An interview with Perrine Pouget, Transaction Manager in Inclusive Finance at the European Investment Fund (EIF)
How did you get involved in inclusive finance?
I have spent my entire career in the microfinance sector since 2004. At the end of my Masters in Finance, I realized I wanted to apply my financial skills for a “good cause.” I had done an internship in a major French bank and my manager at the time had just returned from a volunteer trip in a microfinance institution in Laos. She recommended that I read a book on how to give meaning to what you do. That book inspired me. I wanted to find out more about the microfinance sector. A bit later, while in Germany, I heard about job opportunities in Luxembourg and very randomly googled “microfinance Luxembourg.” I came across the NGO ADA, a Luxembourg microfinance support organisation, which had just put up their website online! I applied for an internship there and in 2004 was taken on to be part of the existing team of four people, before being hired permanently.
After four years at ADA, I joined Microrate, a microfinance rating agency, to establish an office in Morocco, which would look after its African and Caribbean microfinance activities.
End of 2009, the European investment Bank (EIB) brought me back to Luxembourg as I was hired as an investment officer for microfinance in Africa, Caribbean and Pacific Regions and spent over seven years within the EIB Microfinance Unit.
I recently moved to the European Investment Fund (EIF), which is part of the EIB Group, and work within the Inclusive Finance Division, whose general objective is to foster access to finance for microenterprises, the self-employed and social enterprises in Europe and its neighbouring countries.
Could you describe the work done by the EIF in inclusive finance? And what makes it different from other inclusive finance players?
Being a crucial stakeholder to overcome the effects of the financial crisis, EIF has been involved in the European microfinance sector since 2000, providing funding (equity and loans), guarantees and technical assistance to a broad range of financial intermediaries, from small (sometimes greenfield) non-bank financial institutions to well established banks, to make microfinance a fully-fledged segment of the European financial sector.
To date, EIF is the largest finance provider to the microfinance and social sector in Europe. EIF’s “inclusive finance” activities contribute to several policy objectives of the EU in the area of job creation, entrepreneurship, growth and fight against social exclusion in the EU and Accession countries. In addition, this is a natural fit for EIF, as a specialist provider of risk finance for SMEs, to tackle the bottom (and riskiest) segment of SMEs, i.e. micro-enterprises, including the self-employed. Since 2000s, EIF has developed in depth-expertise and experience in European microfinance and promotes social inclusion by helping financial institutions make finance available to self-employed, micro- and social entrepreneurs.
In concrete terms, we provide loans, equity, and portfolio guarantees to a wide range of financial intermediaries such as banks, microfinance institutions (MFIs) and cooperatives in the European Union (EU) Member States, Iceland, and EU candidate countries. We work with financial resources from the European Union and the EIB, either in the form of “mandates” or “managed funds.”
Currently, we are deploying financial instruments under the EU’s Employment and Social Innovation (EaSI) programme. One of these instruments, the portfolio guarantee is very successful and in demand from financial intermediaries to expand their clientele of self-employed, micro- and social entrepreneurs. The objective is to boost access to finance for companies, including people who would like to become self-employed, that are facing difficulties in accessing the traditional banking services mostly because of lack of collateral or credit history.
Thanks to the EaSI guarantee, the selected financial intermediaries is able to cover a large portion of the credit losses associated with lending to this segment – typically for up to 80% of the loan amount – in the event of loan default. We select MFIs and banks by assessing their application and subject to the outcome of a thorough due diligence process.
Interestingly, the EaSI programme requires that microcredit providers systematically associate the provision of non-financial services to their credit offer, as business development services (BDS) are considered a critical success factor for the micro-enterprises. On top of this, the EaSI programme requires that non-bank micro-credit providers take the necessary steps to become or remain compliant with the European Code of Good Conduct, a set of best practices, as certified by an external evaluator.
In the EU, as compared to other regions in the world, we have unified definitions of micro-enterprises, social enterprises, and micro-loans: a microcredit is a loan with a principal amount of less than EUR 25,000, while a micro-enterprise should be a company with fewer than ten employees and an annual turnover or total assets of less than EUR 2 million. With regard to social enterprises, they should combine an entrepreneurial activity with a social purpose, and their priority should be to meet their social objectives rather than maximise their profit. Businesses providing social services and/or goods and services to vulnerable persons are a typical example of social enterprise.
If you would like to know more about the European market developments of small business finance, including microfinance, you can read and subscribe to EIF’s bi-annual working paper “European Small Business Finance Outlook”. As for a more sector-specific overview of the state of microfinance and microcredit in Europe I recommend reading the latest survey report published by the European Microfinance Network and the Microfinance Center, entitled “Microfinance in Europe: Survey Report 2016-2017”.
What projects are you currently assessing?
As part of the Inclusive Finance team, I am in charge of reviewing the EaSI Guarantee and Capacity Building applications of MFIs, banks, and cooperatives. I have at the moment a particular focus on Greece and the Netherlands that are two different markets regarding needs and culture. The diversity in Europe is impressive and makes the job so exciting and refreshing.
In 2019, we will also be managing the implementation of a EUR one million pilot grant programme for EaSI participating financial intermediaries to cover partially the costs related to BDS for migrants. More details are available on our website for the financial intermediaries interested!
What is your particular interest in inclusive finance?
As explained in my background, I have always believed in finance that not only “does not harm” but also “does good.” The inclusion of women in the financial system, if done appropriately depending on the cultural, sectoral and geographical contexts, is a proven empowerment tool, which can, in turn, benefit the family and the society. Men should, however, of course, be given as much an opportunity to generate income and be accountable for it; but finance products are less often taking into account women’s needs and sociological hurdles. Therefore, I appreciate the less tangible side effects of financial inclusion in creating a level playing field for women to participate in the economy. I would recommend watching the recordings or read the transcripts of the latest Council on Foreign Relations symposium in December (2018), Managing Director and Chairwoman of the International Monetary Fund (IMF), Christine Lagarde, and World Bank CEO, Kristalina Georgieva, pointed to the latest evidence about the effects of gender equality on economies and societies, including by way of financial inclusion.
Besides, it is very interesting to have the possibility to work towards not only with the self-employed and micro-enterprises but also towards social enterprises. The latter play play a key role in reducing inequalities and in promoting an inclusive economic and social growth. It is fascinating to see the fast development and significant role played by social enterprises in the different EU countries in responding in an entrepreneurial way to social or ecological challenges not addressed by the public and governmental authorities. Social enterprises can improve our socio-economic models by either hiring people that are socially excluded or by offering products and services catered to vulnerable and socially excluded persons, or both. In a way, giving access to finance to social enterprises is very complementary to microfinance since the common goal is to help vulnerable and socially excluded groups improve their socio-economic living conditions.
What are the biggest challenges facing inclusive finance today? And how could InFine.lu and Luxembourg help tackle them?
In Europe, financial sustainability remains one of the biggest challenges, especially in Western Europe where MFIs are still heavily reliant on public funding.
I also find that there could be more of an exchange of knowledge and best practices between practitioners in Inclusive finance working in emerging economies and developed economies. In spite of the undeniable specificities for each type of regions, it is in the best interest of the whole sector to work as a community without geographic barriers. Therefore I believe that InFiNe.lu and Luxembourg can contribute to the inclusive finance sector in both the northern and southern hemispheres by creating bridges between microfinance practitioners based in southern countries and those in Europe. The fact that InFiNe.lu brings together different types of inclusive finance players working in different parts of the world is a wealth that could be further nurtured by more systematically enshrining this diversity of origins and points of view in InFiNe’s seminars and activities in general.