Commerzbank’s investment in ProCredit Bank (a leading Global Micro Finance Group)
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Transcript of Commerzbank’s investment in ProCredit Bank (a leading Global Micro Finance Group)
Commerzbank’s investment in
ProCredit Bank(a leading Global Micro Finance Group)
3rd Consultation on “Rethinking the role of National Development Finance
Institutions in Africa”
Johannesburg branch
Commerzbank has a stake in Micro Finance
Since 2000 (starting in Kosovo) Commerzbank has acquired an equity stake in seven Microfinance Banks. They are all named ProCredit Bank. Former names in brackets:
Albania (FEFAD Bank, Tirana) Bulgaria (ProCredit Bank, Sofia) Bosnia-Herzegovina (MEB, Sarajevo) Romania (Miro Bank, Bucharest) Serbia and Montenegro (MFB, Belgr.) Kosovo (MEB Kosovo, Pristina) to be mentioned Georgia (MBG, Tbilisi) with around 2%
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have a similar shareholder structure;(i.e. public private partnership, commercialization of
development aid in the financial sector)
share the same basic business-policy orientation
have received start-up support in the form of international experts and training to promote institution-building. No subsidies!
use the same innovative credit technology developed by IPC, a German management consulting firm based in Frankfurt which also provides the management of the investee banks
All ProCredit Banks in which Commerzbank has a holding:
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ProCredit Micro Finance Banks share similar structures and criteria
Current general criteria total assets: mostly about EUR
400m Paid in capital: up to EUR 34m management: mostly delegated
by IPC staff: up to 1380 (trained and
supported by IPC) mainly locals Targeted ROE (after tax): 15% Branches / offices reaching out
into the regions
Initial shareholder structure
EBRD 20 %
20 %
20 %
20 %
20 %*/IPC
KfW/
* ProCredit Holding (formerly IMI) now holds a majority in most of the banks as some IFIs sold their stakes.
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…ProCredit Group - Banks for “ordinary people” 19 Micro Finance Banks 425 branches in Eastern Europe, Latin America, Africa,
5 African Countries, Angola Congo, Ghana and Mozambique.
11,000 staff members 656.000 business loans
95% smaller than €10 000 and more than 50% for less than €1 000
issued to small or very small enterprises low level of arrears (< 1%)
ProCredit Group views itself as a global leader in lending to households and enterprises that previously had very little chance to become clients of mainstream
banks
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As an example the branch network of ProCredit Bank Bulgaria
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The target group for the banks’ range of financial services, (not only for their credit products), consists of the “lower end” of the market, i.e. micro and small enterprises and private households.
Target groups centred around retail business
Target groups in Bulgaria and Serbia orientated towards leasing
The shareholders measure the success and significance of the banks not only in terms of business volume and profit but also by the number of customers reached.
The banks are profit-oriented, but do not aim for short-term profit maximization. They seek a reasonable balance between social and economic goals. In this respect, they are following the continental European tradition of savings banks and co-operative banks.
As universal banks, they are able to perform every kind of banking operation, and indeed they provide all types of services as long as this does not conflict with the interests of the target group.
The banks strive to mobilize a sufficient volume of deposits from the general public to make retail deposits an important source of funding.
Increased use of investment banking products (e.g. bonds, securitisation)
Key features of business policy
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Through a strategy of Target-Group Orientation, banks aim at improved & sustained economic growth by providing access to working capital for Micro clients and SMEs (about 80% loans).
Target-Group Orientation
An example of the distribution of Loan Sizes in total portfolio of PCB Serbia as of Dec 2005
Sectors
Portfolio by Loan Size (TEUR)Portfolio (Volume) By Sectors
16%
40%16%
28%
Production Trade Agriculture Others
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(Symplified) example of an organisational structure
AuditAudit
BranchesControlling Credit
BranchesControlling Credit
ShareholdersShareholders
Supervisory BoardSupervisory Board
ManagementManagement
Asset - / Liability Management
Asset - / Liability Management Credit CommitteeCredit Committee
Legal Dep.Legal Dep.
Communication & MarketingCommunication & Marketing
ITIT
Credit Dep.Credit Dep.
CFOCFO
TreasuryTreasury
Balance, Accounting, TaxBalance, Accounting, Tax
Controlling & ReportingControlling & Reporting
COOCOO
International BusinessInternational Business
HRHR
AdministrationAdministration
CEOCEO
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Despite the low level of arrears (< 1%), all ProCredit Banks apply a very conservative provisioning policy.
A general loan loss provision is maintained on the portfolio as a whole; for loans that are more than 30 days past due, an individual provision of 50% is set aside, and for those that are more than 90 days in arrears the provision is increased to 100% . The value of any items provided as collateral is not taken into account here.
As a result of this policy, the banks are accumulating a growing cushion of reserves (“hidden reserves”) which they could fall back on under extreme circumstances
Provisioning policy
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Auxiliary business
International Business• money transfer (no limitation)• letters of credits,• guarantees,• collections
• All banks, Commerzbank has a stake in, are linked to SWIFT
Commerzbank AG - a strong international partner:
• domestic: branch-network in Germany (“Mittelstand, Multinationals” )• international: integration of the banks into its worldwide network of
correspondent banks (one of the largest in the world) • equity/debt financing• capital markets advisory/services
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The South African Retail Banking market offers enormous & challenging opportunities:
Middle class
Salaried working class and self employed
(small business)
Economically Active Poor
(Micro Enterprise)
Very Poor (Survivalist Enterprise)
The ‘Hard Core’ Poor and Destitute
Commercial Banks
Commercial Micro-LoansIndustry
Credit UnionsCooperatives
First Economy
Second Economy
DevelopmentalMicrofinanceOrg. (NGOs)
Existing state Agencies(Khula, Umsobomyu)
State AgencySAMAF
“ProCredit Model”
Commercial Non-commercial
‘True microfinance’ is currently virtually non-existent in SA
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South Africa displays a highly challenging microfinance environment… Highest ‘salary burden’ in the world
Huge income disparities imply that local MFIs must recover “first world costs” from revenues derived from clients who can only afford “third world loans”
Lack of skilled professionals for the micro-finance industry Rapid labor turnover Small market for micro entrepreneurs due to two separate economies with
virtually no interdependencies Gap between the two economies too large,
to be able to service 1st economy Not able to compete with 1st economy in terms of productivity, quality and
price level – even 2nd economy consumes mainly products of 1st economy High competition from commercial banks regarding consumer finance AIDS – 17% of black households have experienced income or job loss due to
illness Culture of mistrust, high delinquency rates, high consumption rates and high
crime rates, mainly due to apartheid history Poor infrastructure in rural areas Microfinance customers poorly educated
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…with some very attractive features
Strong government support of microfinance in terms of legislation, funding and SME institutions (DTI with Khula and SAMAF, IDC etc.)
Good infrastructure in urban areas Sophisticated first economy financial services sector enabling
access to capital markets for funding and hedging Prudent macro-economic policies and environment Sound legal environment Weak competition regarding entrepreneurial microfinance Difficulties experienced by most MFIs seems to be mainly due
to lack of managerial capabilities, inefficiency and the lack of strong support in unprofitable roll-out phase (first 3-5 yrs.)
World-Cup 2010
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Integration into International capital markets
Integration into local Capital markets
Establishing full Range of services for ordinary customer, particularly
deposits
Building professional credit institutions
Increase
in operatio
nal complexit
y and need fo
r
professional m
anagement
Contributio
ns to lo
cal fi
nancial m
arket d
evelopment
Strategic path for microfinance providers to ensure access to financial resources and to growth
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Name Contact details
Clive Kellow Commerzbank - Johannesburg Tel: +27 11 328 7601 Email: [email protected]
Eckard von Leesen
Commerzbank - Frankfurt Tel: +49 69 136 23997 Email: [email protected]
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