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Frequently Asked Questions |
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| About microfinance |
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What is Microfinance?
Microfinance is defined as the supply of loans, savings, insurance, transfer services and other financial products to poor and low-income clients excluded from the traditional banking system. Typically, microfinance includes providing financial services to micro-entrepreneurs to set up a business. |
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What is a Microfinance Institution
(MFI)?
A Microfinance Institution refers to all types of formal and semi-formal institutions that offer microfinance services.
CGAP (the Consultative Group to Assist the Poor), an international consortium of public and private development agencies that sets standards in the microfinance field, requires an MFI to have an average loan size in its loan portfolio of less than US$ 5,000 (or $10,000 in Europe). |
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What is a Microfinance Investment
Vehicle (MIV)?
A Microfinance Investment Vehicle is an investment vehicle raising funds from social, commercial, private or institutional investors in order to invest them in microfinance assets. The vehicle can take various legal forms. |
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| About LuxFLAG ("the Agency") and
its Label |
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What is the LuxFLAG mission statement?
LuxFLAG is an independent entity based in Luxembourg that aims to promote the raising of capital for microfinance by awarding its Label to eligible Microfinance Investment Vehicles (MIV). |
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What is the structure of the LuxFLAG
Agency?
The LuxFLAG agency is an independent, non profit making, association created in July 2006 by seven partners who are the founding members. The agency is managed by a Board of Directors who represent the founding members. The analysis of applications by funds seeking a LuxFLAG Label is delegated by the Board to an Eligibility Committee, composed of Board Members and external microfinance experts. This panel makes recommendations to the Board which takes the final decision. |
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How did the idea of creating LuxFLAG
come about?
In October 2005, as part of the United Nations’ Year of Microcredit, Luxembourg hosted a Round Table on Microfinance at which a number of studies were presented and debated and some conclusions were reached as to how Luxembourg could support microfinance and establish itself as a key player in the development of microfinance within the traditional capital markets.
The first step proposed was the establishment of a label which would permit investors to be sure that the investment funds to which they commit their money are investing substantially in microfinance.
As a result the Luxembourg Fund Labelling Agency, LuxFLAG, was formed as an independent organisation in July 2006.
It is anticipated that the activity of the agency will raise the profile of Luxembourg as a potential domicile for MIV.
The agency is just one initiative in a general movement within the Luxembourg financial centre to support microfinance in all its manifestations, including micro-insurance, money remittances and savings accounts. Luxembourg currently hosts the secretariat of the European Microfinance Platform (e-MFP) and members of the local forum, the Luxembourg Round Table on Microfinance, have organised a range of conferences and seminars in recent years. |
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Does the LuxFLAG Label represent a
recommendation to invest or an indication of performance?
The LuxFLAG Label is not a recommendation to invest, nor does it represent a guarantee of performance. |
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Is the LuxFLAG Microfinance Label
only awarded to funds domiciled in Luxembourg?
No. The Label will be granted to MIVs wherever they are registered, but there is a requirement that the MIV should be subject to a level of national supervision which is equivalent to that available in the European Union countries. |
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Is the Label only granted to investment
funds?
The Label is currently available to investment funds and other vehicles subject to a level of national supervision equivalent to that which exists for investment funds in EU countries. However, the Label may be extended to other types of securities (such as securitisations or bond issues) at a future date. |
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Is LuxFLAG independent ?
LuxFLAG is independent and desires to remain so.
- It is the intention of the Board not to open up full voting membership to the commercial investment banking community, so as to avoid conflicts of interest;
- Internal rules of the association require members of the Board, and members of the Eligibility Committee (which deliberates on the merits of applicant funds), to
abstain from debating or voting on the application from a fund for which they have a potential conflict of interest. LuxFLAG requires its directors and members of its
Eligibility Committee to apply best practice as regards confidentiality of information submitted by applicants for the Label. |
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Why is the agency called LUXFLAG?
The name “LuxFLAG” derives from the full name of the agency (Luxembourg Fund Labelling Agency). |
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What is LuxFLAG's view of microfinance
and its growth in the future?
LuxFLAG believes that microfinance has an important role to play in the fight against poverty and that the sector will continue to grow for many years to come.
With regard to investment funds, current trends indicate that the demand for MIVs is on a continuous rise, both from the buy side (through demand from socially responsible investors) and from the sell side (due to growing demand for capital). |
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Do other locations support or recognise
LuxFLAG as an accredited labelling agency?
LuxFLAG will strive to gain international recognition for its Label. |
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| About the review process |
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Where can I obtain a detailed list
of the criteria?
A document detailing the Application Criteria is supplied with the Application Form. Both are available from LuxFLAG. |
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For how long is the Label granted?
The Label is granted for a period of one year and must be renewed. To this end LuxFLAG will issue the MIV with an invitation to submit an updated application document before the expiry of its Label. |
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Does the agency take any steps to
ensure that a MIV continues to comply with its criteria in
between review dates?
LuxFLAG requires the Labelled fund to submit a letter at mid-year, stating that it continues to meet the criteria for the Label.
Furthermore, under the Terms & Conditions signed by a fund that receives the Label, the fund is obliged to signal any significant event to LuxFLAG that might have an impact on its eligibility for the Label. |
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If the Label is refused, are justifications
provided?
The Board of Directors is not obliged to provide justification. However, in practice the application is a two-way dialogue. |
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Can the Label be withdrawn?
The LuxFLAG Label can be withdrawn at the decision of the Board of Directors. |
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Are the criteria fixed or will they
be revised regularly?
It is the intention of the agency to grant the Label based on a set of fixed and published criteria. Nevertheless, the microfinance industry is young and in a state of rapid evolution. It may be necessary to revise the criteria from time to time in order to reflect the true nature of the market. |
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What is the main requirement expected
from non Luxembourg funds to be granted the Label?
There is no difference in the criteria demanded of a Luxembourg fund and a fund domiciled in any other jurisdiction. The investment vehicle must be subject to a level of supervision equivalent to that available in EU member states. A non-regulated investment vehicle domiciled in Luxembourg would therefore not qualify for the Label. |
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