Luxembourg's development cooperation - Annual report 2016

Luxembourg’s development cooperation has maintained a twenty-year commitment to actively support the development of inclusive finance, recognising that these tools constitute important mechanisms for poverty reduction. In 2016, those efforts have continued and financial support has been channeled with the aim of deploying them better in specific sectors and improving further the efficiency of the use of the funds in our partner countries.

Using this efficiency-based approach, Luxembourg’s development cooperation renewed its multiannual commitments in 2016 with its various partners active in inclusive finance such as the Consultative Group to Assist the Poor (CGAP) for the 2016-2018 period and LuxFlag for the 2016-2017 period. A series of other, similar renewals will take place in 2017 with the Luxembourg’s national platform for inclusive finance, the Inclusive Finance Network Luxembourg asbl (InFiNe.lu), the European Microfinance Platform (e-MFP) and the Microinsurance Network (MiN). 

As in previous years, the Ministry supported InFiNe.lu and e-MFP in organising the European Microfinance Award; the award ceremony took place on 17 November 2016 on the premises of the European Investment Bank (EIB). The aim of the eighth edition of the Award was to reward microfinance institutions implementing innovative solutions that facilitate access to education and vocational training for young people and adults and thereby stimulate economic activity. The High Jury, chaired by HRH the Grand Duchess, was tasked with selecting the winner out of three finalists from Uganda, Guatemala and Pakistan respectively. In 2016, the Kashf Foundation from Pakistan was awarded the prize of 100 000 euros for its programme to finance private schools at low cost. In November 2016, the Ministry also contributed to the European Microfinance Week organised by e-MFP. Luxembourg’s development cooperation also supported the organisation of CGAP’s Annual meeting, which took place from
9 to 11 Mai 2016 at the Luxembourg Chamber of Commerce in the presence of H.R.H. the Grand Duchess.

Together with the Ministry of Finance, Luxembourg’s development cooperation continues to support the Luxembourg Microfinance and Development Fund (LMDF), a microfinance investment fund domiciled in Luxembourg that provides targeted support to small and medium-sized microfinance institutions active in Africa, Latin America and South-East Asia. In addition, the Ministry is supporting LDMF to establish a new sub-fund aiming to invest in forestry projects in tropical forests in Central America. The project is in the process of coming to fruition: its aim is to restore secondary or degraded forested areas and to make them economically, ecologically and socially viable.

Through the FEMIP Trust Fund, Luxembourg, the EIB and the NGO ADA are supporting the MicroMED Tunisia project, the aim of which is to improve the Tunisian regulatory environment and to enhance inclusive finance institutions’ capacity. In the ACP countries, Luxembourg’s development cooperation financed technical support for two microfinance projects in Senegal and Ethiopia.

Finally, a new project – Agri+ – was established by SOS Faim under the mandate of Luxembourg’s development cooperation for the 2016-2022 period. The project aims to transform and modernise family agricultural operations in the target areas in Burkina Faso and Mali.

The private sector

The dynamism of the private sector is playing an increasingly important role in development affairs. Private enterprise, investment and innovation are major drivers of productivity, which in turn drives economic growth and job creation. In the 2015 Addis Ababa Action Agenda on Financing for Development, nation states made commitments to drawing up policies and strengthening regulation to enable a better convergence of incentives for the private sector and public objectives, in particular the measures encouraging the private sector to adopt practices that are viable in the long term, as well as policies that encourage high-quality, long-term investments.

The Business Partnership Facility (BPF) was launched in April 2016 by Minister Schneider. It is a new tool used by Luxembourg’s development cooperation to contribute to sustainable development and inclusive growth in developing countries, thus taking into account the new reality mentioned above. The BPF is a financing facility that aims to encourage the Luxembourgish and European private sector to work with partners in developing countries in order to establish sustainable commercial projects.

The facility has an annual budget of a million euros intended to co-finance private sector initiatives that contribute to development and job creation in developing countries and/or technology transfer. Four sectors are eligible for co-financing: i) biohealth, ii) information and communication technology (ICT), iii) fintech and iv) eco-innovation. Although the facility targets all developing countries, those where Luxembourg is present are given preference.

The section criteria for the submission of proposals are: contribution to achieving the Sustainable Development Goals, additionality of co-financing through the BPF facility, neutrality (projects must not distort the market), common interest and mutual responsibility between the partners, demonstration effect and replicability and, finally, compliance with social, environmental and fiscal standards.

The first edition of the BPF has been a major success, with 20 applications received following the call for proposals. After a substantial assessment, the selection committee decided to choose 4 projects, one in Burkina Faso (ICT), one in Cabo Verde (eco-innovation) and two in Senegal (eco-innovation, ICT). The total co-financing via the BPF amounted to 663 650 euros.

Luxembourg’s development cooperation also has commitments at the multilateral level. The Enhanced Integrated Framework (EIF) is a multi-donor programme linked directly to the World Trade Organization (WTO) that helps least-developed countries to play a more active role in the global trading system. Luxembourg contributed 4,5 million euros to the first phase of the Enhanced Integrated Framework covering the 2009-2015 period. Following a positive evaluation in 2014, in May 2015 the EIF Steering Committee approved the launch of a second phase from 2016 to 2022. The contribution agreement between Luxembourg and the United Nations Office for Project Services (UNOPS) for this second phase was formally signed on 8 June 2016. The financial commitment for 2016-2022 is again 4,5 million euros, bringing Luxembourg’s total contribution to 9 million euros.