Read the exchanges betwen Mr. Pierre Gramegna, Luxembourg Finance Minister and Chairman of the LHoFT Board, and Mr Nasir Zubairi, CEO of the LHoFT grasped during the "exclusive briefing on the Fintech scene" webinar last 17th of April. 

 

Nasir Zubairi, CEO of the LHoFT:

Many admirable measures have been put in place to support businesses during this unprecedented situation. Luxembourg has put a lot of emphasis on building a "startup nation" and, in particular, Fintech has been at the fore.

How have startups been considered in decisions related to support measures, and do you still see the sector as a priority for the Luxembourg economy?

 

Mr Pierre Gramegna, Luxembourg Finance Minister:

Thanks, Nasir for doing this virtual event first of all. And let me tell you that the LHoFT is always with me, and I'm very frustrated that I don't see many of you as often as I normally do. But you are always on my mind.

I would like to first explain the philosophy that the government has chosen, which to a certain extent resembles the strategies of other countries: The main thrust of the measures announced is to ensure that all economic players - that means enterprises and the workers - can keep as much liquidity as possible. This is particularly important for companies that have to shut down by law on the one hand, and maybe equally important for companies that have not had to shut down, which is the case for most FinTech companies. Obviously, as the economy is down their turnover, and their customers are far less than they used to be.

"It is worth it to keep the know-how and the jobs in the company"

This is a temporary situation, and we have - in a record time, in a couple of weeks - put together a plan worth €8.8 billion, which is roughly 14% of our GDP. And with that, we have one of the most generous plans. I'm not going to go into all the details, but what is important when the FinTech companies listen to this, and when they compare what other countries are doing, I would ask them to consider the full picture. On some individual measures you might find that another country is doing more than Luxembourg, but then you have to look at all the other measures in place. The one measure that is the most costly, and where Luxembourg is the most generous per capita in the world, is short labor; “chômage partiel” in French, or “Kurzarbeit” in German. Every company, every startup, like any other company, can put - if necessary - its entire workforce in short labor. So I want people to be aware that this is an extremely expensive measure. And we think that over the crisis period, which would be two months, maybe slightly longer, we would spend at least a billion euros on this, but it is worth it to keep the know-how and the jobs in the company. So I would like that all the FinTech companies should appreciate that at the right level that this is being done.

We have also been very flexible on visas and measures for those who have work, who come from faraway countries where we have extended visas. Now, this is I think, the main measure. And then we have done something that we have never done in the past, which is we are just giving a non-reimbursable aid of €5000 to every company that had to close by law. And this is limited to very small companies with fewer than 10 people. And then we have recently decided to also pay €2500 to independent entrepreneurs, and independent entrepreneurs are exactly what the FinTech community is. So, FinTech companies can benefit as an independent person from this, and obviously from the short labor measures I mentioned above.

"Our philosophy is to keep the economy going, help workers get part of this salary, make sure enterprises can continue to function if they are not in a lockdown."

We've also advanced the payments for short labor in time into a normal system, as it was being paid out after one month, now it's being paid beforehand. I think most for the first month have been paid out. This is also a very special effort. We also already looked a little to boost innovation and investment. So the Ministry of Economy has recently announced that for young, innovative companies, including FinTech companies that fall in that category, the co-financing by the Government, can be put up to 70% instead of 50%. So it's an encouragement for FinTech companies not to relax and say I wait until the crisis is over before I launch new investments. And then on a more general basis, we have introduced reimbursable advances in the framework of an EU compatible frame, which is calculated in a manner that you can get up to €500,000 in terms of loans and what is being taken into account there is the number of people; so half of the salary costs can be taken into account and the fee for the rent is taken into account up to €10,000 maximum and also their half the rent. So I think that's the total setup.

I am going to finish by that our philosophy is to keep the economy going, help workers get part of this salary, make sure enterprises can continue to function if they are not in a lockdown. But if then you get that support, you should pay your bills as much as possible. We have launched an appeal to real estate owners to be reasonable, so maybe not forgive payments, but postpone them to help companies, especially startups. I think that is a general thrust of what we've done.

 

Nasir Zubairi, CEO of the LHoFT:

Economic forecasts suggest that the world will enter the worst recession since the 1930s. How do you think this will affect the Luxembourg financial services sector in particular in terms of business activity and development?

 

Mr Pierre Gramegna, Luxembourg Finance Minister:

"Now the financial sector, in general, is more robust than it was 10 years ago. You could even say, certainly in Luxembourg, that the financial sector and the banking sector is part of the solution."

The IMF, which held its first 'virtual' annual meeting in the last two days, has released some new forecasts. Obviously, they're not very encouraging to put it in a simple way. The IMF expects that the developed countries - so Europe, the United States, and developed countries in Asia - will have a downturn that is quite abrupt. The forecast is of a growth of minus five to minus 10 for most developed countries. Even emerging countries are going to have negative numbers. So in that sense, this recession will hit all countries at the same time. It is an asymmetric crisis, which is not surprising because it is triggered by a sanitary and pandemic crisis. So, that being the case, the temptation is also quite obvious to make the comparison with the former crisis of 2008. Now, let's face it, there are lots of differences. But there's one major difference: In 2008, the crisis started from the financial sector spread to the rest of the economy, which was then hit by a lack of confidence and lack of investment. This time, we have a sudden event that happens at the same time, more or less all over the world, which brings all countries into recession. Now the financial sector, in general, is more robust than it was 10 years ago. You could even say, certainly in Luxembourg, that the financial sector and the banking sector is part of the solution, while 10 years ago it was part of the problem.

I'm pleased about the cooperation we've had with the banks that are doing retail services in Luxembourg, and are the biggest lenders to the economy. We are announcing that the banks are positioning themselves as an important part of this responsibility. The banks will take, on their books, the moratorium for the next six months. Now that means that for most companies that ask for this moratorium for the next six months to the tune of more than €2 billion as we speak. So they are doing that, and this is happening, and this is very good news. And then the government has stepped in with the guarantee law. For new loans that will originate after March 18th up to the end of December, the government will give it coverage or a guarantee of 85% of the loans that the banks will grant. The banks will have relief because they will cover only 15% but we will cover 85% so I think this is really good news and it is working fine.  So there's the guarantee law that provides a total guarantee package of €2.5 billion for the Luxembourg economy that is taken up by the government on top of the risks that the banks take.

"What do we want to do with that? It's a very simple recipe: invest, invest, invest."

The other thing I want to underline is what Europe is doing. Obviously, as always, what you read in the media is that Europe is not there, not delivering, everybody goes his own way. That has been true also in this crisis for quite some time. But at the Eurogroup level, we agreed a package of roughly €580 billion, where we agreed on four pillars, let me quickly explain them: One is to ensure liquidity to the states, and this is by giving some unconditional access to the European Stability Mechanism, based in Luxembourg. Then we have a "backstop" for workers. It’s a project that the Commission is setting up and that member countries are guaranteeing to help finance short labor in other countries in Europe, similar to what we have in Luxembourg. And third, the backstop that works for companies as European Investment Bank, also located in Luxembourg, will put together a guarantee of €25 billion, which will help guarantee €200 billion worth of loans for companies. So this whole package, this is the short term part: €580 billion. And then there's a fourth pillar which is a recovery fund on which we're working. I was giving an interview to the Financial Times just before this virtual FinTech event and we are trying to deliver as quickly as possible on this new Fund, which will also or should also be financed through innovative financial instruments. And as the President's Commission has announced this new instrument, this new recovery fund should be worth at least €1 trillion. What do we want to do with that? It's a very simple recipe: invest, invest, invest. So I think we've done reasonably well in Luxembourg in coping with it. And knowing that all we've done is not wiping away the problems that companies and startups have, but at least alleviating the burden and helping to find short term solutions also in terms of liquidity.

 

Nasir Zubairi, CEO of the LHoFT:

It was with incredible speed and agility that financial institutions adapted to the enforced isolation and re-worked their operating models for business continuity.

Do you feel that their experiences and time for reflection during this crisis may herald greater engagement and adoption of digitalisation and fintech solutions?

Anything in particular that you feel will become particularly prominent - e-signatures, digital onboarding, digital settlement/confirmation?

 

Mr Pierre Gramegna, Luxembourg Finance Minister

I must say I'm quite impressed by the fact that many banks and many players told me that they used home-working to such a large extent. Some banks tell me that they're working from home. I mean, their people are working from home to the tune of 90 to 95%. I also know that quite a few administrations in the government have half of the people working from home. It's not always easy to organize, but it's being used.

One concrete thing we have done to facilitate that was to appeal to our three neighboring countries to make sure that when commuters work from home in one of three neighboring countries, that this is not counted in the administrative tolerance that we have with France, Belgium, and Germany. So in other words, the days of home working during the crisis will not be counted in the yearly count that needs to be done for tax purposes. I'm very grateful to the three countries that they have agreed to this. So, the motivation was the health of the commuters, which played a huge role. Although there was no legal basis for the three countries to grant us that flexibility, I am glad that it was possible.

"If there is one area, one business sector that observes these business continuity issues, homeworking, cashless payments, new use of technology, it is the sector of FinTech."

The other good news, I think, is that business continuity plans of most companies have worked well. I have heard of very few problems. Now we know that we have a lot of fiber available in Luxembourg, that our 4G is working well, that we have a lot of redundancy. We knew that but it's good to have a real-life test as we've had one and so that I can confirm the reassuring news that we have not met major problems. This being said, we have encouraged all users to limit the sending of movies and games to the strict minimum on their phones on their computers, especially during the day in order not to occupy too much space on the different lines.

And last but not least, if there is one area, one business sector that observes this business continuity issues, homeworking, cashless payments, new use of technology, it is the sector of FinTech. So I think you are at the heart of the developments that we need for the future, and observing the shortcomings of the system will help you a lot devise new systems for the future. I know that Luxinnovation has encouraged also a cooperation in that area, which I welcome and I think there are quite a few of you that have been involved in this cooperation with Luxinnovation. And I know that Luxembourg House of Financial Technology helps as a go-between also to make sure that you can meet the right people. 

 

Nasir Zubairi, CEO of the LHoFT:

I think everyone's always inspired by you Pierre, and you know we are. What are your last words of encouragement to our community? Many people are worried and concerned, but you can provide inspiration to us so what would you say? 

 

Mr Pierre Gramegna, Luxembourg Finance Minister:

"You might come up with new ideas that will show you not only the light at the end of the tunnel, but new ideas that might be the way to the success of tomorrow."

I think that the FinTech world is part of the solution here. I would encourage you to look at the business solutions that you're already working on, and try to apply them to what is happening. I give you an example, which is not really in your field, but I happen to know a small firm which is specialized in cleaning, cleaning shirts, and so on. And now cleaning shops are not closed by law, because hygiene is key, these shops need to stay open. Now this small shop has noticed, as most dry cleaners noticed, that because of the home working and homesteading, very few people use dry cleaning. So, they are not the primary victims of this lockdown, but an indirect one. And what happens now with what has been announced this week, with the masks, or any protection you put in front of your mouth, is that they start to produce such masks. And I can tell you, they are selling them like hotcakes.

That's the image I want to use for the FinTech companies that are hearing this and listening to us is to have that spirit of saying “Now wait a minute, what I was working on here in my project into LHoFT can solve some of the issues that we’re facing right in this crisis.” And it might lead you to new ideas, or to another way of implementing your ideas. And in fact, it's also a ray of hope, at a time where you have fewer customers or fewer investors or fewer people interested in what you're doing. You might come up with new ideas that will show you not only the light at the end of the tunnel, but new ideas that might be the way to the success of tomorrow. 

 

Nasir Zubairi, CEO of the LHoFT:

Pierre, we thank you so much for your time this evening, for your encouragement and inspiration. We'll be switching over for the listeners who are going to participate in a FinTech Friday house party on another platform. Thanks again very much Pierre. 

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