Challenges of Access to Finance

1

• Challenges of Access to Finance
• The Transformation of CARD NGO to CARD Rural
  Bank in the Philippines
• Brussels, October 29, 2004
• Dr. Peter Langkamp

2
The Transformation of an NGO to a Formal Bank

• CARD Historical Background
• 1986 CARD NGO founded by a group of 15 rural
  development practitioners, operating as a
  modified Grameen Replication
• May 8, 1997 CARD Rural Bank registered with the
  S.E.C.
• August 25, 1997 Bangko Sentral ng Pilipinas
  gives CARD Rural Bank the authority to start
  operations as a rural bank with an initial
  paid-up capital of 5 mn PHP (167,000 USD)
• September 1, 1997 CARD Rural Bank, Inc. opens
  its doors to the public

3
The Transformation of an NGO to a Formal Bank

• Key Motivating Factors for Transformation
• CARD was experiencing donor agency fatigue
• Pressure from networks as well as its own Board
  to embark on rapid expansion and savings
  mobilization.
• Big donors wanted to work only with formal
  microfinance institutions
• Expectation that the Central Bank would soon ask
  NGOs to stop mobilizing savings
• Easier access to other refinancing tools,
  financial services and products both from the
  government and other financial institutions
• Expectation of CARD members

4
The Transformation of an NGO to a Formal Bank

• Situation in 1997 (start of project)
• Promising situation
• successful NGO professional, profitable, growing
• decision taken to transform into a formal bank
• highly motivated staff and management
• legal and regulatory framework positive
• international donors provided funds for lending
• but
• CARD management had no banking knowledge at all
• no experience available for transformation of an
  NGO into a formal bank

5
The Transformation of an NGO to a Formal Bank

• Concept Gradual Transfer of Branches to the Bank
• NGO branches are gradually transferred to Rural
  Bank after becoming profitable
• Rural Bank buys the portfolio from NGO
• Payment to NGO represents all the NGOs actual
  development costs incurred in that particular
  branch from the setting-up period to the time of
  transfer (e.g. equipment, training costs, cost
  of funds)
• Transfer arrangement includes all staff from the
  branch
• Branches and all accounts etc. move from NGO
  balance sheet to Rural Bank balance sheet
• NGO uses reimbursed development costs to finance
  further expansion of branch network

6
The Partnership Project

• Scope of Work
• Strategy how to commercialize without loosing
  the mission
• product development
• workflows and procedures
• internal audit
• management information systems
• branch network management
• human ressource management incl. Training Center
• etc.
• Core Question how to run a bank with a social
  mandate !

7
The Partnership Project

• Project Organisation
• core team of experts at Sparkasse Essen
• project coordinator at senior management level
• about 6 experts mainly at mid-management level
  with hands-on practical experience
• support by CEO of Sparkasse Essen (especially
  strategy, corporate governance)
• outside experts for specific topics, whenever
  necessary
• on average 100 mandays per year, short-term only
• project manager from Sparkassenstiftung
• planning, coordination, backstopping

8
CARD Group 1997 - 2003

• Overall In terms of outreach

9
CARD Group 1997 - 2003

• Overall In terms of Savings Generation

10
CARD Group 1997 - 2003

• Overall In terms of Portfolio

11
CARD Group Accomplishment (end of 2003)
12
CARD Group Accomplishment (end of 2003)
Exchange rate December 31, 2003 1 USD 55 PHP
13
The Partnership Project

• Lessons Learned - General Experience
• high quality (and stability) of management team
  in CARD made this a very successful project
• long-term approach was extremely helpful
• mutual trust and understanding developed over
  time
• natural growth process of CARD was supported
• partnership approach brings practical know-how
  and is key factor of success when partners have
  the same philosophy
• social mandate and profitability is no
  contradiction, but need good internal
  organisation, efficient workflows and a dedicated
  management
• outside pressure to increase outreach leads to
  decisions that sometimes threaten the viability
  of the bank - here a banking partner is an
  important counterbalance

14
The Partnership Project

• The way ahead
• a stable partnership has developed that will
  continue without donor funding
• CARD now is also offering microinsurance (through
  insurance subsidiariy CARD MBA) and microfinance
  training (through CARD Training Center)
• CARD, which started as a Grameen replicator, has
  successfully adjusted and developed the model
• CARD itself has been supporting its own
  replicators in the region
• CARD, Sparkasse Essen and Sparkassenstiftung are
  preparing a TA project in Vietnam in order to
  transform another microfinance NGO into a formal
  bank