#unggmf

During Uniglobal 14th Global Microfinance Forum in Munich on 15-16 March 2018 we had a chance to interview Mr. Riccardo Aguglia, Senior Investment Manager of the European Investment Fund, Luxembourg

Since the last few years, the provider-client relationships in the microfinance sector are getting complex. The number of providers (Banks, NBFCs, SFBs, NGOs, Mobile phone Operators…) has increased heavily for a decreasing number of vulnerable people. There is a shift from Demand>Supply to Supply>Demand of financial services. What’s your point of view? 

From a European perspective, we cannot say that there is a shift because Europe is situated in a younger market compared to the developing countries. In Europe, the market is still demand-driven.

Nevertheless, he understands that in developing countries there is a shift since the market is more mature and developed in a way. According to Mr. Aguglia, a demand-connected question should be asked, namely “why this shift is happening”? Even though, there is a shift, there is still a huge need of microfinance in developing countries. There are some obstacles persisting that are linked to regulation and business support services of MSMSEs, something that make kind of easy the implementation of projects for microfinance services.

In Europe, we are working on these 2 drivers. Regulation on one side and also the support of micro-enterprises are two huge important topics that the European Investment Fund is trying to catalyze along with other financial instruments.

There are very clear indicators developed to assess the efficiency, the financial performance and the risks faced by MFIs but what about their social impact measurement? Does a global social impact measurement tool exist nowadays?

The EIF has developed its internal score system based on some good practices that were developed, such as the SPI4 developed by Series. At investor level, there are these international standards that are very important and give a sort of indication of the parameters to follow.  The impact is crucial in the work that we do and it is more and more part of any investment activity.  We cannot do investment without being sure to reach social objectives. Furthermore, the EIF has also the European code of good conduct that is a good reference for their financial and social performance assessment. 

Among other requisitions, the economic and political stability of a country wherein the MFI is situated is from great importance for an investment fund to invest in. Do you see a difference in the microfinance models between Western and Eastern Europe?

When we talk about Microfinance in the European Union, I think political risk is quiet stable for all of Europe. Maybe if you include the border countries, not part of Europe, there could be an additional political risk. What is really different between the East and the West is the approach on the social sphere. In Western countries, you have a very well developed social policy that comes from historical reasons; this has for sure affected the entire concept of microfinance. In Eastern countries, you don’t have the same social policies due to another historical background, namely the period of communism. When it ended, the financial system wasn’t at all developed. That’s why microfinance institutions developed rapidly in this region to respond to the people’s financial needs. The MFIs focused heavily on their financial performance and less on their social impact. Furthermore, that’s why the microfinance institutions are more focused on their financial performance.

Besides the European programs (Easi, EPFM, Jasmine…) backed up by the European Institutions are there a lot of investors investing in MFIs in Europa? Isn’t a consequence of strict regulations that there are fewer private funds available?

According to Mr. Aguglia, it is difficult to attract private investors for MFIs in Europe. The market is still young which brings a high perception of risk to the possible private investors. That’s why, to attract private investment funds, the European Commission along with the European Investment fund is trying to build financial instruments relying on European public funds. For instance, several funds (agriculture, support to MFIs and SMEs, etc.) were or are being created where blended finance is used. This means that the public sector invests alongside the private sector and will cover a certain amount of ‘first loss’ money if needed. As consequence, this secures the way for private investors to invest money in the fund.

What do you think about the conference?

The 14th Annual Global Microfinance forum was very interesting. Conferences like this are always useful; even it is more focused on developing countries. During these 2-days, we are able to do some networking but even more important to exchange practices. For instance, our guarantee product with all the respect could easily be replicated in some developing countries. It is a matter to use some public funds and leverage on that, it could be a good way to mix private and public funds. Furthermore, it is also interesting to see how the market is developing.  

Interviewed by Emilie de Gerlache