Romanian Micro Credit Scheme

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Romanian Micro Credit Scheme

• ROMANIA

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• Micro Credit SchemeStakeholders
• Founders European Commission
• Government of Romania through the Ministry of
  Development, Public Works and Housing (MDPWH)
• European Bank for Reconstruction and Development
  Dezvoltare (EBRD) (matching funds)
• Beneficiaries start-ups and micro-enterprises
• Management MDPWH Contracting Authority
• EBRD Fund Manager
• Partner Lending Institutions

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• The Budget of the Scheme
• EU/RG Total Contribution18,02 mil Eur
• - 2,5 mil. Eur Technical Assistance
• - 3, 0 mil. Eur Risk Share Fund
• - 12,52 mil. Eur On-lending funds for
  
• Micro-financing institutions
  (MFIs)
• EBRD- (matching funds)approx 50-60 mil. Eur

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• Reimbursement Scheme

Founders EU and RO Gov.
Level 1
Fund Manager EBRD
PLI MFIs, banks
Level 2
Beneficiaries Start-ups and micro-enterprises
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• How the scheme works Level 1

• Activities
• Negotiation of the Contribution Agreement between
  the Gov (MDPWH) and EBRD.
• Transfer of funds to the Fund Manager.
• Design of the exit-route for the scheme by the
  end of programme

• Activities
• Drafting ToRs for PLIs
• Evaluation of PLIs capacity to implement the
  scheme
• Negotiation of the Loan Agreements with PLIs
• Funds disbursement to the PLI
• Scheme monitoring
• Reporting to founders

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• How the scheme worksLevel 2

Beneficiaries Start-ups and micro-enterprises

• Activities
• Design financial products tailored to the
  beneficiary
• Promotion of the microcredit scheme
• Credits award to final beneficiaries
• Monitoring the beneficiaries
• Collect the reimbursements
• Reporting to Fund Manager

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• Partner Lending Institutions (PLIs) selected

• OMRO Opportunity Micro-credit Romania
• Based in Targu Mures and has 8 branches
  throughout the region
• Four year loan for a total of 2.8 MEUR
• 71 of the loan is financed by EBRDs own
  resources and 29 by the resources of the
  Romanian Government and the European Commission
  through the EBRD administered Romania Micro
  Credit Investment Special Fund.
• As of end-June 2008 the institution disbursed a
  total of 1,324 loans for a total amount of EUR
  4.5 million by using the RMCF funding. Compared
  to the previous period, this represents an
  increase of 27 in terms of number and 25 in
  terms of volume.
• The average monthly disbursement during the
  reporting period was close to EUR 148,000 in
  terms of volume and 47 loans in terms of number
  of loans. OMRO met fully the target clients of
  the RMCF the vast majority of loans disbursed
  are micro loans to the smallest enterprises. The
  average amount of loans disbursed stood below the
  EUR 3,500 mark.

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• The portfolio at risk (PAR) for over 30 days is
  only just over EUR 42,000 representing 2.15 of
  the outstanding loan portfolio. This is aligned
  with a deterioration in the arrears rates of the
  overall loan portfolio of the institution the
  portfolio at risk for over 30 days was
  approximately 6 as of end-April 2008. This is
  in part explained by a general trend observed on
  the Romanian lending market, which was expected
  to filter into the Facilitys funded portfolio.
  Nonetheless, the operational team is monitoring
  this development closely and is planning to
  support OMROs risk management operations with
  future TA projects.

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• Banca Transilvania Bucuresti/ Cluj Napoca
• Banca Transilvania is a success story in the
  Romanian banking sector. Founded in 1993 in Cluj
  Napoca by 40 local entrepreneurs, BT emerged as
  the largest bank in Romania and is still majority
  owned by local investors.
• A five year loan for a total of EUR 15 million
  from the Facility for on-lending to micro and
  small enterprises. EUR 6 million of the loan is
  financed by EBRDs own resources, EUR 4 million
  from the resources of the Romanian Government and
  the European Union through the EBRD administered
  Romania Micro Credit Investment Special Fund.
  Very importantly, the EBRD and the government
  funding was successfully leveraged by commercial
  loan funds EUR 5 million was syndicated to Caja
  Madrid.
• In terms of BTs on-lending operations, the
  institution has disbursed 103 loans amounting to
  EUR 931,646. This represents a significant
  increase when compared to the last monitoring
  period, when the bank had significant delays in
  launching this productin contrast to the NBMFIs
  that have MSE lending as their core products.
  The vast majority of the loans have been placed
  in the North-West region (46), followed by
  Bucharest-Ilfov (16), Centre (11), South-East
  (9), North-East (8), South West (7) and West
  (3).

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• Express Finance Timisoara
• Express Finance (EF) has more than 11 years of
  experience in the MSME and housing lending market
  in Romania, initially as an NGO called CHF
  Romania, and beginning with January 2006 as a
  commercial company Express Finance S.A. EF is
  now one of the largest microfinance providers.
  Based in Timisoara (Western Romania), EF carries
  out its activities through 17 site-offices, and
  its operations cover 26 of Romania's 42 counties.
  EF's portfolio has grown from an initial USD
  150,000 financing pool focused on the Timis
  County, to a current portfolio of EUR 10 million.
  Despite rapid growth and geographic expansion,
  EF maintained a high level of portfolio quality.
• EF received a three year loan for a total of EUR
  2.25 million from the Facility for on-lending to
  micro and small enterprises. 51 of the loan is
  financed by EBRDs own resources and 49 by the
  resources of the Romanian Government and the
  European Commission through the EBRD administered
  Romania Micro Credit Investment Special Fund.

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• As of end-June 2008 the institution disbursed a
  total of 380 loans for a total amount of EUR 2.4
  million by using the RMCF funding. This
  represents an increase of 32 in terms of number
  and 140 in terms of volume when compared to the
  last monitoring report. The first disbursement
  was done in September 2007, and up to June 2008
  the average monthly disbursements were over EUR
  222,000 in 36 loans. As of June 2008, 5 of the
  Facilitys outstanding loan is comprised of loans
  granted to new businesses.
• The regional distribution of the financing is
  dictated primarily by the focus of EFs branches,
  but is widely spread throughout the country. At
  present, 51 of the loans granted were in the
  west region, 18 in the North West, 16 in the
  Centre, 8 in the South West, 5 in South
  Muntenia, 2 in the South East and 1 in the
  North East, as per definitions included in the
  original project study provided by the European
  Union.
• EFs loan portfolio is of good quality and the
  portfolio at risk for over 30 days was around
  3.5 as of end-June 2008. In respect of the
  loans disbursed through the RMCF, the PAR for
  over 30 days was 2.8.

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• CAPA Finance
• SC Capa Finance IFN is a non banking financing
  institution located in Romania, having its
  headquarters in Cluj Napoca and over 25 officers
  both in the urban and in the rural area of the
  country. Capa began its loan activity in Romania
  in 1996.
• At the end of 2007 a group consisting of Romanian
  Enterprise Fund (RAEF) and Emerging Europe CAP
  Cooperatief U.A (EECAP) whose main shareholder is
  the Balkan Accession Fund (BAF), bought a
  consistent pack of CAPA shares, becoming the
  majority shareholder.
• Following the change in ownership in CAPA
  Finance, the negotiations have been renewed in
  respect of including CAPA Finance in the
  Facility. At present a EUR 10 million loan is
  being considered and it is expected to be signed.

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• A few conclusions
• increased competition in the banking sector lead
  many commercial banks to seek new markets
  including microenterprises hence increased
  challenging environment for MFIs,
• relatively steep growth of MFIs' loan books
  leading to high leverage,
• overindebtness of borrowers (high level of
  consumer lending) combined with sharp increases
  in oil, energy and food prices are significant
  factors contributing to overall deterioration of
  quality of loan portfolios. This leads to higher
  recovery costs, high provisions eat into profits
  and even reduce capital base,
• the credit cruch lead to increase cost of funding
  and to a reduced availability of funds,

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• Hence, at this stage crucial
• innovative products to maintain competitive
  edge,
• new capital to normalise leverage ratios and
  strengthen institutions allowing for further
  growth,
• strict control of the quality of the loan
  portfolios (for the provisions not to reduce
  profits or even result in losses which in turn
  reduce capital),
• not much can be done directly with the increased
  funding costs as such but MFIs must put in place
  risk management processes and controls to be able
  to react to funding changes.