The European Union Commissioner for Climate Action, has called for the European Investment Bank, the largest institutional bank in the world, to take a leading role in eliminating public support for fossil fuels. Pictured here is the Canadian Brandon Generating Station is a subbituminous coal- and natural gas-fired station. Credit: Bigstock

By Ida Karlsson
BRUSSELS, Jul 14 2013 (IPS)

The European Investment Bank, the largest institutional bank in the world, is facing criticism for its funding of fossil fuel projects and for weaker standards for lending to coal plants than currently proposed in both the U.S. and Canada.

The EIB now promotes clean energy more – but fossil fuels still constitute a great part of the bank’s energy portfolio. The bank lends more to the energy sector than to any other except transport.

Connie Hedegaard, the European Union Commissioner for Climate Action, has called for EIB to take a leading role in eliminating public support for fossil fuels. As a public bank, the EIB’s financial operations are guaranteed by European taxpayers’ money.

With lending greater than that of the World Bank – 52 billion euros in 2012 compared to the World Bank’s 40 billion euros for last year – EIB engages in investment projects in some 160 non-EU countries throughout the world, beside the lending it provides within the EU. EIB’s total assets in 2012 reached 508 billion euros, making the bank the largest multilateral financier.

The EIB announcement of a review of its lending policy in late June drew criticism from climate activists as running counter to the EU’s climate and energy policies. Critics claim that the bank’s continual funding of coal projects is not compatible with the EU’s low-carbon future.

The draft policy does tighten the lending conditions for all types of fossil fuel projects, but the restrictions proposed (500gCO2/kWh) on emission standards on coal power plants financed by the bank are weaker compared to what is proposed in the U.S. (440gCO2/kWh) and currently in place in Canada (420gCO2/kWh).

Climate activists warn that exceptions included in the draft policy could mean that all forms of energy production could be eligible for EIB financing in cases where a plant contributes to the security of supply, economic development or poverty alleviation.

The bank spends billions of euros every year on energy projects that have a big impact on the climate. In 2009-2010 the bank’s lending to fossil fuel projects was more than a quarter of the overall energy lending, according to EIB figures. In 2010, 18 billion euros of EIB lending was devoted to the energy sector.

“EIB is a long-time lender, and lends money where it is most needed,” president of the bank Werner Hower said at a meeting in Brussels earlier this week.

But CEE Bankwatch and fellow campaign group Counter Balance, a European coalition of development and environmental organisations, sharply criticise EIB priorities, urging the bank to clean up its energy lending portfolio.

Berber Verpoest, advocacy coordinator at Counter Balance points out that EIB invested 190 million euros in a new Ford factory in Turkey in 2012 and granted a loan of 500 million euros to the Brazilian Development Bank (BNDES) in 2011.

“The Climate Change Framework Loan in Brazil illustrates the absurdity and lack of a clear selection criteria for the EIB,” he told IPS.

Bankwatch reported in December last year that EIB granted the loan to the car giant for the company’s relocation of production to Turkey not long after Ford Europe announced a shutdown of its production sites in Genk in Belgium and in Southampton in England.

Under the headline “Half a billion of European public money well spent in Brazil?” Counter Balance question the investment where money intended for projects to stop climate change was granted as a loan to BNDES, a bank condemned by Brazilian civil society organisations such as the environmental law organisation Aida for lacking socio-environmental perspectives in its lending.

Hower said during the meeting in Brussels this week that the bank’s investments could and should be reviewed.

“We are developing our new energy policies now, one of the most touchy issues you can talk about. But we are doing it in a dialogue and open oriented process with the NGOs.

“Before the board of directors will address the issue in the end of July we will have a four-week dialogue mechanism with NGOs and civil society going on. EIB needs public scrutiny and supervision and it is necessary that we have NGOs who are having a very close look at what we are doing.”

Girls at Al-Shati Co-ed Elementary School, Gaza line up to drink from a water purification and desalination unit . Credit: Mohammed Majdalawi, Middle East Children's Alliance/ CC by 2.0

By Thalif Deen
STOCKHOLM, Aug 30 2012 (IPS)

Last May the European Commission reported that scores of infrastructure projects in the Gaza Strip, financed mostly by the European Union, have been damaged or destroyed, wittingly or unwittingly, by Israeli military forces in the ongoing conflict in the Palestinian Occupied Territories.

Nevertheless, undaunted by this destruction, the Palestinian Authority plans to launch an ambitious half-billion-dollar project for a new seawater desalination plant in water-starved Gaza next year.

When the international community warns of an impending global water crisis in the foreseeable future, it rarely singles out the current plight of the Palestinians in the Israeli-occupied territories.

With more than 90 percent of its water resources unfit for human consumption, the Gaza Strip has no access to safe drinking water. As a result, 1.6 million Palestinians are deprived of one of the most fundamental necessities for human survival, says Dr. Shaddad Attili, minister and head of the Palestinian Water Authority.

Speaking on the sidelines of a weeklong international water conference hosted by the Stockholm International Water Institute (SIWI), he announced plans for the desalination project aimed at providing drinking water to Palestinians.

The project is the first to be unanimously approved by the 43 countries of the Union for the Mediterranean (UfM) and has been described as Gaza’s largest infrastructure project to date. The construction, which will be spread over a three-year period, is expected to begin in early 2013 and completed by 2016.

The funding will come mostly from Arab and European donors, based primarily on pledges made during the 2009 Sharm el-Sheikh Conference on the Reconstruction of Gaza.

The European Investment Bank (EIB) is providing technical assistance while the U.N. Environment Programme (UNEP) has endorsed the concept of a desalination facility as the only long-term alternative to supply Gaza with drinking water.

A core group of international financial institutions, including the EIB, the World Bank and the Islamic Development Bank, are designing a Project Fund mechanism to manage the financing of the project.

Rafiq Husseini , UfM’s deputy secretary-general for environment and water, told reporters that while the project is not regional or even sub-regional, “it has far reaching regional implications”.

“Everyone is aware of the project’s humanitarian, developmental and political importance,” he added.

But the ambitious project’s ultimate survival will depend on Israel, which has been accused of using water as a political weapon against the Palestinians. Between 2001 and 2011, Israel also destroyed about 61 million dollars worth of projects, including airports, schools, homes, orphanages and waste water management facilities.

Of the funding for these projects, about 36 million dollars came from the 27 members of the European Union, including financing from France, the Netherlands, Britain and Ireland.

Asked about a possible Israeli airstrike on such a major infrastructure, Husseini said the risk of doing nothing to to alleviate the sufferings of the Palestinians was greater than developing the infrastructure.

In a report released at the United Nations, the Permanent Observer Mission of Palestine in 2010 called the fair allocation of water rights a critical element for future political stability and achieving peace in the region as a whole, noting, “Water is at the heart of the Palestinian-Israeli peace process and it is one of the permanent status issues, along with issues relating to Jerusalem, borders, refugees, settlements and security.”

Following the Israeli occupation in 1967, and in violation of international law, Israel took control over all natural freshwater resources, including surface water, underground aquifers located beneath the Occupied Palestinian Territory, including East Jerusalem, and exclusive access to the Jordan River Basin, the report added.

Last month, the U.N.’s Special Committee on Israeli Practices highlighted the appalling living conditions in the Occupied Territories, including the lack of fresh water in Palestinian territories.

After a visit to Gaza, the three-member committee expressed concern over the Israeli practice of demolishing Palestinian homes and over the continued violence by Israeli settlers against Palestinians.

The committee also assessed the economic impact of the Israeli blockade on the Gaza Strip.

“These Israeli practices lead the Special Committee to one overarching and deeply troubling conclusion,” the chair of the committee, Ambassador Palitha Kohona of Sri Lanka said.

“The mass imprisonment of Palestinians; the routine demolition of homes and the displacement of Palestinians; the widespread violence by Israeli settlers against Palestinians; and the blockade and resultant reliance on illegal smuggling to survive; these practices amount to a strategy to either force the Palestinian people off their land or so severely marginalise them as to establish and maintain a system of permanent oppression.”

For several decades, microcredit presented itself as a magical and benign financial tool for the poorest people in the world, who were otherwise completely excluded from conventional commercial banking services, to secure easy access to loans in order to set up their own businesses and live a dignified life.

Such was the hype surrounding the concept of microfinance that in 2006 its leading practitioners, the Bangladeshi economist Muhammad Yunus and his Grameen bank, received the Nobel Peace prize for, as the Nobel Foundation in Stockholm put it, “their efforts through microcredit to create economic and social development from below.”

Such prestige quickly lured activists, investors, and tycoons like Bill Gates, George Soros, Bono, William and Hillary Clinton and even the Queen of Spain, to fund and endorse microfinance projects around the world.

Now, new evidence suggests that even microcredit was not protected from the greed that characterises modern international finance.

Two recent studies show that microfinance was simply another profit making scheme for global private finance corporations, such as the Deutsche Bank, Citigroup, and Standard Chartered, who started pouring money into microcredit initiatives.

In his book, ‘Confessions of a Microfinance Heretic’, released Jul. 9, former investment banker Hugh Sinclair claims that such banks and funds use microcredit, through local operators, to charge usurious interest rates – of up to 200 percent – on even the smallest loans.

Sinclair said in an interview that microfinance has been “hijacked by profiteers”. According to Sinclair’s interpretation of the microfinance business, “neither (is) the entire sector evil, nor (is) the basic model fatally flawed.” Still, he argued that most of the financial sector involved in the business does not care about microcredit’s actual impact on poverty reduction.

By his own account, Sinclair worked with several microfinance institutions and funds in countries such as Mexico, Mongolia, Nigeria, and Mozambique.

“I couldn’t help but notice that even with a booming 70 billion-dollar industry on their side, the poor didn’t seem any better off in practice,” he told IPS. “Exorbitant interest rates led borrowers into never-ending debt spirals, and aggressive collection practices resulted in cases of forced prostitution, child labour, suicide, and nationwide revolts against the microfinance community.”

European Investment Bank under fire

Similar criticism constitutes the backbone of yet another study, focused on the European Investment Bank (EIB)’s approach to microfinance in developing countries.

The study, by Italian economist Valerio Carboni, was published last June by Counter Balance, a European coalition of development and environmental non-governmental organisations, formed in 2007 specifically to challenge the EIB.

“Microcredit originally was meant to help the poor to escape the poverty cycle,” Carboni recalls in his report. Microcredit “was designed to short circuit the poverty trap that condemned poor people excluded from the banking system to rely on usury loans or accept slavish working conditions.”

Hence, Carboni concludes microfinance addressed primarily the needs of micro entrepreneurs and vulnerable people.

Western governments, through their financial agencies, have for the last three decades been pouring funds into local microfinance initiatives in emerging markets, and helped to turn the original niche sector into a multi-billion-dollar business.

It was in this context that the EIB started its own microfinance activities. Carboni pointed out that though the EIB’s microfinance portfolio still represents a very small fraction of its total budget, it has been growingly steadily through the years.

“Since the EIB’s first operations in Morocco, back in 2003, the average deal size has been increasing constantly and is now expected to hit 10-50 million dollars,” Carboni told IPS. According to the EIB’s own figures, the bank has, since 2003, committed some 881 million euros to microfinance activities, in nearly 50 countries.

“Nowadays microfinance encompasses a wide range of financial services, from micro-insurance to mobile banking, and seems to have lost its original vocation: instead of helping the poorest the question has been turned upside down and it is now how to make money out of them,” Carboni added.

Due to these changes, microfinance is no longer contributing to self-reliant development processes based on domestic resource mobilisation and local institution building, but has instead become “in some cases a significant blockage for the development of the poorest by dragging them into speculative market dynamics and generating a renewed dependency on international financing and actors”.

Carboni’s primary critiques of microfinance in general, and of the EIB’s activities in the sector in particular, are that there is a general lack of strategy and vision. “The EIB just follows the markets,” Carboni said.

He also lamented the fact that in countries with limited capital markets, “the EIB is simply involved in investment projects, rather than in reaching out to the poor.” Furthermore, he said, “the accountability chains are long and obscure, and the management of portfolio is insufficient.”

Sinclair called attention to the lack of regulation on microfinance. “The ultimate investors are not in practice protected by any meaningful regulation, have a limited idea of what their funds are being used for and rely entirely on the funds to reassure them,” Sinclair writes in his book.

While none of the private financial corporations questioned by Sinclair’s book have reacted, the EIB issued a statement in which it “recognise(d) the challenges posed by the lack of standardised social performance measurements used by both microfinance investors and donors”.

But the EIB added that, as an active member of the Social Performance Task Force (SPTF), it has contributed to the establishment of the Universal Standards for Social Performance Management.

The SPTF, a coalition of over 1,000 academics, agencies, donors, investors, and others active in international microfinance founded in 2005, formulated a common social performance framework and an action plan to improve the industry’s social performance.

The SPTF defines social performance as the effective translation of a microfinance organisation’s mission into practice in line with commonly accepted social values.

The EIB also recalled that it has endorsed the Client Protection Principles in microfinance, which are incorporated in all microfinance contracts to encourage improved social responsibility and have helped improve best-practices across the microfinance industry.

(END)