Inclusive and innovative finance

For more than 25 years, Lux­em­bourg Devel­op­ment Coop­er­a­tion has been active­ly sup­port­ing the devel­op­ment of micro­fi­nance and inclu­sive finance to reduce glob­al pover­ty, in order to pro­mote eco­nom­ic devel­op­ment, inclu­sive growth and the socio-eco­nom­ic inclu­sion of women and young people.

Today, micro­fi­nance invest­ment instru­ments based in Lux­em­bourg account for over half the assets under man­age­ment glob­al­ly. 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 2021, Lux­em­bourg Devel­op­ment Coop­er­a­tion con­tin­ued its sup­port to var­i­ous play­ers active in inclu­sive and inno­v­a­tive finance. The new cross-cut­ting strat­e­gy in the field of inclu­sive and inno­v­a­tive finance was pre­sent­ed at the Lux­em­bourg Devel­op­ment Coop­er­a­tion ses­sions held on 17 and 18 May, a flag­ship con­fer­ence bring­ing togeth­er all those active in Lux­em­bourg Devel­op­ment Coop­er­a­tion. This strate­gic doc­u­ment pro­vides the frame­work for the imple­men­ta­tion of Lux­em­bourg Devel­op­ment Cooperation’s sus­tain­able finance objec­tives in the com­ing years.

As regards its strate­gic part­ner­ships, the Direc­torate for Devel­op­ment Coop­er­a­tion and Human­i­tar­i­an Affairs has renewed its sup­port for the Inclu­sive Finance Net­work Lux­em­bourg ASBL (InFiNe​.lu) for three years through a new agree­ment. InFiNe.lu’s unique make-up brings togeth­er the main actors in the pub­lic and pri­vate sec­tors and civ­il soci­ety in Lux­em­bourg to take advan­tage of the con­sid­er­able knowl­edge avail­able in the coun­try in order to pro­mote the deploy­ment of inclu­sive finance worldwide.

Through the Cat­a­pult: Inclu­sion Africa sem­i­nar, 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.

The year 2021 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. This took place at the Euro­pean Invest­ment Bank (EIB) on 18 Novem­ber, in the pres­ence of Her Roy­al High­ness the Grand Duchess. In a hybrid cer­e­mo­ny, the award was pre­sent­ed to Fonkoze of Haiti, in recog­ni­tion of its ​“Boutik San­té” pro­gramme, an ini­tia­tive for train­ing clients in health screen­ing and education.

In Decem­ber, the agree­ment under which the Min­istry of For­eign and Euro­pean Affairs donates to Appui au développe­ment autonome (ADA), an NGO work­ing to pro­mote inclu­sive devel­op­ment for vul­ner­a­ble pop­u­la­tions, was renewed with a new man­date. This com­mit­ment by Lux­em­bourg Devel­op­ment Coop­er­a­tion will cov­er a four-year peri­od (from 2022 to 2025) and will have a bud­get of EUR63 mil­lion. Through its activ­i­ties, ADA sup­ports the pri­or­i­ties of Lux­em­bourg Devel­op­ment Coop­er­a­tion, includ­ing pri­or­i­ty access to respon­si­ble agri­cul­tur­al finance, mar­kets and inno­v­a­tive prac­tices for small farm­ers, as well as access to suit­able finan­cial and eco­nom­ic oppor­tu­ni­ties for young peo­ple and women.

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 and pop­u­la­tions exclud­ed from the tra­di­tion­al finance sys­tem, stim­u­lat­ing entre­pre­neur­ship. Through its invest­ments in Asia, Africa and Latin Amer­i­ca, the fund, which in 2021 had grown to more than EUR45 mil­lion, has financed more than 290000 micro-entre­pre­neurs since it was set up and has 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 Devel­op­ment Coop­er­a­tion con­tin­ues to sup­port invest­ment in sus­tain­able projects. Through tech­ni­cal assis­tance to the Forestry and Cli­mate Change Fund (FCCF), Lux­em­bourg Devel­op­ment Coop­er­a­tion pro­motes invest­ment in trop­i­cal for­est forestry projects in Cen­tral Amer­i­ca, with the objec­tive of restor­ing sec­ondary or degrad­ed for­est areas and mak­ing them eco­nom­i­cal­ly, envi­ron­men­tal­ly and social­ly viable.

Lux­em­bourg Devel­op­ment Coop­er­a­tion works close­ly with the Con­sul­ta­tive Group to Assist the Poor (CGAP), which works to improve the lives of dis­ad­van­taged pop­u­la­tions by pro­mot­ing inno­v­a­tive solu­tions that give them bet­ter access to inclu­sive finance mar­kets. In 2021 this coop­er­a­tion was strength­ened in the area of the finan­cial inclu­sion of women in rur­al areas.

In addi­tion, Lux­em­bourg Devel­op­ment Coop­er­a­tion sup­ports respect for human rights through its actions in the inclu­sive and inno­v­a­tive finance sec­tor by recog­nis­ing the need to cre­ate com­mon rules and stan­dards to pro­mote social respon­si­bil­i­ty and per­for­mance in the finan­cial sec­tor. By lever­ag­ing its lead­ing finan­cial cen­tre and exper­tise in sus­tain­able finance, Lux­em­bourg thus intends to play an active nor­ma­tive role and will con­tin­ue its sup­port for the devel­op­ment and imple­men­ta­tion of inter­na­tion­al­ly recog­nised stan­dards and prin­ci­ples in the field of respon­si­ble finance. For exam­ple, the Uni­ver­sal Stan­dards for Social and Envi­ron­men­tal Per­for­mance Man­age­ment issued by the Social Per­for­mance Task Force (SPTF) is a com­pre­hen­sive set of stan­dards and good prac­tices cre­at­ed for the inclu­sive finance sec­tor to sup­port human rights. Anoth­er exam­ple is LuxFLAG, an inde­pen­dent and inter­na­tion­al non-prof­it asso­ci­a­tion cre­at­ed in Lux­em­bourg in 2006 by sev­en pub­lic and pri­vate found­ing part­ners, includ­ing Lux­em­bourg Devel­op­ment Coop­er­a­tion. The agency aims to pro­mote the rais­ing of cap­i­tal for the social­ly respon­si­ble invest­ment sec­tor by, among oth­er things, assign­ing a recog­nis­able label to eli­gi­ble invest­ment vehi­cles. The label’s aim is to denote that an invest­ment vehi­cle falls into the cat­e­go­ry of social­ly respon­si­ble invest­ment. The Lux­em­bourg inclu­sive finance sec­tor is thus posi­tion­ing itself as a pil­lar to help finan­cial insti­tu­tions to achieve their social objec­tives. More­over, through mul­ti-stake­hold­er coor­di­na­tion, Lux­em­bourg Devel­op­ment Coop­er­a­tion is work­ing to devel­op oth­er glob­al ini­tia­tives aimed at devel­op­ing mea­sur­able and ver­i­fi­able social assess­ment prin­ci­ples and stan­dards. As a result, the Lux­em­bourg finan­cial cen­tre is at the heart of the devel­op­ment of social respon­si­bil­i­ty for finan­cial prod­ucts and services.