Access to Finance Highlights Report
October 2007
Foreword Table of Contents Foreword .......................................................................................................................................... 1 Overview .......................................................................................................................................... 2 Expanding Access to Finance ....................................................................................................... 2 Building Financial Institutions ....................................................................................................... 2 Financial Infrastructure................................................................................................................. 3 Growth of Access to Finance........................................................................................................... 5 Advisory Services and Investment ................................................................................................. 5 Measuring Results............................................................................................................................ 6 Building Synergies to Improve Results .......................................................................................... 6 Core Indicators, New Evaluation Tools .......................................................................................... 7 Case Studies—Highlights ................................................................................................................ 8 Improving Access to Finance Around the Globe ........................................................................... 8 Providing Access to Finance to Micro Enterprises in Madagascar & Cambodia ............................. 8 Benchmarking SME Banking Practices .......................................................................................... 9 Leasing Reform Takes Off in MENA and Africa ........................................................................... 10 Strengthening Financial Infrastructure in Vietnam, Central America............................................ 10 Improving Access to Housing Finance in the Middle East, Standardizing Russia’s Mortgage Market ................................................................................... 11 Helping Financial Institutions Promote Energy Efficiency in Russia ............................................... 12 Facilitating Emerging Markets Trade ........................................................................................... 12
We are pleased to present this report, which highlights IFC’s progress in access to finance (A2F) advisory services. In the last five years, IFC’s A2F advisory services have grown significantly, from 86 projects and programs worth $27 million in funding commitments in FY03, to 180 projects and programs worth more than $280 million in funding commitments in FY07. More than half of IFC’s A2F advisory services activities are directly linked to investments. During the same period, IFC’s investments through financial institutions that serve micro, small and medium enterprises (MSMEs) also grew dramatically—by 500 percent—committing $1.9 billion alone in FY07. About 56 percent of our investments are with finance institutions that service MSMEs and over 75 percent of our advisory services focus on these clients.
access to finance for an estimated 1.2 million small and medium enterprise (SME) owners. ▪ Our microfinance projects helped our clients to extend over $4.6 billion in financing for about 2.3 million micro enterprises. ▪ Our leasing projects helped our clients to provide leases to about 150,000 MSMEs worth a total of $3.5 billion. ▪ Our housing finance activities helped our clients finance over 187,000 homes with more than $4.7 billion in mortgage loans disbursed. ▪ Our credit bureau work resulted in 9.3 million credit bureau inquiries and helped generate an estimated $4.7 billion in new investment financing for the seven countries in which IFC previously helped create or improve credit bureaus.
New Initiatives .............................................................................................................................. 13 Pioneering a Microfinance Initiative in Asia ................................................................................ 13 Expanding Regional MSME Banking Programs ........................................................................... 13 Building Africa’s Securities Markets ............................................................................................ 14 Reinsuring Weather & Catastrophic Risks ................................................................................... 15 New Payment and Remittance Systems Services and Products .................................................... 15 Secured Transactions in Vietnam ................................................................................................ 15 Next Generation Access to Finance ............................................................................................ 16
▪ Our banking projects helped our clients to generate $74 billion in financing and helped to improve
IFC’s access to finance work could not be done without the support and partnership of our donor partners. We would like to take this opportunity to thank them, again, for their continued assistance and commitment to our mission to alleviate poverty and improve people’s lives through sustainable private sector development.
Peer Stein
Flavio Guimaraes
Endnotes ......................................................................................................................................... 16
Access to Finance Business Line Leader
Access to Finance Deputy Business Line Leader
Contacts .......................................................................................................................................... 17 Business Line Leaders ................................................................................................................ 17 Secretariat ................................................................................................................................. 17 Donor Relations ......................................................................................................................... 17 Product Specialists ..................................................................................................................... 17 Regional Facilities....................................................................................................................... 17 Global Financial Markets—Field Sector Managers ...................................................................... 17
IFC has learned that a combination of advisory services and investment financing delivers strong financial and development results, recent estimates for calendar year 2006 are as follows1:
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small business, or middle market servicing capacities. Advisory services in this area center on operating efficiency, asset quality and increasing revenues. They cover aspects including governance, strategy, products and services, and risk management.
oday, roughly one-third of people living in developing countries have access to formal financial services, compared to up to 90 percent in developed countries.2 The map opposite illustrates the percent of emerging market households with accounts in financial institutions, such as banks, savings banks, and microfinance institutions. IFC’s advisory services in access to finance help to expand the availability of financial services to micro, small and medium enterprises and to low-income households.
Microfinance Developing commercially viable microfinance operations is one of the primary ways to support income-generating activities at the bottom of the pyramid. Microfinance advisory services focus on three areas of intervention: institution building for greenfield microfinance operations; bank downscaling; and, more recently, the transformation of NGOs into licensed microfinance institutions.
Expanding Access to Finance Expanding access to finance to under-served segments of the population, including micro and small businesses, can make a world of difference. Access to affordable savings and credit in rural areas allows farmers to cope better with the unpredictable risks of droughts and natural disasters. Being able to get a loan to send children to school helps create better lives and reduces harmful child labor. Having access to long-term finance to build a proper house provides people with both dignity and collateral.3
services in this area cover energy efficiency, renewable energy, cleaner production, sustainable supply chains, and other areas that offer social or environmental benefits. Insurance Insurance advisory services provide support for the development of new and existing insurance
Access to Finance
HOUSEHOLDS WITH AN ACCOUNT
< 20%
2
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Overview
20 - 40% 40 - 60% 60 - 80% > 80% Note: The map shows percent of households with a deposit or loan account in an institution (banks, savings banks, microfinance institutions.) Where available, the data comes form household surveys, otherwise, they are predicted values from a regression using aggregate deposit figures. Source: Demirguc-Kunt, Beck and Honohan, 2007. Policy Research Report on Access to Finance, World Bank.
Housing & Property Finance Housing finance is a rapidly developing area for access to finance. Advisory services focus on developing primary and secondary mortgage markets and other mortgage industry building blocks, as well as property finance.
Access to finance is the result of a complex interplay of different financial intermediaries, the right financial infrastructure, and a sound regulatory framework. IFC’s A2F advisory services work to improve the institutions and processes needed to expand the availability of financial services at the bottom of the pyramid and contribute to sustainable economic growth. IFC’s A2F advisory services are provided at two levels, namely, building financial institutions such as banks and non-bank financial institutions, and improving financial infrastructure such as credit bureaus and securities markets.
Building Financial Institutions Fostering financial institutions that deliver financial services to clients at the bottom of the pyramid is at the core of IFC’s mission. IFC’s A2F advisory services for building financial institutions include the following areas: SME Banking Strengthening banks and helping them move from the corporate segment down market has the greatest impact in numbers and volume in providing access to finance to the underserved. Access to finance in SME banking focuses on strengthening banks’
Well-served Large Co’s and “A” clients
Under-served Retail, Micro and Small Business Market
Serving the bottom of the pyramid
Leasing & Non-Bank Finance Leasing finance is a key funding mechanism for small businesses that is complementary to bank finance and is particularly effective in difficult legal environments. IFC has an active leasing development program with advisory services centered around sector development, capacity building for new and existing leasing companies, and assisting banks to develop leasing operations. Sustainability & Energy Efficiency Finance Sustainability and energy efficiency finance is a key differentiator for IFC as well as its clients. Advisory A C C E S S
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companies. Activities include preparing feasibility studies, product development, and risk management.
Financial Infrastructure Building financial infrastructure is often a precondition for opening the financial system to the poor and under-served and is supportive of an expansion of credit, remittances, and economic growth. IFC’s priority areas for building financial infrastructure include the following: Credit Bureaus Without credit bureaus, lending to a significant share of the population and small businesses is virtually impossible. The map in the following page shows countries which have existing, developing or no private consumer credit bureaus serving financial institutions and other lenders. IFC’s advisory services help create credit bureaus and improve existing
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Growth
of Access to Finance
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n the last five years, IFC’s access to finance (A2F) advisory services activities have grown significantly, from 86 projects and programs worth $27 million in funding commitments in FY03, to 180 projects and programs worth more than $280 million in funding commitments in FY07 (left chart). The demand for comprehensive, multi-year programs lasting up to four years, has contributed to the continued growth of IFC’s A2F advisory services. Leading sectors include microfinance, SME banking, leasing and credit bureaus.
Private Credit Reporting
IFC’s access to finance investments through financial institutions that serve micro, small and medium enterprises (MSMEs) also grew dramatically over the last five years—by 500 percent—with commitments of $1.9 billion in FY07 alone.
Advisory Services and Investments
PRIVATE CREDIT REGISTRY EXISTING
IFC’s work in access to finance has been a driving force in establishing local financial institutions through a combination of advisory services and investment. More than half of IFC’s A2F advisory services projects and programs are directly linked to IFC investments—predominantly in SME banking, microfinance, and housing finance.
IN PROCESS OF DEVELOPING DOES NOT EXIST NO INFORMATION
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About 56 percent of our investments through financial institutions are helping to expand access to finance for MSMEs (right chart), and over 75 percent of our advisory services focus on these clients. As of December 2006, IFC’s financial institution clients held about five million MSME loans worth over $57 billion in countries such as Bangladesh, Georgia, Nigeria, Tanzania, Tajikistan, and Vietnam.
Note: The map shows which countries have existing, developing, or no private consumer credit bureaus serving financial institutions and other lenders. The data comes from country assessments and advisory work of IFC’s Global Credit Bureau Program and Doing Business Surveys. Source: Global Credit Bureau Program and Doing Business Report. (www.doingbusiness.org)
ones by providing legal and regulatory support, and assist with the development of products such as small business credit reporting services.4 Securities Markets Properly functioning securities markets are a vital foundation for lending and credit activities to take place in developing countries. IFC provides advisory services to help develop bond markets and securitizations, and securities and equity markets. Developing securities markets as a corollary to housing finance, pension funds and life insurance companies helps create a range of asset classes to invest in. Collateral Registries In developing countries, many companies, especially SMEs, cannot access credit due to inadequate
collateral frameworks. IFC provides advisory services to help improve the legal framework for creating, registering and enforcing collateral, and to build new or improve existing collateral registries.
Advisory Services Commitments (US$m)
Outstanding Portfolio in Financial Institutions (US$m)
$300
$250
Payment & Remittance Systems Efficient, secure and reliable payment and securities settlement systems reduce the cost of exchanging goods and services and enhance the stability of the financial sector. A well-functioning payment system is crucial infrastructure enabling the provision of safe and cost-effective remittance services. The World Bank Group has been active in over 70 countries supporting regional, multi or single country initiatives and providing technical advice on a broad range of topics.
8000
$200 6000 $150 4000 $100
$50
$0
2000
FY03
FY04
FY05
FY06
FY07
Microfinance
SME Banking
Housing & Property Financ
Sustainability & Energy Finance
Leasing & Non-bank Finance
Financial Infrastructure
Trade Finance
Securities Markets
Insurance
0 FY03
Non-SME
Other
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▪ Our credit bureau work resulted in 9.3 million credit bureau inquiries and helped generate an estimated $4.7 billion in new investment financing for the seven countries in which IFC previously helped create or improve credit bureaus.
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A key objective of access to finance advisory services indicators is to provide feedback to improve the design and hence the development impact of access to finance advisory services programs. New evaluation tools are being introduced, such as cost-benefit
Measuring Results
Building Synergies to Improve Results
Core Indicators, New Evaluation Tools
IFC has learned that a combination of advisory services and investment financing delivers strong financial and development results, recent estimates for calendar year 2006 are as follows5:
In FY07, IFC’s access to finance business identified core indicators to measure: (1) immediate deliverables, or outputs; (2) medium-term outcomes, namely, amount and number of loans disbursed/ outstanding, number of clients, number of women borrowers, amount and number of new depositors, and amount of NPLs; and (3) longer-term impacts such as the number of people positively affected and the amount of investment financing enabled. All access to finance advisory services projects and programs are required to specify baseline data and targets at the outset, the actual results of which are monitored throughout implementation, and once the project/program has been completed.
▪ Our banking projects helped our clients to generate $74 billion in financing and to improve access to finance for an estimated 1.2 million small and medium enterprise (SME) owners. ▪ Our microfinance projects helped our clients to extend over $4.6 billion in financing for about 2.3 million micro enterprises. ▪ Our leasing projects helped our clients to provide leases to about 150,000 micro, small and medium enterprises worth a total of $3.5 billion. ▪ Our housing finance activities helped our clients finance over 187,000 homes with more than $4.7 billion in mortgage loans disbursed.
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analyses, before-and-after analyses, and randomized experiments. Access to finance programs in micro, small and medium enterprise (MSME) banking in Africa, housing finance in Albania, sustainable energy efficiency finance in Russia, credit bureau programs, among others, were piloted in FY07 for external evaluations and randomized experiments, in coordination with IFC’s Results Measurement Unit.
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Improving Access to Finance Around the Globe
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FC’s A2F advisory services work is jointly implemented with the regional facilities—project development facilities (PDFs) or private enterprise partnership programs (PEPs)—as well as with the World Bank, to coordinate policy advice and joint interventions. This section highlights just a few of the ways in which IFC, its partners, and clients are working together to improve access to finance for the under-served in developing countries, and looks at some results achieved so far.
Providing Access to Finance to Micro Enterprises in Madagascar & Cambodia Anyone setting foot in the markets of Antananarivo quickly realizes the potential for microfinance—the number of people that flow through the narrow streets surrounded by countless rows of small stores, workshops and eateries is astonishing. But ask the owner of a small fabric store or the manager of a bike repair shop if they have had any access to the financial system and the answer is not encouraging.
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Highlights Deposit accounts are expensive—with high minimum amounts and deposit rates often below inflation—and service is poor. Seeking credit is futile. Only 21 percent of Madagascar’s households have access to finance. With a population of 19 million and at least 800,000 to one million micro enterprises, Madagascar should be fertile ground for commercially-oriented microfinance institutions. So far, however, no such entities have emerged. The microfinance segment is dominated by the Mutuelles—or credit unions—which are nonprofit entities based on principles of cooperation and mutual assistance, but their lending activities reach just three to five percent of potential clients. IFC has helped establish two greenfield microfinance institutions in Madagascar: AccèsBanque Madagascar and MicroCred Madagascar. With support from IFC in the form of equity investment, loan financing and advisory services funding, both entities obtained their operating licenses in January of 2007. Results as shown in the table opposite, so far are encouraging with over 3,000 loans provided to micro enterprises. Over time, these two institutions aim to become the country’s major providers of financial services to the poor. In Cambodia, where 20 percent of the household population have access to finance, IFC’s Mekong Project Development Facility (MPDF) has helped one
institution, ACLEDA Bank, transition from a microfinance institution to the country’s second largest full service bank and to meet very high standards in all its operation. The bank, which lends largely to microentrepreneurs, covers all 24 provinces giving it the widest coverage of any bank in Cambodia. With 176 branches and offices, the bank has nearly 175,000 borrowers, over 200,000 depositors and about 60 percent are women entrepreneurs. The bulk of ACLEDA’s loans go to micro entrepreneurs selling basic commodities such as rice, fish, produce and handicrafts. ACLEDA’s SME lending and services are also growing. The bank offers payroll accounts to factories and businesses as financing for small electricity producers. ACLEDA has also invested in communications infrastructure to support money transfers between rural branches, as well as in electronic banking services.
Benchmarking SME Banking Practices Small and medium enterprises (SMEs) are major contributors to GDP and employment in many parts of the world. However, their financial needs are often underserved and this continues to constrain their growth. Banks, which have traditionally served the corporate and large business segments of the market, view SMEs as a challenge because of information asymmetry, lack of collateral and the higher cost of serving smaller transactions. However, banks have begun to assess and take advantage of opportunities that SMEs offer in terms of growth and portfolio diversification.
Profitability of SME Versus Total Bank ROA- Bank
ROA-SME 5.9%
6% 4.7%
5.0% 3.9%
4%
3.5% 2.3%
2%
0
Panel Banks Small Business
Middle Market
IFC has undertaken an initiative to benchmark SME banking practices. The initiative—Benchmarking SME Banking Practices6—identifies key success factors for banks offering SME banking services and highlights links between performance and business models, processes and tools. In the first phase, the project has focused on qualitative and quantitative benchmarking studies in five banks in OECD countries and six emerging market banks (banks located in the US, EU, Latin America, Asia, and Australia). The chart above shows that survey results highlight fierce competition and shrinking margins in corporate and retail banking as a key factor for banks entering the SME market. Banks view the SME
AccèsBanque and MicroCred: Operational Results as of June 30, 2007 AccesBanque
MicroCred
972
2,286
971,653
2,305,690
Average Loan Balance (US$)
999
1,009
Deposit Accounts #
2512
n/a
475,300
n/a
189
n/a
Loans Outstanding # Loans Outstanding (US$)
Deposits (US$) Average Deposit Balance (US$)
Note: MicroCred is constituted as a microfinance company and is seeking authorization to provide deposit services. AccèsBanque is constituted as a commercial bank and is thus permitted to mobilize deposits.
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segment as an untapped, strategic opportunity that offers high margins, a strong potential for profitability and important cross-selling and portfolio diversification opportunities. SME banking is seen as a profitable business despite challenges such as the need for buy-in at both management and operational staff level and the need to adapt products and develop IT tools. Survey results also reveal that the participating banks have recently redesigned their organizational structure to support a strategy that focuses on the SME segment and that they have shifted their focus from SME lending to broader SME banking. Results show a strong emphasis on specialization with all banks employing dedicated mid-market staff and 90 percent having dedicated small business staff and proactive but costefficient sales and customer services strategy.
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This benchmarking exercise of SME banking practices is the first step towards the roll out of a more comprehensive exercise aiming at benchmarking emerging market banks’ practices in SME banking.
Leasing Reform Takes Off in MENA & Africa The overwhelming success of IFC’s Private Enterprise Partnership (PEP) in Eastern Europe and Central Asia since its launch in 1998 has led to similar initiatives being launched to develop the use of leasing in the Middle East and North Africa (MENA) and Africa regions. In Yemen, where only 14 percent of the population has access to finance, IFC’s PEP-MENA launched a leasing project in late 2005. A newly-adopted leasing law, signed by President Ali Abdullah Saleh, marks the government of Yemen’s commitment to creating a favorable environment for the development of financial leasing. The law established the legal framework for leasing, a financial instrument proven to increase access to finance for micro, small, and medium enterprises seeking to acquire capital assets. IFC’s PEP for Africa has also launched leasing programs in Ghana, Tanzania, Madagascar, and most recently Rwanda. Major activities include strengthening the regulatory, legal and fiscal framework for leasing, providing capacity building for existing and
potential lessors, building public awareness through seminars and workshops, and helping to attract new investment into leasing. Since the inception of the programs in Ghana and Tanzania, where access to finance is available only to 16 percent and 5 percent of the respective population, significant growth in the leasing industry was observed. In Ghana the number of new leases increased by over 70 percent while the total lease portfolio increased by over 73 percent from $29.8 million in 2005 to $51.3 million 2006. In Tanzania, the leasing portfolio increased by almost $10 million between 2005 and 2006. The Rwanda Leasing Program has recorded some significant early milestones notably sourcing an inhouse leasing expert to work for two years with the Development Bank of Rwanda (BRD) to launch its leasing product and working with leasing industry players to bring the 2008 African Leasing Association annual conference to Rwanda.
Strengthening Financial Infrastructure in Vietnam, Central America In Vietnam, where only 29 percent of households and private enterprises have access to finance, lack of an effective private credit bureau has led to barriers to finance being imposed by lenders. A diagnostic study by IFC’s Mekong Private Development Facility (MPDF) found that lending is based almost entirely on collateral and that banks generally do not accept motor vehicles, machinery and equipment as collateral. Such conditions mean that micro, small and medium enterprises (MSMEs), which often lack collateral of any kind, find it particularly difficult to access the financing they need to realize their potential. IFC-MPDF is advising the State Bank of Vietnam and the banking industry on the development of the legal framework needed to establish credit bureaus. The drafting of the decree is almost completed and will be presented to the government at the end of 2007 with the country’s first private credit bureau expected to launch in 2008. IFC-MPDF is also working with the Ministry of Justice to create a legal and institutional framework and a registry
that will allow lenders to register their interest in a moveable asset when it is accepted as collateral. In Central America, smaller nations found it difficult to attract state-of-the-art credit information providers due to economies of scale in the industry. In this case, a regional private credit bureau has proved a viable alternative to national bureaus in small markets, where access to finance ranged from as little as 5 percent of Nicaragua’s population, and up to 30 percent of the Guatemalan population. TransUnion Central America (TUCA), was established in 1999 as a private credit bureau providing services to Guatemala, Honduras, El Salvador, Costa Rica, and Nicaragua. TUCA’s business model is based on a hub-and-spokes system—with Guatemala as the hub and the other four Central American countries as the spokes. The spokes leverage the more advanced technological system present in the hub, thus enabling economies of scale, improved efficiency, and higher profitability. The creation of a single cross-border private credit bureau enables the delivery of standardized products and services that have superior information quality. In 2006, Guatemala, Costa Rica, Honduras and Nicaragua accounted for a total of 6.7 million credit bureau inquiries. In the first seven months of 2007, up to the end of July, TUCA’s four bureaus received 5.3 million inquiries, and estimates that it will close the year with over nine million inquiries, or a 35 percent increase over the number of inquiries in 2006. TUCA currently has 460 clients across all four bureaus. Trade lines in its database grew 55 percent in 2006 over 2005, indicating TUCA’s strong focus on strengthening its database. Going forward, TUCA intends to provide valueadded services, such as credit scores and fraud alert systems, all of which will enhance the capacity of financial institutions to manage risk.
Improving Access to Housing Finance in the Middle East, Standardizing Russia’s Mortgage Market When Javaid Ali, a middle-income textile designer in Karachi, got married, his apartment could no
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longer accommodate his parents as well as his new family. Javaid, who had just opened his own business, did not have the money to buy a new apartment for his parents to move to and turned to the Housing Building Finance Corporation (HBFC), a state-owned housing finance entity in Pakistan, for financial assistance. Thanks to HBFC’s services, he was able to access, within a month’s time, a mortgage to pay for his parents’ new accommodation. IFC has helped HBFC become more efficient and improve its response to the housing needs of the low to middle income market segments in Pakistan, where 12 percent of the people are served by commercial banks and other formal financial institutions. In Oman, roughly one-third of the population has access to finance. IFC has worked with Alliance Housing Bank (AHB), the first private sector housing finance bank in the country and in the Gulf Cooperation Countries. A $45 million loan helped AHB scale up its lending to middle and low income homeowners while advisory services helped the bank strengthen its underwriting systems and move away from inefficient, costly and error-prone paper-based loan origination, processing and servicing systems. IFC has helped AHB improve its efficiency, increase the number of borrowers it deals with, and seek regional opportunities. In the last two years ended June 30, 2007, AHB provided new loans to 1,847 borrowers and its total portfolio grew by nearly 43 percent from $307 million to $438 million. In Russia, where 69 percent of the people have access to financial services—but not necessarily access to credit—the financial sector faces a different challenge, with mortgage lending increasing from $400 million in 2004 to $6.2 billion in October 2006, and an anticipated $11 billion in 2007. A diverse array of players is involved in this growth, from mortgage brokers and banks to insurers and tax and accounting firms, but without proper regulation and guidance, the industry could develop with just as diverse a range of standards, documentation and processes. In 2005, IFC launched the Russia Primary Mortgage Market Development Project to take a lead in
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standardizing the mortgage market and facilitating its growth. The project brings together a working group of nearly 80 organizations representing the major banks, insurers, and ratings agencies, among others, through which IFC has helped developed a suite of standard loan products for the industry and helped amend Russia’s tax code.
Helping Financial Institutions Promote Energy Efficiency in Russia Russia’s overall energy use is more than six times that of Canada and 12 times that of the UK according to the International Energy Agency. As energy costs in Russia begin to approach those of Western Europe, small and medium enterprises (SMEs) in Russia face rising production costs and decreasing competitiveness.
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In 2005, IFC launched its Russia Sustainable Energy Finance Program to address these issues. Leveraging investment and advisory services, the program is working with Russian banks to provide dedicated loans and assistance for energy efficiency projects. Four banks currently make use of IFC’s advisory services and act as catalysts in the market to promote long-term environmental sustainability. Financial institutions have realized the market potential of these projects, thanks in part to the first ever survey of energy efficiency in Russia conducted by IFC. The results have been eye-opening for banks revealing that nearly two-thirds of companies say that lack of funds stops them implementing energy efficiency projects, but only a quarter say they seek external financing. Center-Invest Bank in southern Russia received a $4 million credit line for energy efficiency loans and, with IFC’s assistance, has developed energy efficiency lending programs for projects ranging from modernization at a jeans manufacturer to expansion at an industrial heating company. The projects have helped these companies cut energy costs by 40–70 percent, with payback rates averaging less than one year. In total, the Russia Sustainable Energy Finance Program, which ends in 2010, has helped finance 16 energy efficiency projects worth more than $14 million, with related CO2 output reduction of 36,000 tons per year. These numbers are expected to grow
rapidly given that IFC has recently extended a $20 million credit line to MDM Bank and is preparing to partner with two more banks with a view to lending at least $60 million to the four institutions for energy efficiency lending by 2008.
Pioneering a Microfinance Initiative in Asia (MIFA)
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FC in collaboration with KfW, the development bank of the Federal Republic of Germany, aims to develop numerous best practice microfinance projects over the next three years (2008-2010) through their strategic partnership, Microfinance Initiative for Asia (MIFA). MIFA is the first microfinance initiative of its size to exclusively target the poor in Asia. The region contains more than half of the world’s population but accounts for less than one-tenth of global GDP. There is clear demand for microfinance services, but the financing needs of poor and low income households and micro-entrepreneurs remain largely unmet.
Facilitating Emerging Markets Trade IFC’s Global Trade Finance Program has been a key facilitator of emerging market trade flows since its launch in 2005. IFC’s A2F advisory services component of the program involves training for private sector banks to upscale their ability to deliver trade finance services to SMEs and new exporters. Training under the advisory services program includes documentary credit operations to selected banks, as well as assisting locally-owned institutions to:
IFC, KfW and other partner institutions will support microfinance institutions (MFIs) in Asia by committing up to $1 billion for debt and equity investments, structured finance, and advisory services, targeting micro-enterprises and lowerincome households. MIFA is expected to have a catalytic impact on mobilizing private sector resources for Asian microfinance. MIFA further hopes to increase microfinance outreach by over five million new microfinance clients by 2009.
▪ Upgrade skills in structuring both basic and complex trade finance transactions; ▪ Improve trade finance risk mitigation techniques;
New Initiatives
▪ Upgrade operational and technical skills of trade finance back offices; and ▪ Transfer current international best practices in trade finance to local markets. About 400 professionals from 200 banks in over 80 countries are expected to participate over threee years. Banks which successfully complete training will be supported with IFC financing, which includes guarantee coverage of bank risk in emerging markets, allowing recipients to improve their trade finance coverage and to expand their trade finance transactions within an extensive network of countries and banks. This improved access to trade finance makes it easier for entrepreneurs and businesses to secure financing for their trade transactions.
The initiative will work to upgrade microfinance operations into sustainable MFIs and to downscale private commercial bank operations into microfinance. It will create new regional network partners or link MFIs with existing network partners and will foster consolidation of unsustainable MFIs with stronger entities. The initiative will support pilot programs to expand delivery through newer channels such as mobile phone providers, wholesalers, agri-processors or to expand products such as micro-insurance and remittances, through partners with domain expertise.
Expanding Regional MSME Banking Programs As part of a global strategy within IFC to mobilize the formal financial sector to expand access to underserved groups across the world, IFC launched the Africa Micro, Small and Medium Enterprise (MSME) Finance Program in FY07, a $200 million facility that aims to achieve high development impact within five years through an advisory services and investment financing package.
In June 2007, the program reached a milestone of $1 billion in guarantees issued in support of over $1.5 billion worth of trade transactions. About 70 percent of the program’s 900 transactions have been in frontier markets including Bangladesh, Haiti, Mozambique, and Yemen. Over one-third of the transactions have supported trade between emerging markets (“south-south”). Trade with Sub-Saharan Africa has benefited from over 50 percent of the guarantees issued.
The MSME program in Africa was expanded in Latin America and Caribbean (LAC), the Middle East and North Africa (MENA), and East Asia and
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the Pacific (EAP) regions. In LAC, the five-year program covers over 50 financial institutions, and through these institutions, aims to reach over one million MSME clients. In EAP, the three-year program covers Indonesia, Philippines, Vietnam and Cambodia. The program is expected to provide an estimated $225 million in new financing for small and medium enterprises (SMEs) and benefit about 100,000 SMEs through 15 partner banks that will share at least half of the total cost of advisory services. Regional MSME banking programs typically entail long-term capacity building efforts that are tailored to individual institutions’ needs within the country and region. Advisory services may include
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Swedish development agency (SIDA) to help build securities markets in Africa to help finance housing and infrastructure development. ESMID will provide advisory services to create enabling legal and regulatory environments, build market infrastructure such as rating agencies, and strengthen capacity of market participants such as securities firms. It will also support new, replicable transactions, finance legal fees and create model documentation to help pave the way for on-going issuance of similar securities. Given that many countries and markets in Africa are still small, ESMID aims to work in sub-regions of Africa and will support regionalization of local
placed in bank accounts with short maturities and at low interest rates. An efficient securities market will help bridge the gap between the need for long term local currency financing and more attractive investment products.
Reinsuring Weather & Catastrophic Risks Risks associated with weather and catastrophic events adversely impact the development process in emerging markets’countries, particularly for those in low-income and rural households. In collaboration with the World Bank, IFC is creating a Global Index Reinsurance Facility (GIRIF) to establish technical and intermediation capacity to reinsure such weather and catastrophic event (CAT) risks as well as prepare the regulatory policy background. IFC will support the facility through an investment transaction as well as through advisory services that will enable local capacity building, provide financial assistance to insurance and reinsurance companies, and introduce market solutions for CAT-risk products. Through it’s advisory services and investment, IFC is sending a signal to the global insurance markets that weather and CAT risks can be successfully covered and is encouraging other financial institutions to share such risks globally.
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a combination of credit policies and procedures, credit risk management, training, new product development, customer segmentation analysis, marketing, and IT system development. Partner banks and financial institutions work with IFC to develop a results framework that outlines an agreed outreach strategy and quantifies targets to be achieved under the program. Results are measured and benchmarked against MSME lending worldwide, assisting partner financial institutions to measure their approach against global best practice. The regional MSME banking programs ultimately involve know-how transfer and dissemination efforts to share lessons of experience.
Building Africa’s Securities Markets IFC has launched the Efficient Securities Market Institution Development (ESMID) initiative, a three year, $5 million program funded by the
marketplaces to help achieve a critical mass of operations. ESMID’s impact will be bolstered by having multi-year programs, with reinforcing advisory services and investment activities, anchored by strong local partnerships. ESMID is starting its activities in East Africa, in Kenya, Uganda, Tanzania and Rwanda and is expected to work on similar activities in Nigeria. The true test of ESMID’s success will be the ability to raise long term, local currency funds to finance housing and infrastructure development in Africa. In industrialized countries, such financing is mobilized mainly via securities markets but in most developing countries, infrastructure investments are mainly financed with loans, often in foreign currency due to undeveloped securities market. At the same time, increasing amounts of public savings in these countries or abroad are
Expected results will include an improved legal framework, strengthened regulatory capacity and higher awareness, leading to a more widespread use of index insurance, based on improved technical and commercial market capacity.
New Payment and Remittance Systems Services and Products The World Bank Group will upscale its capacity to provide advisory services to countries looking to reduce the cost of remittances and other retail payment services and instruments. As its main delivery mechanism, the World Bank Group will leverage its regional payments initiatives to deliver direct and sustainable advice. These payments initiatives give direct access to the appropriate authorities in over 60 countries and are a solid and tested delivery channel for effective advisory services. Existing regional initiatives coverage will be A C C E S S
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expanded to cover additional sub-regions in Africa (e.g. Central and Eastern Africa) and Asia (e.g. sub-Indian continent). The World Bank Group will work to promote international transparency by developing a methodology to track the evolution of the business environment for remittances worldwide, in particular in the area of remittance transaction costs. It will leverage its unique position to coordinate donors, foster international policy dialogue (along corridors and in regions), and gather global best practices, both for authorities and for the private sector through the General Principles for International Remittance Services.7
Secured Transactions in Vietnam To enable greater borrowing against moveable assets such as equipment, inventories etc., IFC-MPDF is working with the Ministry of Justice to create a legal and institutional framework and a registry that will allow lenders to register their interest in a moveable asset when its accepted as collateral. The major components of this include: ▪ Identifying and addressing shortcomings in the current legal framework and undertaking advocacy to ensure adoption of best international practice. ▪ Helping the Ministry of Justice to upgrade the registry. ▪ Raising awareness with end-users of the registry (banks and other lenders such as insurance and leasing companies) so they understand the new reforms, how the registry will work and what new financing products they could introduce once borrowing against moveable assets is possible. The on-line registry is expected to be a significant improvement over the current system. Lenders will be able to quickly secure (record) their financial interest in an asset and search for existing claims in a database that is readily accessible to all financial institutions through the Internet. In collaboration with the Vietnam Bankers’ Association, IFC-MPDF is now raising awareness about the new registry and it will use the results of its survey of existing lending techniques to assess future impact of the registry.
H I G H L I G H T S
R E P O R T
Next Generation Access to Finance Across the globe, pioneering financial institutions including microfinance institutions (MFIs) and banks are using a range of technologies, including credit scoring and mobile banking, to reduce costs and reach new customers. Adoption of appropriate technology, when combined with quality credit information, can allow lenders to manage risk, increase lending volume, and improve operating efficiency—key to the continued growth of access to finance.
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For instance, credit reporting among microfinance institutions remains very limited. A recent survey shows that just one in twelve private credit bureaus contains data contributed by MFIs. Evidence also shows that small firms with access to a credit bureau have a 40 percent chance of obtaining a loan, whereas firms without access to a credit bureau have only a 28 percent chance to receive a loan. Huge untapped opportunities exist therefore, for microfinance institutions as well as other financial institutions in emerging markets.
countries than developed ones, and they have the potential to make basic financial transactions possible anytime and anywhere for the underserved. In addition, the percentage of mobile phone users, in a majority of developing countries, is also higher than the percentage of bank account holders—for instance in Kenya 20 percent of the population have mobile phones versus 10 percent who have bank accounts. This highlights the significant potential that mobile phones have as an instrument to reach the unbanked. IFC supports the use of new financial technologies, both through individual financial services projects using alternative technologies as well as through the extension of its credit bureau program worldwide. Mobile banking, for instance, is an area in which IFC is becoming actively involved in, both through investments and advisory services. IFC’s activities in new financial technologies, and in mobile banking specifically, are undertaken in close collaboration with the World Bank Group as well as with Consultative Group to Assist the Poor to ensure efficient knowledge management.
Further, mobile phones are the first communications technology with more users in developing
Financing Micro, Small, and Medium Enterprises in Frontier Countries through Financial Intermediaries: An Independent Evaluation of IFC’s Experience, May 22, 2007, IFC Independent Evaluation Group (IEG). Estimated data results based on survey data collected and analyzed from IFC’s micro, small, and medium enterprise (MSME) financial institution clients at end—December 2006. 2
Demirguc-Kunt, Beck and Honohan, 2007, Policy Research on Access to Finance, World Bank. 3
Research demonstrating the link between financial development and economic growth includes Rajan and Zingales, 1998; Demirguc-Kunt and Maksimovic, 1998; and Beck, Levine and Loayza, 2000. Evidence that the poor benefit disproportionately from financial intermediary development has been provided by Beck, DemirgucKunt, and Levine, 2004; and Honohan, 2004. Research that alleviating credit constraints reduces child labor and increases education has been provided by Jacoby, 1994;
Business Line Leaders Peer Stein ▪ pstein@ifc.org Flavio Guimaraes ▪ fguimaraes@ifc.org
Secretariat Lory Camba Opem ▪ mcamba@ifc.org Anushe Khan ▪ akhan7@ifc.org Consuelo Tan ▪ ctan@ifc.org
Donor Relations Max Aitken ▪ maitken@ifc.org Urkaly Isaaev ▪ uisaaev@ifc.org Wei-Jen Leow ▪ wleow@ifc.org
Product Specialists
Jacoby and Skoufias, 1997; and Dehejia and Gatti, 2003. 4
IFC Global Credit Bureau Program and Doing Business Report. (www.doingbusiness.org) 5
Financing Micro, Small, and Medium Enterprises in Frontier Countries through Financial Intermediaries: An Independent Evaluation of IFC’s Experience, May 22, 2007, IFC Independent Evaluation Group (IEG). Estimated data results based on survey data collected and analyzed from IFC’s micro, small, and medium enterprise (MSME) financial institution clients at end-December 2006.
Africa IFC Private Enterprise Partnerships for Africa (IFC PEP-Africa) Bernard Chidzero—General Manager Rachel Freeman—Deputy General Manager and A2F AS Head rfreeman@ifc.org www.ifc.org/africa
Micro Finance Andre Laude ▪ alaude@ifc.org Martin Holtmann ▪ mholtmann@worldbank.org Makanda Kioko ▪ mkioko@ifc.org
East Asia and the Pacific Warrick Smith, Senior Regional Manager, Advisory Services Brigit Helms, A2F AS Head, CEA bhelms@ifc.org
Leasing & Non-Bank Finance Ary Naim ▪ anaim@ifc.org Minerva Kotei ▪ mkotei@ifc.org
Housing Finance Kenroy Dowers ▪ kdowers@ifc.org Loic Chiquier ▪ lchiquier@worldbank.org Sustainability Finance Ajay Narayanan ▪ najay@ifc.org Anne Lagomarcino ▪ alagomarcino@ifc.org Energy Efficiency Finance Marge Karner ▪ mkarner@ifc.org Anne Lagomarcino ▪ alagomarcino@ifc.org Insurance Heinrich de Kock ▪ hdekock@ifc.org Rodney Lester ▪ rlester@worldbank.org Securities Markets Alison Harwood ▪ aharwood@ifc.org Ketut Kusuma ▪ kkusuma@ifc.org
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Collateral Registries Sevi Simavi ▪ ssimavi@ifc.org
General Principles for International Remittance Services, January 2007, Bank for International Settlements and World Bank.
Regional Facilities
SME Banking Tony Lythgoe ▪ tlythgoe@ifc.org Ary Naim ▪ anaim@ifc.org Ghada Teima ▪ gteima@ifc.org Jessica Schnabel ▪ jschnabel@ifc.org
Trade Finance Georgina Baker ▪ gbaker@ifc.org Junia Ngondo ▪ jngondo@ifc.org Makiko Toyoda ▪ mtoyoda@ifc.org
Benchmarking SME Banking Practices: Emerging Lessons and Best Practice, September 2007, IFC.
Payment Systems Massimo Cirasino ▪ mcirasino@worldbank.org Greg Watson ▪ gwatson@worldbank.org Jose Antonio Garcia Garcia Luna ▪ jgarciagarcialun@worldbank.org
Central and Eastern Europe IFC Private Enterprise Partnership (IFC PEP) Tania Lozansky—General Manager Patrick Luternauer—A2F AS Head pluternauer@ifc.org www.ifc.org/pep
Credit Bureaus Tony Lythgoe ▪ tlythgoe@ifc.org Ghada Teima ▪ gteima@ifc.org Nataliya Mylenko ▪ nmylenko@ifc.org
Endnotes 1
Access to Finance Advisory Services Contacts
Gender A2F Zouera Youssoufou ▪ zyoussoufou@ifc.org
IFC Private Enterprise Partnerships for China (IFC PEP-China) Mario Fischel—Head of Advisory Services Jinchang Lai—A2F AS Program Manager jlai1@ifc.org www.ifc.org/cpdf or www.ifc.org/pepchina IFC Indonesia Hans Shrader—Acting Head of Advisory Services Phil Beavers / Rudy Prasetya— A2F AS Program Managers PBeavers@ifc.org // RPrasetya@ifc.org www.ifc.org/pensa IFC Mekong Private Sector Development Facility (IFC MPDF) Trang Nguyen—Acting Head of Advisory Services Margarete Biallas—A2F AS Program Manager mbiallas@ifc.org www.mdpf.org
Latin America and the Caribbean IFC Office for Advisory Services in Latin America and the Caribbean (IFC LAC) Luke Haggarty—General Manager Greta Bull—A2F AS Program Manager gbull@ifc.org www.ifc.org/lac/ta Middle East and North Africa IFC Private Enterprise Partnership for the Middle East and North Africa (IFC PEP-MENA) Jesper Kjaer—General Manager Michael Higgins—A2F AS Manager mhiggins@ifc.org www.ifc.or/mena South Asia Anil Sinha—Senior Regional Manager, Advisory Services Gilles Galludec—A2F AS Program Manager (IFC—SEDF Sri Lanka / Maldives) ggalludec@ifc.org www.sedf.org IFC South Asia Enterprise Development Facility (IFC-SEDF) Deepak Adhikary—Deputy General Manager Roger Handberg—A2F AS Program Manager rhandberg@ifc.org www.sedf.org Southern Europe Antoine Courcelle-Labrousse—Senior Regional Manager, Advisory Services IFC Private Enterprise Partnership-— Southern Europe (IFC PEP-SE) Philip Condon—General Manager (IFC PEP-SE-PSD) Rolf Behrndt—A2F AS Program Manager rbehrdndt@ifc.org www.ifc.org/pepse
Global Financial Markets— Field Sector Managers Africa Mohamed Gouled ▪ mgouled@ifc.org Central and Eastern Europe Timothy Krause ▪ tkrause@ifc.org
IFC Private Enterprise for the Pacific (IFC PEP-Pacific) Rob Simms—Acting Head of Advisory Services Rob Simms—A2F AS Program Manager Rsimms1@ifc.org www.ifc.org/peppacific
East Asia and the Pacific Giriraj Jadeja ▪ gjadeja@ifc.org
IFC Private Enterprise Partnership for the Philippines (IFC PEP-Philippines) Euan Marshall—Head of Advisory Services Luc Vaillancourt—A2F AS Program Manager lvaillancourt@ifc.org www.ifc.org/eastasia
South Asia Jun Zhang ▪ jzhang@ifc.org
Latin America and the Caribbean Serge Devieux ▪ sdevieux@ifc.org Middle East and North Africa Jan Van Bilsen ▪ jvanbilsen@ifc.org
Southern Europe and Central Asia Edward Strawderman ▪ estrawderman@ifc.org
2121 Pennsylvania Avenue, NW Washington, DC 20433 USA (202) 473-1000 www.ifc.org
