EBRD’s Support to Territorial Development

1. EBRD’s Support to Territorial Development Francesca Pissarides Office of the Chief Economist Lisbon, 3 December 2007

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. Municipal business: sectoral breakdown (cumulative) € mm

9. 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

10. 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

11. 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

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

13. Financial Support to MSMEs • Objective: • Provide sustainable access to financial services to micro and small enterprises not catered for by the formal financial sector

14. Principles • 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

15. 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

16. 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)

17. Total Number of MSE Loans • Disbursed as of September 2007

18. Total Volume of MSE Loans • Disbursed as of September 2007 (million US$)

19. 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 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

20. Subsidy efficiency (Kazakh Small Business Programme)

21. 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

22. Greenfield Microfinance Institutions

23. 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

24. 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

25. 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

26. 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

27. 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