santo domingo, 9th of july, 2009 φ micro social finance to fight poverty microfinance: how to fight...

Santo Domingo,

9th of July, 2009

φ

micro

Social finance to fight poverty

Microfinance: How to fight poverty when you are a commercial bank

The BNP Paribas Model

By Alain Lévy

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29th of July, 2009 micro φ

Introduction

« The poor stay poor not because they are lazy

but because they have no access to capital »

Milton Friedman

Nobel Prize for economics



Brief Presentation of BNP ParibasBrief Presentation of BNP Paribas1

2 How and why BNP Paribas is involved in MicrofinanceA pioneer in microfinance in FranceAn increasing involvement in the world since the years 2000sThe stakes of BNP Paribas to be in microfinance

How and why BNP Paribas is involved in MicrofinanceA pioneer in microfinance in FranceAn increasing involvement in the world since the years 2000sThe stakes of BNP Paribas to be in microfinance

3 A specific model designed for this missionIn an increasing market with different kinds of MFIs,……our business model aims to reach a double bottom lineBNP Paribas is looking for MFIs with criteria meeting our policyIn that purpose, all the departments of the bank are involved.

A specific model designed for this missionIn an increasing market with different kinds of MFIs,……our business model aims to reach a double bottom lineBNP Paribas is looking for MFIs with criteria meeting our policyIn that purpose, all the departments of the bank are involved.

Based on our experience, 6 key success factors are necessary for a commercial bank to be active in MicrofinanceBased on our experience, 6 key success factors are necessary for a commercial bank to be active in Microfinance

4

ConclusionConclusion

Plan of the Presentation

Our resultsOur results5



Presentation of BNP Paribas Group

BNP Paribas is present in 88 countries (coloured), including around twenty where microfinance plays an important role (dark blue)

A global presence

Main Figures

2005 2006 2007 2008 Var 2008/2007

Net banking product 21,2 27,9 31,04 27,38 -11,8%

Total balance sheet 1258 1440 1694 2076 22,6%Part of the group (net result)

5,9 7,3 7,8 3 -61,5%

Staff 109780 141 911 161 000 173 200 7,6%










4





How and why BNP Paribas is involved in Microfinance

1. A pioneer in France… In 2009, Projet Banlieue (project for

underpriviledged areas) coordinated by the BNP Paribas Foundation supports job creation via microcredit, in partnership with Adie:

650 000 euros/year grant over 3 years Support for the creation of 6 new microcredit branches in problem urban areas Coaching of 700 microentrepreneurs

A pioneer in Microfinance in France

Since 1993, partnership between BDDF (FRB – French Retail Banking) and Adie (Association pour le Droit à l’Initiative Economique):

EUR 300 000 a year

In 2006, 1400 projects were financed by BNPP through Adie for a total of EUR 5 million

Obli Etheis: mutual fund part of the Retail Banking range of product for private individuals including a 5-10% microfinance pocket, since 2008

JACADIE Project – Voluntary Work (J’Accompagne les Créateurs de l’Adie)Involvement of active and/or retired Group staff members in France to help Adie microentrepreneurs: 66 persons involved since 2005

Other initiatives in France



Positive experience in refinancing MFI since 2001 through International Retail Banking Network in Africa (Morrco, Guinea, Egypt, Madagascar) in developing countries

Target countries (* already active in microfinance) Africa: Mauritania*, Morocco*, Algeria, Tunisia*, Egypt*,

Senegal*, Guinea*, Mali*, Burkina*, Madagascar* Asia: India*, Vietnam, Philippines*, Indonesia, China Latin America: Mexico*, Argentina*, Brazil, the Caribbean,

Colombia, Perou;

Distribution of Microfinance funds embedding international MFIs ResponsAbility Fund / Planet Finance distributed by BNP Paribas international private banking since 2005 Dexia Blue Orchard Fund distributed by Banque Privée Anjou

Voluntary Work through MFSF Initiative (Microfinance Sans Frontières)Employees and retired staff members bring their skills to MFI: 10 projects supported since 2007.

An increasing involvement in the World since the years 2000s




June 2006 : Agreement in principle of the Group Executive Committee

November 2006 : analysis of the risk model

December 2006: Operational Launch

May 2007 : Allocation of a €100 Millions envelope for risks

Implementation of Microfinance Group

Implementation of Microfinance Group

A social responsibility stake Microfinance is a natural field for bank social

responsibility Poor people inclusion in financial system

An innovation and social entrepreneurship stake

100% business (costs and risks coverage) 100% social in its objectives (maximising

the social impact)

A Human Resources stake According to Global People Survey, social responsibility is

the strongest leverage for collaborators motivation Particular impact on young employees who want to match

professional life with social commitment










4






A specific model designed for this mission

1. The MFIs we target

8%Sustainable and

profitable MFIs

Future banks

20%Almost sustainable MFIs

( lack of funding, managerial skills…)

70% Local MFIs

Targets for refinancing

activity

Targets for

Technical

assistance

100 million of

customers in 2006

Current penetration rate10%

Based on a sample of 3 000 MFIs

1’000 million of expected customers

in 2015

2%Regulated

MFIs

In an increasing Market with different kinds of MFIs

Unit (Bn USD) 2006 2015Market Volume 25 250Microfinance funds

2 20

International Financial Institutions

2,4 5

According to the Deutsche Bank survey “ Microfinance: An emerging Investment Opportunity” (December 2007)



Maximise the number of poor people assistedHelp to promote women’s condition (3/4 of the borrowers)

Big impact

A micro loan in a developing country: from 20€ to 200€

Small money

Seek community impact Seek a fair return (i.e. covering the costs)


Our business model aims to reach a double bottom line

A banking business

Microfinance includes every element of the banking process (business relationships, risk analysis) but will never be an ordinary banking business because of its extraordinary social impact

A social impact

+

=

Double Bottom Line



SocialOutreach

TheIdealMFI

Each Credit file is presented to our Credit Committee.All those elements are taken into account for the final approval.Of course, perfect MFIs do not exist. BNP Paribas is choosing MFIs to fund contingents on their strengths and weakenesses with room for improvement.


BNP Paribas is looking for MFIs with criteria meeting our policy

Equity &Funding

AssetQuality

CountryRisk

RiskManagement

Regulation

Management

Sustainibility

Local (or regional) presence of BNP Paribas

Funding in local currency (local capacity, guarantee

swap…)

Conservative approach (tenor, amount) with a view of long-term relationships

Our financial target: to cover our costs at leastO

ur P

olic

y Our C

ritera



3. An intra-group activity

JACADIE

« J’accompagne les Créateurs

d’Entreprise de l’ADIE »

MSF

« Microfinance Sans

Frontières »

FRANCE INTERNATIONAL

CIB

IRS

BNP PAM BP

GRM

FINCellulemicro-micro-

AMS / BP

Professionals 50 people involved in the group,

managed by central team in AMS BP with correspondent in CIB and IRS

Volunteers60 retired people from the banqk giving

technical assistance to IMF or ADIE


In that purpose, all the departments of the banks are involved









4






Based on our experience, 6 key success factors are necessary for a commercial bank to be active in Microfinance

The Committment of the top

Management

The top management must be convinced about the social benefits and the seriousness of the economic model

Based on BNP Paribas experience in microfinance, we identified 6 key factors for a commercial bank to launch a microfinance project

Local partnership with MFIs

Local bankers know better the MFI than people from the Head Office. Moreover local staff is always very proud to contribute to such a social responsibility action

Project leader skills

He should be a social entrepreneur, able to move the bank from the inside into innovative fields



Taming the risksEach case must be examined individually in the framework of the microfinance policy. A specific credit has to be defined with the risk management

Social indicators

We must be able to measure our social impact. 3 simple indicators are: how many people do we finance through our loan? Proportion of women? What is the average retail loan?

Communicate but not overstate

We are proud of what we do in microfinance, we must communicate. But too much communication kills communication. Image has to perfectly match the reality of the business

Based on our experience, 6 key success factors are necessary for a commercial bank to be active in Microfinance



Our results

BNPP Microfinance covers its costs EUR 60 Mio in utilisations with 21 partners in 12 countries Social Impact: 438 000 borrowers, representing 2 million impacted people Technical Assistance

- MSF (Microfinance Sans Frontières) : 10 projects- JACADIE: 60 people involved

Microfix: Specialised funds to hedge foreign currency risk, to be launched in 2009 with Fixed Income

Health and Life Micro-Insurance, Partnership with SBI in India. 10 Mio of contracts for 2009

Equity stake in Planet Guarantee to serve worldwilde the reinsurance demand of MFIs

Financités/Planet Finance (France): 1 Mio € is invested in equity in small business units in underpriviledged areas



Conclusion

Microfinance is not a magic tool to eradicate poverty Microfinance is not a new market segment to maximize our

profits Microfinance should remain a responsible business and not

a usual business Do MFIs really finance the poor? What is the real interest rate they charge? What about the risk of overindebtness? Where are the limits between microfinance and consumer lending?

In those conditions, responsible banks will be able to contribute really to financial inclusion and poverty alleviation



-Questions-

Thank you for your attention

santo domingo, 9th of july, 2009 φ micro social finance to fight poverty microfinance: how to fight...

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