6th European Microfinance Award

27 January, 2016

The European Microfinance Award was launched in October 2005 by the Luxembourg Ministry of Foreign and European Affairs – Directorate for Development Cooperation and Humanitarian Affairs, to support innovative thinking in the microfinance sector. Awarded for the first time in 2006 and since 2014 an annual award, it is jointly organised by the Luxembourg Development Cooperation, the European Microfinance Platform (e-MFP) and the Inclusive Finance Network Luxembourg (InFiNe.lu), in cooperation with the European Investment Bank (EIB).

After major crises, natural disasters, armed conflicts or health crises, populations experience critical levels of poverty, insecurity and instability. Institutions as well as local government structures, infrastructure, markets, households’ human and physical capital, social relations and trust are severely affected, and the re-establishment of normal socio-economic conditions is undermined. Conflicts and disasters affect various levels of society, with impacts in the short, medium and long term. Post-disaster and/or post-conflict situations increase the risk of poverty traps over the short and long term. The variability of poor households’ incomes increases, the productivity of economic activities decreases, investments are affected, market opportunities are reduced, trust and social relations are weakened, and health, housing and shelter conditions are worsened. After humanitarian needs have been met, the restoration of livelihoods is fundamental to reducing the probability of recurrences of conflicts and to increase clients’ resilience to natural disasters. Poor people and microenterprises in developing countries are naturally vulnerable to various livelihood hazards, and microfinance has since its modern inception been presented as an effective tool to decrease such vulnerability and smooth the low, uncertain and irregular income of poor households, protecting from shocks and contributing to building and supporting resilience.

However in post-conflict/post-disaster areas, population and institutions are exposed to additional systemic risks. In particular, institutions delivering microfinance services are likely to experience a high rise in their non-performing loans, a run on savings and large-scale claims on insurance. Pressure on MFIs to forgive debt increases. Markets, business opportunities and institutional environments change. Clients’ mobility may be diminished. All this affects the demand-side of the MFIs’ business. challenges affect the supply-side too: damaged physical infrastructure and security situations, which affect MFI clients also affect their staff, including direct impact from the disaster (injury, illness, or death) as well as displacement, threat of kidnapping or other risks. The period of stress can magnify operational weaknesses, leading to increased risk of fraud. Exposure to unpredictable environments may also undermine the confidence of some of the MFIs’ funders, making access to liquidity particularly critical.

Despite these challenges, MFIs have shown that they can successfully operate in post-conflict/post-disaster situations and play a key role in reducing poor people’s vulnerabilities, address exclusion, strengthen the countries’ economic fabric, and enhance the resilience of the communities in which they work. The financial intermediation of microfinance can play an important role to restart the local economy and accelerate rebuilding, while reducing the risk of poverty traps for the affected populations. Generally MFIs serve self-employed people, whose informal businesses and micro-enterprises in services and petty trade are common activities after disaster and conflict. Through such activities, the poor can sustain their households and create a safety net for themselves, their families, and the local communities.The proximity of MFIs to their clients can help rebuild trust and social ties among households and communities. In some instances, the particular legal status and operations of MFIs allow them to operate also in the absence of a strong institutional environment. The ability of certain MFIs to provide additional non-financial services, such as training and financial literacy programs, likewise help their clients adapt to post-disasters/post-conflict situations, modifying existing businesses or establishing new activities in response to the changes in the local market. In some cases, MFIs can link with health or education service providers, thus strengthening the overall resilience of their clients.

Therefore, and to recognise Best Practice in this crucial and challenging area, the European Microfinance Award this year has looked for institutions that demonstrate an effective strategy to increase both their own resilience (i.e. operations, staff, policy, control) and that of their clients (through appropriate financial and non-financial services), while ensuring responses that provide for their immediate, mediumand long-term needs. In short: how can MFIs working in the most difficult environments balance their financial and social responsibilities, protecting the sustainability of the institution as well as the lives and livelihoods of their clients?

Crédit Rural de Guinée (CRG) was announced as the 6th European Microfinance winner of the Award during a ceremony on 19th November held at the European Investment Bank headquarters in Luxembourg. The Award was presented during European Microfinance Week by Her Royal Highness the Grand Duchess of Luxembourg.

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