in Asia, Africa, and Latin America, the fund, which in 2020 had grown to more than EUR 39 million, financed more than 55,000 micro-entrepreneurs and created measurable results in terms of financial inclusion.
Together with the Ministry of Finance and the Ministry of the Environment, Climate and Sustainable Development, Luxembourg’s Development Cooperation continues to support investment in sustainable projects. Through technical assistance to the Forestry and Climate Change Fund (FCCF), Luxembourg’s Development Cooperation promotes investment in tropical forestry projects in Central America, with the objective of restoring secondary or degraded forest areas and making them economically, environmentally and socially viable.
To transform and modernise family farms in Burkina Faso and Mali, and to facilitate their access to financing, the NGO SOS Faim is implementing the Agri+ project under the mandate of Luxembourg’s Development Cooperation for the 2016-2022 period.