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France’s third-largest bank, Crédit Agricole, is at the forefront of the development of innovative financial services to help meet the financing needs of such farmers.
Earlier this year, Crédit Agricole announced a partnership with microfinance pioneer Grameen Bank to develop a second-tier microfinance institution, the Grameen Crédit Agricole Foundation, that will aim to improve mid-sized microfinance institutions’ access to funding and eventually help them to develop new products such as micro-leasing and micro-insurance when it launches in September/October this year.
“There are about 10,000 microfinance institutions in the world but the vast majority of them have a problem with funding,” explains Jean-Luc Perron, head of microfinance at Crédit Agricole in Paris. “This is because in many cases they are not authorized to collect savings and because local banking institutions are often reluctant to lend them money.
“The purpose of our foundation is to help these institutions gain access to funding by providing credit guarantees and by lending to them in local currencies. While there is an increasing number of investment funds that are prepared to lend to microfinance institutions, of the €2.5 billion being lent today 70% is in either dollars or euros, which could create problems in the long run. We also plan to help by injecting equity, which many microfinance institutions lack or find hard to accrue. Last but not least we also want to provide technical assistance in the fields of product development and institution building.”
The non-profit foundation will particularly target institutions active in the agricultural sector, which has traditionally been overlooked as much by microfinance as by regular banks. Despite the fact that 75% of the world’s poor live in rural areas, about 70% of microfinance clients worldwide are urban.
Crédit Agricole is also looking to support “social business” ventures, commercial entities that aim to maximize benefits to society rather than profits, a model of business espoused by Grameen Bank’s founder, Nobel prize winner Muhammad Yunus.
The French bank’s asset management unit has devised a Ucits-compliant investment, the Danone Communities Fund, that will invest part of its money in supporting social businesses projects such as Danone’s joint venture with the Grameen Bank that produces and markets nutrient-rich yoghurt with inputs and distribution supplied by Grameen Bank customers in Bangladesh.
European agricultural banks, which today have grown into large financial institutions such as Crédit Agricole and Rabobank while preserving their mutual bank structure, see a striking resemblance between today’s microfinance institutions and their own humble beginnings in the late 19th century.
“The situation for farmers in less-developed countries today is not so different to that of farmers at the end of the 19th century in Europe,” says Perron. “The vast majority of farmers at that time were completely excluded from the formal banking system as banks focused on serving large industrial companies in the cities and ignored the needs of farmers. Mutual credit unions in Europe like the caisses locales in France were created by farmers themselves to provide each other with basic banking services like seasonal loans to finance the production cycle and development of small farms. The principles and values of these institutions were 99% similar to those behind current microfinance institutions.”
