EBRDs Support to Territorial Development

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EBRDs Support to Territorial Development
Francesca Pissarides Office of the Chief
Economist Lisbon, 3 December 2007
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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

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What are the EBRDs 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 peoples
  lives
• To encourage environmentally sound and
  sustainable development

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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

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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

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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

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Municipal and Environmental Infrastructure

• 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

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Municipal business sectoral breakdown
(cumulative)
mm
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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

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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

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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

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TAM/BAS Programme Team Based in London/EBRD
BAS 4,245 projects to date in 17 countries
(Currently 23 local offices)
TAM 1,282 projects in 27 countries

• Engaged 1,600 local consultants
• Aggregate turnover EUR 10 billion
• Total 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 billion
• Total employees 860,000
• During evaluation we have found
• 82 projects rated satisfactory or better
• Productivity increased by 26
• Turnover increased by 26

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Financial Support to MSMEs

• Objective
• Provide sustainable access to financial services
  to micro and small enterprises not catered for by
  the formal financial sector

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Principles

• Ensure fast and broad outreach, including remote
  areas, i.e. disbursements of loans under 2,000
  within 24 hours and gt1,850 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

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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

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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)

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Total Number of MSE Loans

• Disbursed as of September 2007

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Total Volume of MSE Loans

• Disbursed as of September 2007 (million US)

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Objectives of technical assistance in MSE lending

• 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 whos 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

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Subsidy efficiency (Kazakh Small Business
Programme)
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Commercial banks, dedicated Microfinance banks
and NGOs

• 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

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Greenfield Microfinance Institutions
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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

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Issues in more difficult environments

• 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

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Innovation in MSE lending programmes

• 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

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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

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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