Environmentally and Socially Sustainable Development Department Europe and Central Asia THE WORLD...

Environmentally and Socially Sustainable Development DepartmentEurope and Central Asia

THE WORLD BANK AND THE WORLD BANK AND RURAL FINANCE IN RURAL FINANCE IN

MOLDOVA: Credit UnionsMOLDOVA: Credit Unions

EastAgri Annual MeetingEastAgri Annual Meeting

Berlin May 2006Berlin May 2006

Pierre-Olivier ColleyeSenior Microfinance Specialist


The focus of World Bank effort in The focus of World Bank effort in rural finance is changingrural finance is changing

Emphasis is shifting from provision of Emphasis is shifting from provision of credit lines to building sustainable credit lines to building sustainable institutions;institutions;

Emphasis from credit only to access to a Emphasis from credit only to access to a range of financial systems;range of financial systems;

Diverse institutions world-wide are Diverse institutions world-wide are offering such services to rural offering such services to rural populations;populations;

Innovations to address different issues Innovations to address different issues are well beyond pilot stage in many are well beyond pilot stage in many countriescountries..


Moldova: Initial SituationMoldova: Initial Situation

Initial situation:Initial situation:– Extremely poor rural populationExtremely poor rural population– No banking or other financial institutions No banking or other financial institutions

presence in rural areaspresence in rural areas– No long-term financing in the countryNo long-term financing in the country– Rapid change in the landscape of the Rapid change in the landscape of the

rural economyrural economy


Moldova: A first wave of Moldova: A first wave of interventionsinterventions

Rural Finance Project tested Rural Finance Project tested cooperative approach to financial cooperative approach to financial services (village-based, credit-only, services (village-based, credit-only, very small and short-term loans).very small and short-term loans).

Rural Investment Services Project Rural Investment Services Project scaled it up (triple digit growth, scaled it up (triple digit growth, introduction of deposits, introduction introduction of deposits, introduction of microenterprise loans).of microenterprise loans).


Moldova: Moldova: The Credit Union industry todayThe Credit Union industry today

National coverage National coverage Over 500 SCAsOver 500 SCAs Over 100,000 membersOver 100,000 members US $25 million in total assetsUS $25 million in total assets US $1.5 million in depositsUS $1.5 million in deposits A very healthy portfolioA very healthy portfolio

But…..But…..


Moldova: Scaling upMoldova: Scaling up

A lack of donor coordination lead to a A lack of donor coordination lead to a large number of inefficiencies, large number of inefficiencies, duplications, ending up with far too many duplications, ending up with far too many SCAs, too small, too weak to professionally SCAs, too small, too weak to professionally provide a range of financial services.provide a range of financial services.

Deposits have been growing rapidly (a Deposits have been growing rapidly (a good thing), but without the Government good thing), but without the Government being ready to supervise thembeing ready to supervise them


Rural Finance IndustryRural Finance Industry

R.F.C.

SCAs SCAs SCAs SCAs SCAs

Financing Monitoring Training

Commercial Bank

National Federation of SCAs

RDCSSBDFID SIDA USAID

SME

SME

SME

EBRD


New phase, new strategy: New phase, new strategy: Institution-BuildingInstitution-Building

Completely new legal and regulatory Completely new legal and regulatory framework: Provide incentives to framework: Provide incentives to grow/merge, tailor supervision to risk grow/merge, tailor supervision to risk profile of the institutionsprofile of the institutions

Re-build Regulatory/Supervisory Body Re-build Regulatory/Supervisory Body (leaner, with true enforcement powers)(leaner, with true enforcement powers)

Streamline supporting institutions to avoid Streamline supporting institutions to avoid duplication and enhance sustainabilityduplication and enhance sustainability

Provide capacity-building for the SCAs to Provide capacity-building for the SCAs to meet the challenges of the new legal meet the challenges of the new legal framework and more demanding client-framework and more demanding client-basebase


LessonsLessons Need to work on a wide range of financial Need to work on a wide range of financial

institutions (microfinance, banks, leasing, institutions (microfinance, banks, leasing, insurance….)insurance….)

Need to complement with new tools for Need to complement with new tools for agriculture (e.g. weather-related insurance, agriculture (e.g. weather-related insurance, warehouse receipts, value chain financing)warehouse receipts, value chain financing)

Shift from pure credit lines to TA (trying to!)Shift from pure credit lines to TA (trying to!) Good donor cooperation makes considerable Good donor cooperation makes considerable

difference (use each donor’s comparative difference (use each donor’s comparative advantage).advantage).

The system has to work in coordination with The system has to work in coordination with efforts to make the rural and agricultural sectors efforts to make the rural and agricultural sectors more competitivemore competitive


QuestionsQuestions

Are member-based institutions (e.g. Are member-based institutions (e.g. credit unions) the best mechanisms credit unions) the best mechanisms for retailing massive public funds into for retailing massive public funds into rural areas ?rural areas ?

What can Governments do to make What can Governments do to make credit for agriculture more affordable credit for agriculture more affordable (how do we move away from interest (how do we move away from interest rate subsidies ?)rate subsidies ?)


Medium-Term strategiesMedium-Term strategies

Continue wave Continue wave of reforms, of reforms, including including privatizationprivatization

Strengthen Strengthen legal, legal, regulatory regulatory environment environment and and supervisionsupervision

Broaden range Broaden range of financial of financial institutionsinstitutions

Possibly Possibly address address liquidity liquidity shortage with shortage with long-term long-term credit linescredit lines

Financial Sector Farmers and rural entrepreneurs

•Address Address collateral collateral constraintsconstraints•Improve Improve competitiveness competitiveness of farmsof farms•Improve access Improve access to information on to information on farmerfarmer•Reduce Reduce agriculture-agriculture-related risksrelated risks•Improve access Improve access to marketsto markets•Extension Extension servicesservices

FacilitateTransaction

•Business Business PlansPlans•Loan Loan ApplicationsApplications•Extension Extension ServicesServices•Training of Training of banksbanks•New Product New Product DevelopmentsDevelopments


More efficient financial system More efficient financial system => cheaper credit=> cheaper credit

Through increased CompetitionThrough increased Competition Through Risk-mitigating Through Risk-mitigating

measures and improved measures and improved competitivenesscompetitiveness

Through technical assistance of Through technical assistance of farmers/entrepreneurs and farmers/entrepreneurs and through broader range of through broader range of institutions institutions

Through increased efficienciesThrough increased efficiencies Through improved macro-Through improved macro-

environment and completion of environment and completion of reformsreforms

Banks’ cost ofBorrowing

Banks’ cost of Processing

Client’s cost ofProcessing

Lending Risk-Related Costs

ProfitMargins

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TA

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