ebrd’s support to territorial development francesca pissarides office of the chief economist...
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EBRD’s Support to Territorial
Development
Francesca Pissarides Francesca Pissarides Office of the Chief EconomistOffice of the Chief Economist
Lisbon, 3 December 2007Lisbon, 3 December 2007
What is the EBRD?
AAA-rated international financial institution founded in 1991, owned by 61 national and two inter-governmental institutions
€ 20 billion capital base
The largest lender and private equity investor in Central & Eastern Europe and CIS
What are the EBRD’s objectives?
To promote transition to market economies by investing mainly in the private sector
To mobilise significant foreign direct investment
To support privatisation, restructuring and better municipal services to improve people’s lives
To encourage environmentally sound and sustainable development
Foundations of EBRD operations
Apply sound banking principles to every project
Support but not replace private investors
Advance the transition to a full market economy
How does EBRD support territorial development?
Some examples:
Municipal and environmental infrastructure
Agribusiness sector
Non-financial support to small and medium sized enterprises
Financial support to micro, small and medium sized enterprises
And also large projects → Russia, Kazakhstan
Agribusiness development
Involvement spans all activities throughout the production chain, from processing and trading to food distribution, packaging and retailing
Leveraging on upstream linkages in farming sector
Major role in developing the sector by supporting local and foreign corporate clients as well as micro, small and medium-sized enterprises with both debt and equity financing
Commercial structuring of financing for local authority infrastructure, equipment and services
Promotion of commercialisation and corporatisation of services
Support for improved legal / regulatory structures Facilitation of appropriate private sector involvement Environmental improvement in line with EU directives Financial support from EU, others
EBRD helps local authorities meet their infrastructure needs
Municipal and Environmental Infrastructure
Municipal business: sectoral breakdown (cumulative)
0
400
800
1,200
1,600
2,000
2,400
2,800
Urban transport Water wastewaterSolid waste Other sectors (incl. district heating)
€ m
m
Non-Financial support to SMEs
TurnAround Management (TAM) & Business Advisory Services (BAS) Programmes are non-financial enterprise support programmes assisting private enterprises in the SME Sector
Not-for-profit and 100% donor funded Managed by EBRD London Works directly with enterprises, providing industry
specific advice to individual SMEs with 10-2000 employees
Assists enterprises to operate successfully and develop new business skills
TurnAround Management (TAM) Programme
Started in 1993
Almost 1,300 projects in 27 countries
Private enterprises with 100-1,500 employees
Uses industry specific management expertise
Works at senior management level of enterprises
Maintains a database of over 3,200 advisors
Business Advisory Services (BAS) Programme
Started in 1995
4,245 projects with 3,667 enterprises to date in 17 countries
Currently 23 local offices
Private micro, small and medium enterprises
Utilises local consultancy services
Removes barriers to growth
Develops local consultancy capacity
Over 1,600 accredited consultants
TAM/BAS Programme Team
Based in London/EBRD
BAS4,245 projects to date in 17 countries
(Currently 23 local offices)
TAM
1,282 projects in 27 countries
Engaged 1,600 local consultantsAggregate turnover EUR 10 billionTotal employees 312,000
During evaluation we have found• 92% projects rated satisfactory or better• Productivity increased by 16%• Turnover increased by 28%• Employment increased by 19%
Aggregate turnover USD 18.5 billionTotal employees 860,000
During evaluation we have found• 82% projects rated satisfactory or better• Productivity increased by 26%• Turnover increased by 26%
Financial Support to MSMEs
Objective:
– Provide sustainable access to financial services to micro and small enterprises not catered for by the formal financial sector
Ensure fast and broad outreach, including remote areas, i.e. disbursements of loans under $2,000 within 24 hours and >1,850 outlets
Ensure commercial viability of MSE lending as building block for sustainability
Integration of MSE lending operations into formal financial system as a standard product, including micro loans under $1,000
Efficient use of Technical Assistance funds: with clear and measurable performance benchmarks / CGAP Best Practice Standards
Principles
Results Loan Range
– Micro Loans typically between $50 and $10,000– Small Loans typically between $10,000 and $200,000 – Medium up to $500,000
– Overall average loan size $5,968 Over 4,400 loans per working day disbursed Lending through existing commercial banks
– 55 active partner banks Lending through specialised microfinance institutions
– 13 “Greenfield” MSE Banks, delivering wide range of financial services to MSEs, where EBRD participates
– 22 NGOs
Successes (end September 2007)
2.8 million loans disbursed for US$ 18.4 billion
– 88,000 loans disbursed for $600 million monthly– Arrears over 30 days: 1.6% of portfolio– Strong year on year growth– 10,450 banking staff intensively trained (on the
job, minimum one year)
Total Number of MSE Loans
Disbursed as of September 2007
Caucasus, 382,312
Ukraine, 484,638
South Eastern Europe, 649,164
Central Asia, 835,540
Belarus, 9,625
Mongolia, 19,131
Moldova, 60,391Russia,
413,994
Total Volume of MSE Loans
Caucasus, 1,446Ukraine, 3,493
South Eastern Europe, 4,865
Central Asia, 3,382
Belarus, 107
Mongolia, 49
Moldova, 162
Russia, 4,925
Disbursed as of September 2007 (million US$)
training well qualified lending personnel, putting in place streamlined and well monitored
lending procedures, and replacing collateral-based lending with proper cash-
flow based credit analysis Strict attention to terms & conditions to:
i) lower transactions cost for banks and borrowers, and
ii) increase the boundaries of who’s ‘bankable’ TA covers initial start-up training costs and regional
expansion on a declining scale as local experts start to replace external experts.
Banks always co-finance
Objectives of technical assistance in MSE lending
Subsidy efficiency (Kazakh Small Business Programme)
0
100
200
300
400
500
600
700
800
2000 2001 2002 2003 2004 2005 2006 May-07
US
$
0%
2%
4%
6%
8%
10%
12%
TC Efficiency by number of loans (left axis) TC Efficiency by volume of loans (right axis)
Where there are commercial banks that meet standards, TA and loan funds are provided
Where no suitable commercial banks are available, specialised MFIs are set up
NGOs – ‘best-practice’, track-record, and preferably ‘commercialising’ so that they can attract capital market funds rather than scarce donor resources for lending
Commercial banks, dedicated Microfinance banks and NGOs
Total Assets
(EUR mln)
Total Equity
(EUR mln)
Gross Loan Portfolio
(EUR mln)Number of
Loans RoAEPortfolio-at-
risk
KMB, Russia 710 75 575 58,984 17.5% 1.6%
Microfinance Bank of Azerbaijan 42 5 36 16,675 15.8% 0.1%
ProCredit Albania 221 17 90 29,720 18.1% 2.7%
ProCredit Bosnia 152 13 118 38,656 9.5% 0.8%
ProCredit Bulgaria 346 27 244 49,732 18.4% 1.2%
ProCredit Georgia 191 31 140 58,967 8.4% 1.9%
ProCredit Kosovo 436 25 219 52,015 38.4% 1.2%
ProCredit Macedonia 110 12 73 21,277 13.4% 0.9%
ProCredit Moldova 27 2 19 14,096 40.5% 1.2%
ProCredit Romania 219 20 158 29,621 9.7% 1.1%
ProCredit Serbia 501 44 307 87,554 7.1% 0.7%
ProCredit Ukraine 267 31 227 49,270 15.1% 0.9%
TOTAL (or avg. %) 3,222 302 2,206 506,567 17.7% 1.2%
Greenfield Microfinance Institutions
NBMFIs: IMON, Tajikistan
Started as the National Association of Business Women in Tajikistan
Provides over 2,000 loans monthly
Serves over 18,000 clients with a portfolio of $7.8m
Transforming into a deposit-taking MFI
Exposure Issues: Undercapitalisation of banks limits on-lending capacity (first-loss, risk sharing, and co-financing funds needed to leverage EBRD funding)
Technical Capacity is scarce and far more extensive intervention required:
– Lack of basic skills in all spheres
– Individual problems greater but their sum does not add up to impediments, but rather opportunity to work with management and build-up efficient lending departments thus contributing to well-functioning banks
– Institution building at its best
– Broader intervention, e.g. facilitating equity investment, TFP and other products
Issues in more difficult environments
Increase rural lending and village outreach, e.g. mobile micro-banks at ProCredit Georgia and Procredit Moldova; mobile units and credit unions in Mongolia
Farm Lending – specialised loan officers (crop/climate patterns)/modified group methodologies
Push extremes – particularly, express micro loans (under $1,000, no collateral, 24 hrs.) and longer term fixed asset loans as borrowers grow
Innovation in MSE lending programmes
Looking Forward: New Initiatives
Developing rural finance and agri-lending
Local currency funding
Institutional transformation (Azerbaijan, Bosnia, Kazakhstan)
Commercial syndication
Specialised lending products: energy efficiency, tourism, etc.
Remittances
Legal and regulatory framework support
Innovations to increase efficiency, market outreach and competition
Why not more MSE lending?
The MSE market penetration remains low in most countries
Market opportunities remain unexploited
Banks still have a lot of room to enter the market
Existing loan products might not be complete answer (training, insurance, etc.) to clients