EBRD’s Support to Territorial

Development

Francesca Pissarides Francesca Pissarides Office of the Chief EconomistOffice of the Chief Economist

Lisbon, 3 December 2007Lisbon, 3 December 2007

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

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

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

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

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

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

Municipal and Environmental Infrastructure

Municipal business: sectoral breakdown (cumulative)

0

400

800

1,200

1,600

2,000

2,400

2,800

Urban transport Water wastewaterSolid waste Other sectors (incl. district heating)

€ m

m

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

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

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

TAM/BAS Programme Team

Based in London/EBRD

BAS4,245 projects to date in 17 countries

(Currently 23 local offices)

TAM

1,282 projects in 27 countries

Engaged 1,600 local consultantsAggregate turnover EUR 10 billionTotal 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 billionTotal employees 860,000

During evaluation we have found• 82% projects rated satisfactory or better• Productivity increased by 26%• Turnover increased by 26%

Financial Support to MSMEs

Objective:

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

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

Principles

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

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)

Total Number of MSE Loans

Disbursed as of September 2007

Caucasus, 382,312

Ukraine, 484,638

South Eastern Europe, 649,164

Central Asia, 835,540

Belarus, 9,625

Mongolia, 19,131

Moldova, 60,391Russia,

413,994

Total Volume of MSE Loans

Caucasus, 1,446Ukraine, 3,493

South Eastern Europe, 4,865

Central Asia, 3,382

Belarus, 107

Mongolia, 49

Moldova, 162

Russia, 4,925

Disbursed as of September 2007 (million US$)

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

Objectives of technical assistance in MSE lending

Subsidy efficiency (Kazakh Small Business Programme)

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700

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2000 2001 2002 2003 2004 2005 2006 May-07

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TC Efficiency by number of loans (left axis) TC Efficiency by volume of loans (right axis)

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

Commercial banks, dedicated Microfinance banks and NGOs

Total Assets

(EUR mln)

Total Equity

(EUR mln)

Gross Loan Portfolio

(EUR mln)Number of

Loans RoAEPortfolio-at-

risk

KMB, Russia 710 75 575 58,984 17.5% 1.6%

Microfinance Bank of Azerbaijan 42 5 36 16,675 15.8% 0.1%

ProCredit Albania 221 17 90 29,720 18.1% 2.7%

ProCredit Bosnia 152 13 118 38,656 9.5% 0.8%

ProCredit Bulgaria 346 27 244 49,732 18.4% 1.2%

ProCredit Georgia 191 31 140 58,967 8.4% 1.9%

ProCredit Kosovo 436 25 219 52,015 38.4% 1.2%

ProCredit Macedonia 110 12 73 21,277 13.4% 0.9%

ProCredit Moldova 27 2 19 14,096 40.5% 1.2%

ProCredit Romania 219 20 158 29,621 9.7% 1.1%

ProCredit Serbia 501 44 307 87,554 7.1% 0.7%

ProCredit Ukraine 267 31 227 49,270 15.1% 0.9%

TOTAL (or avg. %) 3,222 302 2,206 506,567 17.7% 1.2%

Greenfield Microfinance Institutions

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

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

Issues in more difficult environments

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

Innovation in MSE lending programmes

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

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