Where are we now? The successful launch of an innovative project

At the time of the International Year of Microcredit, 2005, microfinance was a very marginal part of BNP Paribas’ international activity. Morocco and the Republic of Guinea were the first countries where BNP Paribas had previously worked with microfinance institutions, since 2002. Then, in 2005, BNP Paribas Wealth Management signed an agreement to work with the microfinance fund ResponsAbility outside France.

In 2006, the Executive Committee of BNP Paribas gave the green light for launching an international microfinance project, which put BNP Paribas among the ten largest banks active in this field. Microfinance Group, a four-person team within BNP Paribas’ Wealth Management group, is working in close collaboration with the bank’s global networks.

By the end of 2008, a total of €60 million of loans were authorised in 12 countries through 21 microfinance institutions. This represents the indirect financing of 400,000 borrowers, creating a social impact on some 2 million people when taking into account the families of the borrowers. BNP Paribas also lends to its retail banking customers in France through its Obli Etheis fund, of which 5 to 10% is composed of microfinance assets. Consequently, BNP Paribas was awarded the Finansol label in December 2008.

Where do we go from here? Social responsibility and economic stability

With socially responsible investment in mind but retaining also a business perspective, BNP Paribas aims to support global development of microfinance, using its financial expertise. For example, the goal of the Europlace Microfinance Committee, led by BNP Paribas, is to transform Paris into an innovative financial market in terms of microfinance funds management. Together with CIB Fixed Income we are exploring an innovative solution for mitigating foreign exchange risk (currencies from emerging economies) for microfinance institutions. And with Cardif, which already has 300,000 micro-insurance clients in India, we are exploring a new complementary microcredit initiative.

Today, microfinance is facing two challenges. Firstly, an ethical challenge. A recently published Special Report highlighted the deviations from microfinance best practices: over-indebtedness, excessive rates of interest, loans used for consumption purposes rather than investment.

In 2005, the media celebrated microfinance as the magic wand that would eradicate poverty. Today, that same media criticises microfinance and condemns what it previously admired. Because we are particularly sensitive to such risks, we are working in partnership with banking networks that are known for their social impact. From the outset, we included social indicators alongside the regular financial indicators when assessing our partners. We were one of the first signatories of the CGAP Charter , a World Bank institution set up for the protection of micro-borrowers.

The other challenge faced by microfinance is the current economic and financial crisis. This profound financial crisis, which is affecting emerging economies less than developed countries, has resulted in a reduction in the liquidity of microfinance institutions and a small increase in risk. In today’s uncertain financial environment, microfinance remains, nevertheless, sane and unperturbed. With a very selective approach to choosing our partners, we will ensure that no losses are incurred.

In Chinese, ‘crisis’ means ‘opportunity’. The current crisis presents significant opportunities for microfinance, in particular in France and in Europe. It is up to us, as responsible bankers, to know how to seize and hold onto these opportunities, while remaining aware of the gathering clouds on the microfinance horizon.