Launch of Second EU/ACP Microfinance Framework Programme

The new support programme for microfinance institutions (MFIs) has just been launched. The main aim is to strengthen the capacities of more than 100 MFIs in the African, Caribbean and Pacific (ACP) countries.

“We believe that microfinance as a support tool for generating revenue - for informal micro-companies or marginalised peasant farmers for example - can contribute to development and help reduce poverty,” explains Alessandra Lustrati, Microfinance Point Focal at EuropeAid. “Microfinance can be useful for poor households that do not have access to banks and other financial services if it helps develop their economic activities. It can pose a problem when used solely for consumer purposes without improving incomes, the borrower then finding him/herself unable to repay the loan.”

The European Commission is currently cofinancing around 200 microfinance projects for a total amount of almost €200M in more than 80 ACP, Asian, Latin American and Southern and Eastern Neighbourhood countries.  “Our main aim is not to supply the MFIs with liquidities but to strengthen their capacities by offering them technical assistance, training and advice,” stresses Alessandra Lustrati. By using various indicators the EC wants to ensure that the partner institutions are efficient at two levels, financial and social. “To achieve results in terms of reducing poverty, the MFIs must pursue development aims as well as being economically viable. We are trying to work with those that meet these two criteria,” Alessandra Lustrati points out.

There is a long history of EC support for microfinance in the ACP countries. The EU/ACP Framework Programme is the largest and most complex of the programmes currently implemented at various sites within the ACP region. Among other things, the first Framework Programme (2005-2010) increased the number of beneficiaries to over 775,000 clients on low incomes in the ACP zone. It also helped strengthen the capacities of 50 MFIs, create two new ones, train over 500 people, grant aid to the rating of 90 MFIs, and provide legal and regulatory advice to 11 African countries and central banks in West and Central Africa. There were some failures too. “We learned a great deal from the first programme,” explains Stefania Zaninello, head of programme management, Economy and Trade/Operations for the ACP at EuropeAid. “Some IMFs did not know how to offer the most suitable service to their poorest clients. Clients who do not always properly understand their own needs. They ask for a loan, for example, because they have a field that is in danger of flooding when what they need is insurance cover to protect themselves against the risk. The MFIs must understand the need to listen to their clients and not always just grant them loans but rather help them arrive at the best solution.”

Responsible finance

With a budget of €15M under the 10th EDF, the second EU/ACP Framework Programme (2010-2014) seeks to strengthen the capacities of MFIs at all levels: needs analysis and understanding, exchange and implementation of good practices, strengthening and diversification of products and financial services available, and the development of information networks to improve transparency. It is a question of promoting responsible finance with a pronounced emphasis on social performance. Fifteen managers from central or regional banks, finance ministries or microfinance supervisory bodies in the ACP countries will also receive grants to attend the Boulder Microfinance Training programme in Turin (Italy) from 18 July to 5 August 2011.

The second EU/ACP Framework Programme is currently issuing a call for proposals. Managed from Brussels with the assistance of EU delegations in the ACP countries, it is financed by the EC, while the ACP secretariat is the final beneficiary and supervisor. “We are also working with other donors - the World Bank, International Labour Organisation, the United Nations, the Inter-American Development Bank, the German agency KfW - to avoid duplication and to secure maximum benefit from the added value of each donor in this sector,” explains Stefania Zaninello.

Anne-Marie Mouradian