Inclusive and Innovative Finance
It has become clear that achieving the Sustainable Development Goals (SDGs) requires responsible, inclusive and innovative financing. For example, the United Nations' SDGs for 2030 mention microfinance as a tool for implementing the SDGs. In addition, the 2015 Addis Ababa Action Agenda on Financing for Development refers to inclusive finance, the need to support microenterprises, and recognises the importance of private sector engagement for financial inclusion and sustainable development.
The beginnings of Luxembourg's commitment to Inclusive Finance
Since the early 1990s, the Directorate for Development Cooperation and Humanitarian Affairs has been working with civil society actors specialised in inclusive finance. Since then, the Luxembourg Development Cooperation has contributed to the evolution of this sector through its support in the conceptual elaboration, its support for research and the development of innovative tools, its political action in a large number of national and international forums, its exchanges with both bilateral and multilateral partners (both public and private partners, as well as members of civil society) and its financial commitment to the sector.
Over the past three decades, Luxembourg, through the Directorate for Development Cooperation and Humanitarian Affairs of the Ministry of Foreign and European Affairs as well as the Ministry of Finance, has actively supported the promotion of inclusive and innovative finance as a tool to promote sustainable development and strengthen the resilience of vulnerable populations. Luxembourg therefore aims to give vulnerable populations, who are generally excluded from formal financial services, access to quality basic financial services such as credit, savings, money transfers and microinsurance.
The strategic objectives of the Luxembourg Development Cooperation for Inclusive Finance
Through these services, inclusive finance, which is one of the pillars of Luxembourg's overall development cooperation strategy “The road to 2030”, aims to create economic opportunities among clients, with a focus on promoting access to adequate financial and economic opportunities for young people, women in rural areas, small farmers, and micro, small and medium-sized enterprises (MSMEs), thereby contributing to their empowerment and to sustainable and inclusive growth. In addition, in 2021 the Luxembourg Development Cooperation published a new strategy dedicated to inclusive and innovative finance, which aims to:
- Increase the accessibility to responsible agricultural finance, markets and innovative practices for smallholder farmers;
- Increase appropriate financial and economic opportunities for young people, with a focus on productive activities;
- Improve women's access to resources for economic growth, decision-making and empowerment;
- Strengthen the resilience of micro, small and medium-sized enterprises (MSMEs) and their financial service providers to environmental and economic shocks.
Luxembourg: A global centre for Inclusive and Innovative Finance
Thanks to its proactive approach, Luxembourg has become a global hub recognised for its exceptional ecosystem in inclusive and impact finance sectors. Luxembourg, as a centre for responsible finance, supports the implementation of the Sustainable Development Goals (SDGs) and is well placed to contribute to international development through its role as a hub for sustainable finance and, as such, as a leading place for inclusive and impact finance.
Today, the majority of Microfinance Investment Vehicles (MIVs) are based in Luxembourg, representing over 60% of the sector's assets under management worldwide.
Partnerships and collaborations : The Inclusive Finance ecosystem
Luxembourg has established itself as an important international player in inclusive and innovative finance and continues to contribute to efforts to improve regulation, transparency and client protection in this sector. The Luxembourg Development Cooperation remains firmly committed to supporting NGOs and institutions involved in inclusive finance.
Many of these partners are housed in the “Maison de la microfinance” in Luxembourg City, including: Appui au Développement autonome (ADA), the European Microfinance Platform (e-MFP), the Inclusive Finance Network Luxembourg (InFiNe.lu), the Luxembourg Microfinance and Development Fund (LMDF), the Microinsurance Network (MiN), the Alliance for Financial Inclusion (AFI), and the Social Performance Task Force (SPTF).
The Luxembourg Development Cooperation also works with other partners such as the European Investment Bank (EIB), the Luxembourg House of Financial Technology (LHoFT), the NGO SOS Faim, the labelling agency LuxFLAG, the UN Capital Development Fund (UNCDF), the International Fund for Agricultural Development (IFAD) or the Consultative Group for the Assistance of the Poor (CGAP).