Microfinance and development

EU and Development

2015 is the deadline year for the Millennium Development Goals (MDGs), which in 2000 rallied the world around a common 15-year agenda to address the indignity of poverty. The MDGs established measureable, universally-agreed upon objectives for eradicating extreme poverty and hunger, preventing deadly but treatable diseases, and expanding educational opportunities to all children, among other development imperatives.

2015 is also the European Year for Development (EYD2015) with the motto “our world, our future, our dignity.” It is the first ever European Year to deal with the European Union's external actions and Europe’s global role. In this regard, it is worth noting that EU Member States are the world’s biggest aid donors, providing half of the total aid that is given to international development. EYD2015 represents an unparalleled opportunity to showcase Europe's commitment to eradicating poverty worldwide for development organisations all over Europe and to inspire more Europeans to become engaged and involved in development. 2015 is also the year in which the international community will agree on the future global framework for poverty eradication and sustainable development.

EU development aid goes to nearly 150 countries in the world through a combination of strategies:

  • Specific projects, grants and contracts 

  • Budget support, which involves financial transfers to the national treasury of the partner country, combined with intense policy dialogue.

  • Sector support, targeting specific sectors in partner countries such as energy, agriculture or education.

Development and Microfinance

Access to financial services forms a fundamental basis on which many of other essential interventions depend as no single intervention can defeat poverty.

Microfinance aims to provide a broad range of financial services such as deposits, loans, payment services, insurance to poor and low-income households and their businesses.

According to CGAP, microfinance has a strong impact on the achievement of the MDGs. In fact, microfinance and the impact it produces goes beyond just business loans. The poor use financial services not only for business investment in their microenterprises but also to invest in health and education, to manage household emergencies, and to meet a wide variety of other cash needs. The range of financial services includes loans, savings facilities, insurance, transfer payments, and even micro-pensions. Evidence from the millions of microfinance clients around the world demonstrates that access to financial services enables poor people to increase their household incomes, build assets and reduce their vulnerability to the crises that are so much a part of their daily lives.

The European Commission includes microfinance among its developmental aid programmes. It is worthwhile mentioning the Microfinance ACPEU programme. This programme was launched in 2010 in Africa, Caribbean, and Pacific (ACP) countries, and is fully dedicated to the development of sustainable and responsible financial systems in ACP countries, with a particular focus on the financially excluded, working poor. As a major financial supporter of microfinance, the European Commission has mobilised a budget of 15 million euros for this programme. The Programme aimed to alleviate poverty through economic growth and over the last five years; it has improved access to financial services for 3.6 million poor people in 52 ACP countries.

On the other hand, within the European Union (EU), in a context where 24.8% of the EU-28 population is at risk of poverty or social exclusion and nearly 24 million people are unemployed, microfinance has also emerged as an essential social policy tool for the promotion of self-employment, microenterprise support and the fight against social and financial exclusion.

The EU has recognised the role of microfinance and will continue to support the sector through the 2014-2020 period with the EaSI (Programme for Employment and Social Innovation), a financing instrument aiming to increase access to microfinance for vulnerable groups who want to set up or develop their business and micro-enterprises. EaSI also aims to improve the institutional capacity of microcredit providers.

In addition, the EU promotes the development of the microfinance sector through the European Code of Good Conduct for Microcredit Provision, which provides recommendations and standards that should foster best practice in the microcredit sector. Compliance with the code has become mandatory to receive funding under EaSI.

For more information:

- See more about MDG at: http://www.un.org/millenniumgoals/

- CGAP: Is Microfinance an Effective Strategy to Reach the Millennium Development Goals?

- See more about EYD2015 at: https://europa.eu/eyd2015/en/content/about-2015

- ACPEU Microfinance: Main achievements

- EaSI: EU Programme for Employment and Social Innovation