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  • Aktuelles Portfolio 223 Projekte 2,4 Mrd. Euro; davon 74 Mio. TA Mikrofinanz rd. 100 Vorhaben, zeigt, dass im Schnitt deutlich kleiner
  • Das Portfolio der KfW spiegelt hierbei den Entwicklungsstand der Mikrofinanzierung in den betreffenden Weltregionen wieder: Lateinamerika verfügt über einen bereits langjährig existierenden Mikrofinanzsektor , der vergleichsweise weit entwickelt ist. In den osteuropäischen Transformationsländern wurden die Mikrofinanzkonzepte zügig aufgegriffen und haben schnell Bedeutung erlangt .
  • Impact examples from studies commissioned by KfW Serbia Down-Scaling project: In average, every credit client of the project created 1,5 new jobs after receiving a credit. Azerbaijan Down-Scaling: 50% of micro credit clients notice a quality increase in their families diet. Credit customers report an average income increase of 30% in the year after receiving the loan. 8% of clients used increase in profits to open a new business – although programme was not designed to finance start-ups. Around 50% of the clients have reported that they put more emphasise on business planning, i.e. receiving credits may have an positive impact on entrepreneurial quality and discipline. In the project areas, informal money lenders have practically disappeared Armenia: 60% of credit customers report an average income increase in the year after receiving the loan 40% of micro credit customers report that increased income from business allowed them to undertake investments in their homes of more than 500 USD.
  • Important to understand is that microfinance is targeted at economically active people , i.e. people who can make productive use out of an increase of capital in their household or small enterprise. The typical microfinance client is a micro entrepreneur , i.e. a bazaar trader, a shop owner or a hair cutter who can improve business through small investments. He/she is successfully active in this buisness since quite some time. Classical microfinance as Grameen or ProCredit (we will come back to this later) is not about financing TV-Sets for low-income households; it is also not about start-ups or bridge-fianncing for unemployed..
  • As Bank a „natural“ competitive advantage. Synergies from other departments of KfW Bankengruppe Etc.
  • Example for integration into local capital markets: Issue of local currency bonds, for instance by Mibanco (Peru) or Compartamos (Mexico) Example for integration into international capital markets: Synthetic securitisations, for instance as arranged by Blue Orchard True Sale Securitisation Bulgaria
  • How does Structured Finance support Microfinance? Mobilization of private capital in addition to scarce public funds by structuring the investments in different risk classes and ratings Donors and development finance institutions invest in the riskiest tranches on an revolving basis („intelligent use of subsidies“) Broadening of the refinancing base for microfinance institutions Flexible management by private fund managers
  • KfW-Entwicklungsbank hat in 2006 vier Verbriefungen durch unterschiedliche Finanzierungen in Höhe von rund 101 Mio EUR unterstützt. Das mobilisierte Finanzvolumen ist ein Vielfaches höher. Von KfW unterstützte Verbriefungen (KfW-Beitrag): Opportunity International: 22,2 Mio EUR (synthetisch) Blue Orchard: 11,0 Mio EUR (synthetisch) ProCredit Bulgarien: 65,0 Mio EUR (true sale) BRAC Bangladesh: 3,5 Mio USD (true sale) (zwölfmalige Wiederholung geplant)
  • Es soll zunächst ein Überblick über die Aktivitäten gegeben werden. Dann erfolgt eine kurze Darstellung der Engagements im KfW-eigenen Risiko, inkl. abschließende Berichterstattung über eine ältere Rahmengenehmigung für Beteiligungen. Dann folgt eine Darstellung von zwei Highlights, die uns geschäftspolitisch besonders bedeutsam erscheinen: 1. Mikrofinanzinitiative Sub-Sahara Afrika (  Herausstellung der entwicklungspolitischen Bedeutung) 2. Strukturierte Finanzierungen (Fonds und Verbriefungen) (  Verdeutlichung, wie die KfW ihre Stellung und ihr Know-How als Bank für die Entwicklungszusammenarbeit einsetzt.)
  • In context Developing and Transition Countries professional MFI means: Cost-Coverage, financial and operational sustainability, low P-A-R.
  • Kosovo among the first microbanks, i.e. MFI with full banking license created in Eastern Europe Many followed
  • The deposits seem to be high in “civilised Europe” compared to Latin America and Africa. Actually, within Europe, approx. one third of deposits is collected in devastated Kosovo, another sixth part in Albania.  The weaker the environment, the more attractive are professional (foreign?) institutions?
  • Micro finance scheme (StartGeld): Eligible are natural persons, small commercial enterprises up to 100 employees (producing industry, handicrafts, trade and other services) and independent professionals for all types of business foundations, including the acquisition of a business Maximum amount of the loan is EUR 50,000 The pay back period is up to 10 years There is a redemption-free grace period of up to 2 years The on-lending bank receives a service charge of EUR 500 for each first loan application  From 1999 – 2005 a loan volume of 1.01 billion could be generated Advantages of the EIF guarantee: KfW improves its risk position through the EIF guarantee. Consequently the EIF guarantee enables KfW to take over further risks. Through the free risk take over of the EIF, KfW offers favorable conditions for entrepreneurs The on-lending banks improve their risk position. Therefore the on-lending banks get into a position to even provide loans in this market segment The displayed risk sharing structure shows a high leverage effect with regard to increasing jobs and access to finance for SMEs. An evaluation of this micro finance programme shows that an EU budget allocation of EUR 60.6 million enabled EIF to provide a guarantee volume of EUR 404 million to KfW. Through this risk participation, KfW in turn committed new micro loans for start-ups of EUR 1.01 billion . So the amount of the loans provided for start-ups is 17 times the EU budget . A survey shows that with this loan amount 44,440 jobs could be created (44 jobs per 1 Mio commitment)

, "W10 - Development Banks Mark Schwiete.ppt" Presentation Transcript

  • 1.  
  • 2. New Developments in Microfinance ─ Instrument of Financial Sector Promotion in Developing and Transition Economies Dr. Mark Schwiete Principal Financial Sector Expert Competency Centre Sustainable Economic Development 4th European Microfinance Conference 2007 April 27, 2007, Berlin
  • 3. Content KfW‘s Microfinance Portfolio Highlight – Structured Finance KfW – Microfinance in Germany Impact and Outlook Short Introduction to KfW Entwicklungsbank Why KfW Finances Microfinance
  • 4. KfW Entwicklungsbank within KfW Bankengruppe. Financing volume in 2006 EUR 35.5 billion (- 8.3%) Financing volume in 2006 EUR 22.8 billion (+ 47.1%) Financing volume n in 2006 EUR 15.0 billion (+24%) Financing volume in 2006 EUR 3.4 billion (+ 30.8%) EU-Microfinance
  • 5. Key Figures for KfW Entwicklungsbank. 15.7 billion EUR 2.8 billion EUR
    • of which budget funds
    • of which KfW funds
    18.5 billion EUR Loans outstanding EUR 1.5 billion (of which EUR 1.1 billion from budget funds) Disbursements (2006) EUR 1.0 billion
      • of which KfW's own funds
    EUR 2.5 billion Commitments (2006) About 50 Representative offices abroad over 1,400 in over 100 countries Ongoing projects 387 Number of Staff
  • 6. Content KfW‘s Microfinance Portfolio Impact and Outlook Short Introduction to KfW Entwicklungsbank Why KfW Finances Microfinance KfW – Microfinance in Germany Highlight – Structured Finance
  • 7. Financial Sector Portfolio: Role of Microfinance and SME Financing Outstanding Portfolio: 2.4 bn € (223 Projects)
  • 8. Microfinance Portfolio by Regions Traditionally strong in Eastern Europe Africa 10% Asia 9% Eastern Europe & Caucasus: 44% Latin America 22% MENA: 2% Global: 13%
  • 9. KfW complements German Budget Funding Microfinance: Funding is increasingly commercial
    • FC Promotional Loans and Equity Participation (KfW own risk) make up almost half of the portfolio
    • Budget funding retains its high significance – especially in high risk countries - for start-up financing and for technical assistance.
    Mi c rofinan ce P ortfolio by Finan c i ng Instruments Budget ary r efinan cing l in e s : 49% F C Fiduciary Participation : 4% F C Promotional Loans : 32% B udget f unding for technical assistance : 5% F C Promotional E quity Participation in c l. Mezzan ine 10%
  • 10. Content KfW‘s Microfinance Portfolio Impact and Outlook Short Introduction to KfW Entwicklungsbank Why KfW Finances Microfinance KfW – Microfinance in Germany Highlight – Structured Finance
  • 11. The poverty dimension: Where financial sector development can improve lives Target 1 : Half number of people living under $1/day by 2015
    • Target 3 : Gender equality
    • Targets 4,5,6 : Health
    Target 2 : Primary education for all children It tackles six out of the eight Millennium Development Goals...
  • 12. The Target Group in Developing Countries: Microfinance aims at “Ordinary People” Middle Class Economically Active Poor Very Poor Poverty Line Absolute Poor Commercial Banks Micro Banks, Credit Unions, Specialised Banks Finance NGOs Social transfers (non-bankable segment) 100 KfW Microfinance Partners in 42 countries serve about 12 million customers Upper Class
  • 13. Four approaches to establishing Microfinance services – adopted to the specific financial sector deficiencies „ Down-scaling“ Supporting commercial banks to serve the micro segment „ Up-grading“ Transformation of a credit NGO into a fully-fledged micro bank „ Linking“ Connect Microfinance Institutions with the national or international capital market „ Greenfielding“ Foundation of a new Microfinance Institution (MFI)
  • 14. Development banks bring in their know-how as financial institutions KfW employs and develops a range of different instruments
    • Basic products to support MFIs
      • Credit lines
      • Guarantees
      • Equity
      • Technical Assistance
    • Elaborate products (in order to mobilize private resources)
      • Structured finance, e.g.
        • Mezzanine-Finance
        • Microfinance Investment Funds
      • Securitization
      • Deposit insurance schemes
  • 15. Building sound financial systems from the ground: Strategic path for MFIs to ensure access to financial resources and for growth Building professional credit institutions Integration into international capital markets Establishing full range of services for ordinary customers, particularly deposits Integration into local capital markets Increase in operational complexity and need for professional management Contribution to local financial market development
  • 16. Content KfW‘s Microfinance Portfolio Impact and Outlook Short Introduction to KfW Entwicklungsbank Why KfW Finances Microfinance KfW – Microfinance in Germany Highlight – Structured Finance
  • 17.
    • Structured finance instruments in development
      • Investment funds
      • Securitisation
    • Beneficiaries of these instruments
      • microfinance service providers
      • micro, small and medium enterprises in developing and transition economies (finally)
    • In addition, it contributes to the development of local capital markets
      • Legislators, regulators, auditors and financial institutions become acquainted with the new instruments
    Financial Engineering for the Poor KfW deploys state-of-the-art know-how in development
  • 18. Example of an Investment Fund European Fund for South-East Europe one of the largest microfinance fund worldwide Several risk tranches 66 119 140 60 80 80 20 222 280  146 421 500 1 st closing 12/05 02/07 12/09 Fund Volume in million EUR Donors DFIs Private Investors Share class C “ Junior” Share class B “ Mezz.” Share / Notes class A “ Senior”
    • Banks
    • NGO´s
  • 19. Building sound financial systems from the ground Example for Modernization Impulse: First True-Sale Securitization in Bulgaria
    • In May 2006, ProCredit Bank Bulgaria securitized a part of its loan portfolio
    • Over 7 years micro loans of EUR 840 million will be securitized
    • First ever “true sale” in Bulgaria – landmark action for financial sector development
    • Arranged by Deutsche Bank, enhanced by guarantees of KfW and EIF.
    • Senior note rated ‘BBB’ by Fitch Ratings - first publicly rated securitization of SME and micro loan portfolio in Eastern Europe
    •  New long-term financing sources for MFIs and structural development of the financial sector
  • 20. Content KfW‘s Microfinance Portfolio Impact and Outlook Short Introduction to KfW Entwicklungsbank Why KfW Finances Microfinance KfW – Microfinance in Germany Highlight – Structured Finance
  • 21. KfW “Micro Loan“ / “Micro-10“
    • KfW Micro Loans are on-lend by banks:
    • Every bank in Germany is entitled to on-lend loans to the ultimate borrower
    • the on-lending bank receives a margin (1.25% p.a.) and is reimbursed for part of the commission
    • 80% of the liability is assumed by KfW
    • Micro Loan:
    • Start of programme: October 2002
    • Loan amount: max. EUR 25,000
    • Term: max. 5 years, min. 1.5 years, redemption-free period: max. 6 months
    • Nominal interest rate: 9.35% p.a. (as of 23 June 2006)
    • Eligible to apply are natural persons, small enterprises and self-employed professionals
    • Financing purpose: start-up investments, working capital during the first 6 months and business consolidation for up to 3 years after start-up
    • Reimbursement of commission: EUR 600
    • “ Micro 10“:
    • Special features
    • Start of programme: March 2005
    • Loan amount: EUR 5,000 – 10,000
    • Reimbursement of commission: EUR 1,000
    • In the event of cooperation between the bank and an advisory firm for start-ups KfW applies a simplifed procedure for loan disbursements and verification of the use of funds
  • 22. Microfinance Fund Germany
    • Start of programme: September / October 2006
    • Loan amount: max. EUR 10,000
    • Term: max. 3 years
    • Nominal interest rate: 10% (currently planned)
    • Cooperation between bank, micro-finance provider, DMI (German Microfinance Institute) and Fund
    • Bank: Loan decision, legal framework of the lending
    • Microfinance provider: supports the borrower, prepares the loan decision, handles the loan processing, assumes part of the liability
    • DMI: Accreditation and monitoring of the microfinance provider, central control function in the network Funds: Acquisition and administration of risk capital, assumption of liability, Volume: approx. EUR 2 million (EUR 0.5 million KfW; EUR 0.5 million BMWI (German Ministry of Economics and Technology); EUR 0.5 million BMAS/ESF)
  • 23. Integrating the MAP guarantee into KfW‘s StartGeld Programme EIF 40% risk MAP/EU Budget KfW 40% risk On-lending Bank 20% risk SMEs micro loan loan with 80% exemtion from liability funding guarantee for 50% of KfW risk
  • 24. Content KfW‘s Microfinance Portfolio Highlight – ProCredit Group Highlight – Structured Finance Impact and Outlook Short Introduction to KfW Entwicklungsbank Why KfW Finances Microfinance
  • 25. Financial sector development and poverty reduction: KfW’s lessons learned in 38 words a. Financial sector development has to bring financial services to the masses in order to contribute to poverty reduction (Micro = Macro) b. Professional microfinance institutions can succeed in imperfect markets (“governance matters”) c. Sound local financial markets need bottom-up development
  • 26. Advancing Microfinance: Results and future challenges
    • Our Results
    • Microfinance financially sustainable (e.g. ProCredit Banks, BancoSol, Compartamos, UMU)
    • Good instrument to contribute to the millenium development goals
    • Cooperation with private (ethically motivated) investors necessary and possible, catalytic role of development banks
    • Challenges
    • Securing the double goal of financial sustainability and increased outreach
    • Further develop rural finance, especially for smallholders
    • Attracting more private capital and know-how to scale-up microfinance
  • 27. New Developments in Microfinance ─ Instrument of Financial Sector Promotion in Developing and Transition Economies Dr. Mark Schwiete Principal Financial Sector Expert Competency Centre Sustainable Economic Development 4th European Microfinance Conference 2007 April 27, 2007, Berlin
  • 28. Content KfW‘s Microfinance Portfolio Highlight – ProCredit Group Highlight – Structured Finance Impact and Outlook Short Introduction to KfW Entwicklungsbank Why KfW Finances Microfinance
  • 29. Example from our project work: Promoting microfinance in Serbia/Kosovo.
    • Problem
      • Small and micro enterprises as engines of reconstruction and growth are rarely given loans from conventional banks.
    • Approach
      • Establishment of ProCredit Bank Kosovo with target group specific financial products and
      • services
    • Impacts
      • over 100,000 commercial loans, over 170,000 accounts, balance-sheet total > EUR 300 million, 23 branch offices.
      • access to financial services in all regions (savings deposits, loans, payment transactions).
      • creation of employment and income.
    • Contribution of FC
      • EUR 8.3 million in budget funds plus EUR 5 million in KfW funds (2000-2004)
  • 30. Succeeding in imperfect markets: Solid microfinance institutions can rank among the country’s best rated addresses Institution Rating Country Risk (=Country Ceiling) Fitch (Long Term Issuer Default Rating) ProCredit Bank Albania B+ not rated ProCredit Bank Bosnia and H . B not rated ProCredit Bank Bulgaria BB+ BBB ProCredit Bank Georgia B not rated ProCredit Bank Macedonia BB BB ProCredit Bank Romania BB+ BBB- ProCredit Bank Serbia BB- BB- ProCredit Bank Ukraine BB- BB- ProCredit Holding (Germany) BBB- AAA Moody’s (Long Term Issuer Rating) ACLEDA Bank ( Cambodia ) B2 not rated
  • 31. Succeeding in imperfect markets: The ProCredit Network is operating in 19 countries ProCredit Bank, Georgia ProCredit Bank, Ukraine ProCredit Moldova ProCredit Bank. Rumania ProCredit Bank, Serbia ProCredit Bank, BiH ProCredit Bank, Kosovo ProCredit Bank, Bulgaria ProCredit Bank, Albania NovoBanco, Mozambique NovoBanco, Angola ProCredit, Ghana Banco ProCredit, El Salvador Banco ProCredit, Nicaragua Banco ProCredit, Equador Banco Los Andes ProCredit, Bolivia ProCredit Bank, Macedonia ProCredit Bank, Congo ProCredit Bank, Sierra Leone
  • 32. Succeeding in imperfect markets: ProCredit Banks perform well on both sides of the balance sheet Development of loan and deposit volume of ProCredit Group Bars show deposit volume. Figures in million EUR .
  • 33. Succeeding in imperfect markets: ProCredit network balances outreach, growth and profit
    • Broad Outreach
    • More than 2 million customers world-wide, mainly micro and small enterprises
    • Close to the micro clients: 446 branches, covering also rural areas (11,700 employees)
    • Financial services according to client needs (micro enterprise loans, agricultural loan, remittances, money transfers, insurance)
    • Average loan size: 2.770 EUR
    • Financial Sustainability
    • Good Portfolio Quality (Portfolio at Risk: 1.4%)
    • Large loan portfolio (690,000 loans with total volume of EUR 1.9 bn)
    • Large and growing deposit base (1.9 mn accounts with total volume of EUR 1.6 bn)
    • Reasonable profitability (ROE: > 13% p.a.)
    (figures as per 1 September 2006)
  • 34. Shareholder structure of ProCredit Holding
  • 35. Microloans in Germany – Framework Conditions and Current Developments
  • 36. The German Banking System
    • Three-pillar structure: 1. Commercial banks, 2. Public-sector banks (savings banks and Landesbanks), 3. Cooperative banks (credit cooperatives and cooperative central banks)
    • Bank-based financial system: Companies and private individuals obtain finance mainly through bank loans, and not through the capital market (so-called “house bank principle”) -> Balance-sheet total of all credit institutions in Germany is about three times the GDP
    • Legal basis for the credit institution is the KWG (German Banking Act) . A written permission from the German Financial Supervisory Authority BAFIN is required for banks to conduct banking transactions (§ 32 KWG).
    • Total number of credit institutions (as defined in §1 KWG ) as of 31 December 2005: 2,344
    • Total number of bank branches (headquarters of legally independent credit institutions plus all their branch offices, including Postbank) as of 31 December 2005: 46,444
    High density of banks in Germany ensures that loans and other banking services are provided on a broad scale everywhere in Germany
  • 37. Framework Conditions for the Extension of Microloans
    • Microloans are extended under all thee “pillars“ of the banking system and through the promotional banks. Non-banks are usually not entitled to grant loans.
    • The promotional, cooperative and savings banks play a major role in micro-lending. Commercial banks play only a minor role.
    • There is no special “law on micro-lending” in Germany -> Micro-loans are extended by the credit institutions in accordance with the framework conditions of the banking system:
          • The BAFIN supervises the extension of microloans (promotional banks are supervised by public authorities (federal government/federal states)
          • The KWG provides the legal basis
    • Promotional banks, mortgage banks and credit guarantee companies may facilitate the banks’ micro-lending activities by assuming liability and reimbursing part of the commission (promotional banks).
  • 38. Problems in Microloan Financing
    • Though there is a broad-scale offer of bank services due to the high density of banks in Germany, access to microloans is often hampered.
    • Reasons for these problems: 1. High processing costs for the credit institutions - fix process costs in micro-lending - particularly high need for information and advice on the part of business start-ups/small entrepreneurs - low interest earnings from small-volume loans -> unfavourable cost/revenue ratio for the banks 2. Micro-lending involves high risk - relatively high default rates - information asymmetry between lender and borrower - often no collateral can be provided 3. Interest ceilings - problem of adverse selection - current account lines as a competitive product - “usury paragraph“
    Credit institutions often show great restraint in their micro-lending activities
  • 39. Microloan Programmes in Germany
    • In reaction to the financing gap in the area of micro-financing a number of microloan programmes have been set up since the 1990s, which are supported by public authorities, foundations and banks (number in 2004: 24)
    • The programmes are very heterogeneous: Many ”niche suppliers“ with activities limited to specific regions and/or groups of persons (unemployed persons, foreigners, youths)
    • In many cases microloan programmes are established in cooperation with banks, advisory firms and institutions for economic promotion. This facilitates the lending process for the banks, though the loan decision still remains with the banks.
    • In some cases the ”lending“ is implemented via local and municipal authorities. Usually this does not involve loans in a narrower sense but repayable grants extended to special target groups (unemployed persons, foreigners).
    • In individual cases loans are extended by MFIs without cooperation with a bank. In these exceptional cases the BAFIN has granted permission to non-banks to extend loans under certain conditions (e.g. complete equity capital financing, customary bank reporting, maximum loan amounts) .
    No uniform, broad-scale offer of micro-loans
  • 40. Current Developments
    • Micro-lending is basically possible under the existing framework (high density of banks, good promotional infrastructure, special permissions to engage in micro-lending are possible)
    • To offer microloans on a broad-scale all over Germany process and risk costs have to be reduced further. Two different strategies are pursued in this area:
      • Exemption from liability and reimbursement of part of the commission Example: KfW ”Micro Loan“ / ”Micro-10“
      • Linking financing and advisory offers Example: Micro-finance Fund Germany
  • 41. KfW “Micro Loan“ / “Micro-10“
    • KfW Micro Loans are on-lend by banks:
    • Every bank in Germany is entitled to on-lend loans to the ultimate borrower
    • the on-lending bank receives a margin (1.25% p.a.) and is reimbursed for part of the commission
    • 80% of the liability is assumed by KfW
    • Micro Loan:
    • Start of programme: October 2002
    • Loan amount: max. EUR 25,000
    • Term: max. 5 years, min. 1.5 years, redemption-free period: max. 6 months
    • Nominal interest rate: 9.35% p.a. (as of 23 June 2006)
    • Eligible to apply are natural persons, small enterprises and self-employed professionals
    • Financing purpose: start-up investments, working capital during the first 6 months and business consolidation for up to 3 years after start-up
    • Reimbursement of commission: EUR 600
    • “ Micro 10“:
    • Special features
    • Start of programme: March 2005
    • Loan amount: EUR 5,000 – 10,000
    • Reimbursement of commission: EUR 1,000
    • In the event of cooperation between the bank and an advisory firm for start-ups KfW applies a simplifed procedure for loan disbursements and verification of the use of funds
  • 42. Microfinance Fund Germany
    • Start of programme: September / October 2006
    • Loan amount: max. EUR 10,000
    • Term: max. 3 years
    • Nominal interest rate: 10% (currently planned)
    • Cooperation between bank, micro-finance provider, DMI (German Microfinance Institute) and Fund
    • Bank: Loan decision, legal framework of the lending
    • Microfinance provider: supports the borrower, prepares the loan decision, handles the loan processing, assumes part of the liability
    • DMI: Accreditation and monitoring of the microfinance provider, central control function in the network Funds: Acquisition and administration of risk capital, assumption of liability, Volume: approx. EUR 2 million (EUR 0.5 million KfW; EUR 0.5 million BMWI (German Ministry of Economics and Technology); EUR 0.5 million BMAS/ESF)
  • 43. Microfinance Fund Germany Cash deposit (100%) Recommendation on cooperation with micro-finance provider DMI Microfinance Fund Germany Loan agreement
    • Qualification
    • Accreditation
    • Monitoring
    Microfinance provider assumes 20% of the first loss Loan recommendation Microfinance provider (e.g. start-up centre) Bank Start-up Interest and redemption Advice Loan application