Opening Speech by Governor Monticelli at European Microfinance Network Annual Conference

As prepared for delivery

The CEB and Microfinance: Extending the Umbrella to Vulnerable Entrepreneurs

President of the European Microfinance Network, Mme Coussirat-Coustère,
Head of BNP Paribas Engagement, Mr Sire,
Chairpersons of all the institutions, and there are many, represented here today,
Distinguished Guests,
Ladies and Gentlemen, 

I am honoured and delighted to open the Annual Conference of the European Microfinance Network and celebrate its 20th anniversary with you – the microfinance institutions, or MFIs – as the lingo goes – of Europe. It is my particular pleasure to do so in Paris, where the Council of Europe Development Bank, the CEB, is headquartered.

Microfinance has been developing at an accelerating pace in Europe for the past 30 years since Maria Nowak began her quest in favour of the financial and social inclusion of the most vulnerable. Sadly, Maria Nowak passed away last December, but while she is sorely missed, she has left an outstanding legacy for everyone to be proud of. This event pays tribute to her relentless efforts and, together with this invaluable microfinance network which Maria Nowak served as president, we celebrate her success. 

Mark Twain famously said that “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.” Yet, we know that many European businesses cannot access this umbrella of financial services at all – usually due to a lack of collateral, a lack of knowledge and a lack of social networks. And for these vulnerable enterprises, when it rains, it pours.

In my remarks, I will discuss the importance of microfinance institutions in supporting vulnerable entrepreneurs and the challenges they face today. I will then discuss the CEB’s experience in this sector as well as our strategic priorities for it in the years to come.

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Let me start by stressing that microenterprises form the backbone of our economies and societies. Not only do they create jobs, but they also unleash innovation and creativity. Often, they cannot even start up, let alone survive, without credit. Without credit, their potential is wasted. 

Indeed, in the European Union alone, there are over 9 million so-called “missing” entrepreneurs today, according to a study by the OECD. [1] Three-quarters of these potential business leaders are women. Migrants, ethnic minorities and young people also form part of these missing entrepreneurs. And then there are those who already run micro-businesses, but cannot obtain the finance they need to scale them up, which is tantamount to clipping the wings of job creation.

MFIs can help, and they do help. They offer finance. They also provide something that is often more important than money: training and mentorship, regardless of means, qualifications or social background. 

MFIs can provide loans that have a social impact – for home improvements and energy efficiency, for instance, or healthcare and education.

MFIs have helped cushion vulnerable populations against the impact of recent overlapping crises: from the pandemic to the unfolding climate emergency, and the effects of Russia’s aggression against Ukraine. Their extraordinary ability to maintain close, personal relationships with their clients has enabled MFIs to respond in times of need – indeed, unlike Mark Twain’s banker fellow, offering the umbrella when it rains.

Little wonder that so many European MFIs now lead in upholding high ethical and responsible lending practices. In this respect, the role of the European Code of Good Conduct for Microcredit Provision cannot be overestimated. 

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Nevertheless, unmet needs remain large. Estimates indicate that by 2027 there will be an annual gap between microfinance supply and demand of €15 billion in the EU alone. [2]

One important constraint – and the one the CEB can effectively help to relieve – relates to the availability of funds to MFIs themselves. 

Lending to MFIs traditionally comes with higher credit risk due to their smaller size, riskier assets and more concentrated loan portfolios.

With today’s rising interest rates, MFIs are faced not only with higher funding costs, but also with tighter credit rationing due to a lower risk appetite among finance providers. This forces many MFIs to make painful choices due to the trade-off between ensuring their own financial sustainability and continuing to extend their support to riskier, yet needier, borrowers. 

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For the past 15 years, the CEB has been working with microfinance institutions across Europe: from the Netherlands to North Macedonia. Trust and mutual understanding have forged long-lasting relationships. 

Thanks to an excellent credit rating, the CEB can raise funds in international capital markets on very favourable terms and pass the financial advantage to its borrowers. The unparalleled flexibility of the CEB allows this benefit to accrue to both MFIs and micro-entrepreneurs of different type and size. 

The CEB’s loans extended to microfinance institutions usually require guarantees to mitigate the higher credit risk of such operations. Yet the CEB considers its duty and priority to help nonetheless. And indeed, not only is it continuing, but it is stepping up, its support to your sector.

The CEB is the oldest European international financial institution. It is the only one with an exclusively social mandate. No wonder then that microfinance is part and parcel of its core mission, and has acquired strategic relevance at this juncture. 

Microfinance is one of the focus sectors in the CEB’s Strategic Framework 2023-2027. And we are putting this priority into action.

First, the Bank mobilises its trust funds to be able to have more microfinance loans with high social impact on its book.

Second –recently and importantly – the CEB has strengthened its partnership with the EU. As an implementing partner of the InvestEU Initiative, the Bank benefits from its guarantees, thus becoming able to expand its funding, at even more favourable terms. 

We are also now in a position to provide more technical assistance than before thanks to the InvestEU Advisory Hub. And, the CEB is deploying Partnerships and Financing for Migrant Inclusion through PAFMI, a pilot initiative that, in collaboration with the European Commission’s Directorate General for Home Affairs, promotes the inclusion of migrants within their host countries, including by improving their access to finance.

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Let me conclude by reiterating a few key messages. 

The European microfinance sector has been growing significantly in the past decades, and has never been as relevant as today. Yet, MFIs institutions cannot meet the demand for their services as they struggle to fund their growth. Active in the sector for many years, the CEB is now able to offer more support – a larger umbrella – to European MFIs and, ultimately, to European entrepreneurs.

As Maria Nowak put it, microfinance allows us to reach out to “the farmers with no land, entrepreneurs with no capital and young people with no future”. Let’s continue her work and remove the boundaries between “social” and “economic”, and between theory and action. 

I thank you for your attention and I wish you all fruitful discussions in the days ahead.

[1] OECD (2021). Missing Entrepreneurs
[2] European Commission (2020). Microfinance in the European Union: Market analysis and recommendations for delivery options in 2021-2027