Reaching the Potential of Microfinance for Economic Growth, Social Inclusion and Regional Development through a Coherent European Funding Policy

This paper aims to help the process of taking Europe’s microfinance sector to the next level. It seeks to overcome a significant bottleneck by developing a rational, demanding and transparent donor policy for the region.

Compared to most other regions of the world, the potential of European microfinance remains unexploited. Demand for microfinance services is growing, but access to appropriate funding is a major challenge. A successful funding strategy for the sector includes:

• Clear set of client objectives;
• Subsidization of higher running costs and renewal of funding on a rolling basis;
• Market driven approaches;
• Mix of private and public funding to create sustainable institutions.

Finally, while regulation at the European level has developed substantially, the national/regional implementation lacks progress. Potential solutions include:

• Opening funding windows tailor-made for the microfinance sector;
• Focusing on institution building, instead of programs and projects;
• Improving the regulatory framework.