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Chicago Microfinance Conference 2010 Bga Presentation

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  • 1. Microfinance in Eastern Europe and Central Asia (ECA) Analysis and Opportunities 7 May 2010 Chicago Microfinance Conference Burcu Guvenek Arasli MSc. International Development and Microfinance Expert
  • 2. Presentation Outline  Microfinance in The ECA Region General Overview  Current State of Microfinance in ECA  Microfinance Providers in The ECA  General Trends in Micro Credit and Deposit Services 2006-2008  Consumer Lending ; A Microfinance Dilemma  Policy Environment in ECA: Key Issues and Trends  Funding for ECA MFI’s  Financial Performance of ECA MFIs  Effects of the Crisis on Microfinance in the ECA Region  An Untapped Market in the Region; Turkey2
  • 3. Microfinance in The ECA Region General Overview  ECA is a latecomer to Microfinance/Early 1990s.  Differences from other regions  Triggered by unemployment need for self employment  Credit unions and microfinance bank domination  Loan sizes are higher/target client is relatively better off  Self-sustainability achieved by higher portion of MFIs  Highest level of per capita private sector investment accounting for 46 percent of total private investment in globally3  Problems; enabling environment for MFIs, inclusive
  • 4. Current State of Microfinance in ECA  Despite proliferation in the number of microfinance providers in ECA in 2008 growth in both microcredit and deposit services slowed down in 2008.  Credit unions remain the most numerous players in the market, and together with banks provide all the deposit services in ECA.  Microfinance banks in the Balkans and CEE were some of the first to rein in growth as credit and liquidity risks increased in 2008.  Specific Market risks:  Market Structure  Credit Risk  Currency Risk4  Funding Risk
  • 5. Microfinance Providers in The ECA5
  • 6. General Trends in Micro Credit and Deposit Services 2006-20086
  • 7. Consumer Lending in Eastern Europe and Central Asia A Microfinance Dilemma7
  • 8. Policy Environment in ECA: Key Issues and Trends  Development of branchless banking solutions for the provision of financial services requires new regulatory approaches.  Consumer protection issues are considered increasingly important by policy makers and industry stakeholders.  There is insufficient scale of deposit mobilization by non-bank MFIs, despite creation of a specific regulatory “window” in some countries.8  Issues have arisen related to transformation and commercialization of MFIs, specifically
  • 9. Funding for ECA MFI’s  CEE received the highest portion of donor and investor funding.  Debt instruments were mostly used in ECA, where the microfinance sectors are some of the most commercially oriented globally.  Smaller MFIs from Caucasus and Central Asia have tapped into the international commercial debt market in recent years, which has also exposed them to higher funding risks.  Most loans to MFIs were extended in hard9 currency. Consequently, MFIs slowed down demand for borrowings from international
  • 10. ECA MFI Funding 22 percent of total funding committed to microfinance in the ECA globally 90 percent of funding committed by donors and investors i.e. KfW, EBRD, IFC, WB, and EIB ECA receives 34 percent of all equity investments globally10
  • 11. ECA MFI’s Borrowing Maturity Breakdown11
  • 12. Financial Performance of ECA MFIs  Higher financial costs and deteriorating portfolio quality squeezed profit margins in 2008.  Despite a rise in loan balances, little was achieved in efficiency gains in 2008.  Staff and branch growth slowed down in 2008, in line with lower outreach growth.  Credit risk increased in every sub-region and for every charter type in 2008 and was highest in CEE and Russia.12
  • 13. Expense Structure Why is it so important for MFIs?13
  • 14. Portfolio Quality Risk levels were increasing across the board in ECA, but sectors in CEE and Russia were faced with the highest credit risk among peers,14
  • 15. Effects of the Crisis on Microfinance in the ECA Region  In 2009 by shifting their focus from growth to portfolio quality.  The financial crisis underlined the importance of some policy measures such as consumer protection, especially in times when MFIs may be inclined to increase the cost of loans, engage in aggressive collection practices, or disburse indexed loans in order to address their rising costs.  Still, a positive sign is that in many countries MFIs performed better than commercial banks in terms of delinquency levels,  Compared globally, the ECA microfinance sector is relatively young, but in less than two decades of15 operations, it has become integrated with domestic and international financial markets
  • 16. An Untapped Market in the Region; Turkey  Current status of microfinance in Turkey  Reasons of under development  Demand/Supply Status  Recent developments /Increased Awareness and Investments16
  • 17. Thank You For Your Attention Q&A Session Burcu Güvenek Arasli Burcu.arasli@ttmail.com17