Interview with Minister Franz Fayot

Interview with Minister Franz Fayot

Covid-19 health and economic crisis is now global, and is hitting emerging countries hard. In office since January 2020, the new Minister of Cooperation and Humanitarian Action has leveraged the actions Luxembourg NGOs and especially its unique ecosystem in inclusive finance to face these unprecedented challenges.

The Luxembourg Cooperation's response to Covid-19

Thank you Minister for granting us this interview, for granting ADA this interview… What a year 2020! What a year to become a minister, on January 23, about six months ago! This was another world! A lot has happened since then. So maybe this is the first question we can ask you: faced with a health and economic crisis of unprecedented magnitude, how has Luxembourg Cooperation responded?

"We have responded at different levels. First, in our bilateral relations with a number of partner countries, we redirected funds to respond swiftly to the immediate needs related to the Covid 19 crisis. It is not surprising that health, economic and social crisis are even harsher in developing countries. We therefore redirected funds, particularly in Niger, where we financed a Covid 19 aid and prevention plan, but also in Burkina Faso where we carried out a project together with Spain and Belgium to respond to the crisis. Then, at a multilateral level, we responded to a number of calls for funds, in particular from the WHO, which we funded starting from March 2020 for a total of 400,000 euros. We participated in a Covid 19 response program, in a vaccine research program. We also participated in a call for funds from GAVI to develop a vaccine. Likewise, we participated in a call for funds from the International Red Cross which is obviously very active on the ground in countries affected by Covid 19. That is for the multilateral cooperation side. As for the NGOs, we granted our NGOs flexibility to reallocate funds to Covid 19 related projects. This flexibility was needed to allow them to respond on the ground as well. So, we acted with a lot of flexibility in terms of funding, and by reallocating funding and obviously also supporting all the stakeholders, and of course through Lux-Dev in the field, to really respond to the crisis."

The importance of coordination among different players on the field

In fact, in this new context, does the effectiveness of the players at field level require better coordination among governments, among funders or among public institutions?

"Absolutely, coordination is essential! It is even crucial. It operates at different levels too. At the European level as early as February, we were already talking about a “Team Europe” approach in Africa, so we could work better together and be more effective in the field. This approach was then implemented in March in fighting against Covid 19. So, there was at the European level a coordination, a dialogue that worked well with the allocation of 1,14 billion to respond to Covid19 through numerous projects which have been developed among European countries. I can give you the example of Burkina Faso where we collaborated on a health project with Spain and Belgium to respond to the health crisis on the ground. This is an example of a European level coordination. It should also be noted that we are active within the OECD. We participate in a committee working on policy coherence, which is another element of coordination. We must make sure there is no contradiction between what we do with one hand and the other. Policy coherence is paramount in every field: health, economic, social. We are participating at the OECD level in this thought process, in this effort to understand the longer-term effects of Covid 19 and devising how we can best respond through coordinated and concerted action."

The role of inclusive finance in the Covid-19 crisis management

We see a lot of action, a lot of coordination, a lot of activities and projects being carried out in the short and medium term, can we start outlining the present and future role of financial inclusion in this scheme?

"I think this role will be crucial. What we can perceive, what is emerging now is that the Covid 19 crisis will have much more serious effects in developing countries. We see that confinement, on the one hand, but also social distancing, is very hard. It creates enormous difficulties for retailers, small and very small businesses in developing countries, which are the main recipients of inclusive finance. We will really have to rebuild this weakened economy in developing countries. I think that in this context, inclusive finance will play a key role. This calls for the strengthening of stakeholders, the microfinance institutions. It will be necessary to reinforce players such as ADA so they can support all these sectors and play the role of refinancing, the economic recovery after the Covid 19 crisis. This is why we participated in the one-million-euro fund that you set up to help microfinance institutions in the field. I think this is a great initiative. I really think that there is a key role for microfinance and for inclusive finance in this reconstruction effort. We can already notice the big boost digital financial services have experienced during this crisis. We see that even at home, with all things digital experiencing a huge leap forward. I would simply give the example of teleworking, which has gone full-scale and not only in Luxembourg, but also in many other countries. The same is true about digital financial services which, here too, can really solve the problems of distancing, which are problems that become even much more serious on the ground, in Africa and in developing countries, those of communication and lack of payment services. I think there are many such things being developed right now. We also witnessed this dynamic scene during Catapult quite recently. We could really feel the dynamics of African entrepreneurs, African startups in the field of digital financial services. I think we have here a winning card for the reconstruction of economies in developing countries."

Luxembourg ecosystem of inclusive finance in support of resilience and economic growth of developing countries

Your previous comments referred to the very rich Luxembourg ecosystem of inclusive finance. So, I want to ask you a question to know about how Luxembourg cooperation supports this ecosystem and perhaps even coordinates it so that developing countries find the path to resilience and economic growth.

"We have seen over the past two months coordination taking place between the various players, investors, donors, and other industry players all seeking to support clients and the institutions that serve them. For example with our support, the Social Performance Taskforce (SPTF) and the European Microfinance Platform (E-MFP), in collaboration with the Center for Financial Inclusion have launched a discussion platform called Covidinclusion.org to explore, to think together about what we can learn, what we know of past crises and develop relevant guidelines for the current situation, for investors and financial service providers. Then, as you know better than I, ADA coordinates the sector in terms of technical assistance. As I have already said, you have created in partnership with our Cooperation Department an emergency technical assistance fund intended to enable MFIs to make it through this crisis. We have put together one million euros allowing almost a hundred MFIs to benefit from emergency grants or recovery grants in order to get through the Covid -19 crisis. Now we can mention the key principles to protect microfinance institutions and their clients in the Covid-19 crisis. These were developed with partners such as the Luxembourg Microfinance and Development Fund or the Luxembourg Inclusive Finance Network, InFiNe.lu. We have been involved in this effort, through Luxembourg Cooperation, to define principles and agreements. These were developed in cooperation with other partner organizations such as CGAP, SPTF or the Grameen Crédit Agricole Foundation. It is then a coordinated effort aimed at avoiding furthering the competition in these times of crisis, and also at limiting damage and supporting the sector and its customers. These are good practices for a sector broader than impact investing. We have retargeted a number of technical assistance facilities that were launched with Luxembourg support, such as that of the BEI's Financial Inclusion Fund or the SPTF's RIFF facility in South-East Asia. Finally, the important thing is that the microfinance and inclusive finance sector follow the precepts and principles of "do no harm". Microfinance institutions will have to do what many traditional banks have done, especially in Luxembourg: giving a little more latitude and a little more leeway to their clients to repay the loans that have been granted. It is particularly important for inclusive finance to give enough leeway and be somewhat tolerant so as not to smother microfinance customers in the field. These are guiding principles that have also been developed and are implemented in microfinance funds, but also in the field by microfinance institutions. A lot of things that are being done; a lot of coordination is being carried out to ensure that inclusive finance fully plays its role in this period of crisis."