Definition of an Enhanced Bank Strategy in the Microfinance Sector

How can banks and Development Finance Institutions (DFIs) add value to the microfinance sector?

This policy document outlines an enhanced strategy for the European Investment Bank (the Bank) in the microfinance sector, alongside the European Commission (the Commission) and other development institutions. The document:

  • Attributes different roles to the different actors according to their specific added value available to the sector;
  • Underlines the Bank's teaming-up and exchanging of information with the Commission;
  • Defines the Bank's principal added value as the triple bottom line approach of securing economic, social and environmental returns in projects that it finances.

The paper discusses:

  • The history of microfinance;
  • The Bank's proposed investment in microfinance, describing:
    • Investment goals;
    • The advantages of debt financing and guarantees;
    • Equity investments;
    • Performance characteristics of microfinance funds.
  • Support to microfinance through technical assistance (TA), examining:
    • The creation of an enabling environment for microfinance, which would include credit bureaus, rating, audit, training;
    • The development of a regulatory and supervisory framework.

The paper concludes that for a successful microfinance program, the Bank should:

  • Set a realistic operational objective of an annual deal flow of 2-3 operations in the initial two years;
  • Scale up quickly to a higher commitment level;
  • Liaison with the Commission in the coordination of strategies and TA programs and portfolio supervision.

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