WRITTEN QUESTION E-0016/02

by Graham Watson (ELDR) to the Commission

(18 January 2002)

Subject: Microfinance policy

What action has the European Commission taken in the last three years to implement those aspects of its microfinance policy which impact on the provision of microfinance services to very poor people, in the developing world?

Joint answerto Written Questions E-3587/01, E-3614/01, E-3636/01, E-0016/02 and E-0083/02given by Mr Nielson on behalf of the Commission

(11 April 2002)

The Commission is fully aware of the relevant role that effective microfinance institutions can play in the fight against poverty. Indeed, they can contribute substantially to making economic opportunities accessible to the poor. Economic entities, like microenterprises, only need modest financial support to improve their capacity to create wealth and employment.

A Communication focused on microfinance(1), some methodological orientation and a Communication on private sector development(2), all issued in 1998, pointed out the important role microfinance can play in fighting against poverty. This role is confirmed in the Communication on the Development policy of the Community(3), and in the Cotonou Agreement, of the year 2000, and will be clarified in the forthcoming Guidelines on a harmonised approach to support private sector.

Community actions for support to small and micro-enterprises concentrate, among others, in the following fields:

- supporting the setting up of a regulatory framework and a banking supervision system ensuring an appropriate regulation of the microfinance market;

- encouraging micro-finance institutions to develop new services and financial products;

- helping integrate micro-finance within local financial systems by disseminating best practices and performance standards, setting up a framework for regulation and supervision, and supporting institutional development;

- strengthening and monitoring the performance of microfinance institutions, their governance system and their ability to serve microenterprises.

These activities should be carried out in close co-ordination and collaboration with multilateral bodies and with the financial institutions and, most of all the Consultative group to assist the poorest (CGAP).

In anticipation of the establishment of a new, comprehensive microfinance programme, the Community is intervening in different regions, to the possible extent in co-ordination with other donors and with CGAP, promoting initiatives in the field of microfinance.

Several projects have been financed in the context of rural development especially in Africa (Madagascar, Guinea Conakry, Niger, Cameroon, South Africa), essentially aiming at supporting the institutional development of local microfinance institutions.

Other projects have been implemented in Latin America and Asia to support a better access to credit for microenterprises making credit lines available to intermediary financial institutions interested in serving the market of small enterprises, both in urban and rural areas.

A European initiative for assessing the performance of microfinance institutions (MFIs) in Africa has been recently supported by the Community, in co-ordination with CGAP, to streamline the culture of rating among African MFIs. Given the positive results, the Community is now seeking to identify new ways of pursuing the initiative co-operating with CGAP.

The European Investment Bank (EIB) has already approved some global loans addressing microfinance institutions, like Finadev in Benin, Banco Ademi in Dominican Republic, Caribbean Microfinance Ltd in Trinidad and Tobago. This last institution has been even supported, more recently, by one of the Commission's private sector programmes, the Union and African, Caribbean and Pacific countries Business Assistance Scheme (EBAS), to set up an ad hoc technology to target the rural microfinance market. Recently, the EIB has supported the new fund Africap, established to support existing microfinance institutions in Africa.

The Commission has the following projects in Bangladesh with a micro-credit component:

- Rangpur Region Rural Development Programme (ALA/84/21). Approximately EUR 2,5 million out of the total EU grant of EUR 32,5 million is earmarked for credit under the Revolving Loan Fund. The aim of the project is to make a sustainable contribution to poverty eradication in Rangpur Region by enabling some 1,5 million organised poor households to graduate permanently from poverty by 2004;

- Proshika: Towards a Poverty Free Society (ALA/99/297). Around EUR 16 million out of the total EU grant of EUR 41,1 million allocated for credit under the Revolving Loan Fund. The project purpose is to enable 1,5 million organised poor households to graduate permanently from poverty by 2004;

- BRAC: Poverty Alleviation (ALA/96/05).

Almost EUR 7,85 million out of the total EU grant of 32,3 is assigned for Village Organisation Development and Credit. The project purpose under the component Village Organisation Development and Credit and Savings is the promotion of 16 760 new village organisations (Vos) with about 774 000 members bringing the total number of direct beneficiaries of the programme to approximately 2 million people in 500 000 Vos.

ALA/01/89 Challenging the Frontiers of Poverty Reduction. Approximately EUR 17 million out of the total EU Grant of 28 million. Euro is earmarked for capital investments and subsistence grants. The money will be used to provide approximately 72 000 ultra poor beneficiaries with necessary inputs to enable them to start Income Generating Activities (IGA) as well as with a subsistence grant during the first 18 months. The grant is to help them with their daily expenses until they begin to earn a regular income from their IGA. In addition the beneficiaries will receive extensive technical support as well as relevant business development services. Strictu sensu, therefore, we are in this specific case not dealing with a micro-credit scheme but rather with a micro grant scheme.

(1) COM(98) 527 final.

(2) COM(98) 667 final.

(3) COM(2000) 212 final.