European Fund for Southeast Europe

Monika Beck, KfW, EFSE Board Member

Sylvia Wisniwski, Frankfurt School of Finance & Management, EFSE Fund Advisor

Brussels, 17 June 2008

Overview

Mission and Objectives

Structure, Features and Organization

Monitoring System: Development Performance and Impact

Development Impact Study 2007: Impact on Human Capital Development at MSE Level and at the Level of Financial Institutions

The Fund aims to foster economic development and prosperity in the Southeast European region through the sustainable provision of additional development finance through qualified financial institutions, notably for micro and small enterprises and low-income private households.

Mission and Objectives

Income generation

Job creation

Strengthening local financial markets

Providing decent shelter

The Fund operates in ten nations:

Target Region

Products and Services

1

2

34

5

6

7

8

9

10

1. Albania

2. Bosnia & Herzegovina

3. Bulgaria

4. Kosovo

5. FYR Macedonia

6. Republic of Moldova

7. Montengro

8. Romania

9. Serbia

10. Ukraine

Local Office

Structure, Features and Organization

EFSE is a Luxembourg-registered SIF Fund with First Class Stakeholders

Donor Agencies

International Financial Institutions

Private and Institutional Investors

Omidyar-Tufts

Microfinance Fund

Organisational Chart

Structure, Features and Organization

Shareholders

Board of Directors

Investment Committee

Fund Management

Custodian

Fund Accounting Local Office

PLIsTransaction

Investment

Local Office Local Office

Advisory Board

Promoter

Shareholders

Board of Directors

Investment Committee

Fund Management

Custodian

Fund Accounting Local Office

PLIsTransaction

Investment

Local Office Local Office

Advisory Board

Development Facility

Principles of the Development Facility (DF)

Focused technical assistance Link to investment Separation from the EFSE Investment Fund Possible earmarking of donor funds Cost sharing of PLIs Transparency Co-operation with other donors

Stakeholders

Donors

DFC

OAM FS

Manager

Partner Institutions

IF

FiduciaryAgent

Citigroup

Monitoring System

The Fund’s development mission and objective receive particular attention in the monitoring and reporting.

Two levels:

A: Development Performance

B: Development Impact

A: Development Performance

Quarterly monitoring of subloan portfolio Focus on key development performance indicators: outreach and sustainability

Outreach to target group:• Breadth of outreach: number of borrowers• Depth of outreach: average loan balance• Depth of outreach: % of loans granted < EUR 10,000• Distribution of borrowers by economic sector• Loan purpose: working capital, fixed assets • Maturity of the loans

Sustainability:• Sub-loan portfolio quality: Portfolio at risk

Principles

What do we analyse?

Development Performance

…in a Nutshell (March 2008)

Development Performance

Subloan Portfolio Performance

B: Development Impact

Annual impact assessment Development Impact Study is carried out by a third party to ensure independent opinion Empiric study using a sample that generates statistically valid results Results are published on the Fund’s website

Development impact on the ultimate target group Development impact on the partner lending institutions Development impact on the financial sector and economy, including compliance with

environmental and social standards

Principles

What do we analyse?

Development Impact Study 2007

• Desk study based on available data from EFSE, the sample institutions and review of relevant literature concept paper including hypotheses and analysis approach

• Implementation of field study, involving a primary survey with 277 sample MSE clients from Montenegro, Serbia and Romania and interviews with 11 sample financial institutions

Methodology

Two-Stage approach, combining desk study and field study

Based on comprehensive data analysis elaboration of study report

Development Impact Study 2007

Profile of MSE sample Economic sector:

Construction: 5% Production: 32% Services: 29% Trade: 34%

Size of enterprise: 63% micro enterprises (less than 10 employees) 37% small enterprises (10 – 50 employees)

Age of enterprise: 1-3 years: 10% 3-5 years: 16% > 5 years: 74%

Gender structure: 75% male

Educational level: Elementary school: 5% Secondary school: 51% Undergraduate degree: 13% University degree: 31%

Impact of EFSE – End-borrower level

Vast majority of the MSE (88%) have sustained or created paid full time employment since a loan was taken in 2005

Employment Impact – Main findings

10 and > jobs created

1-9 jobs created

Employment sustained

Employment reduction

11%

35%

42%

12%

Impact of EFSE – End-borrower level

Promotion of long-term relationship between EFSE, partner institutions and end-borrowers fosters job creation

Positive correlation between number of loans taken and number of jobs created

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1 loan 4 loans

10 > jobs created

1-9 jobs created

Employmentsustained

Employmentreduction

Impact of EFSE – End-borrower level

14,3

42,9

28,6

14,320,9

35,2 33,0

11,0

3,2

29,4

53,7

13,710,8

34,7

43,6

11,9

Construction Production Trade Services

10 and more jobs created 1-9 jobs created Employment sustained Loss

More labour-intensive economic sectors - Construction (57%) and Production (56%) - more likely to create jobs than the Services and Trade sector (46% and 32%)

Importance of loan in the creation of jobs for the MSEs

Impact of EFSE – End-borrower level

41%

26%

12%

21%

Very important

Important

Less Important

Not important

For 67% of the MSEs the loan was important to very important for the creation of jobs in their business

Impact of EFSE – End-borrower level

Average number of full-time paid employments created 2.95

Loans to MSEs doe not primarily increase self employment or family labour – 53% show increased full-time paid employment

Total number of full-time paid employment created by EFSE loans 2006-2007: > 230,000

Total number of employment (self-employment/ paid employment) created by EFSE loans 2006-2007:> 385,000

EFSE subloan amount per employment: 800 EUR

Access to loans and impact on enterprise growth and economic situation

Impact of EFSE – End-borrower level

41%

26%

18%

15%

My business would be a littlesmaller (< 50% smaller)

My business would be lotsmaller (> 50% smaller)

My business would beclosed/would not exist

Nothing would have changed

Majority of the MSEs reported business growth 18% reported that their business would not exist or would have closed without the loan

Improvement of (household) economic situation for 75% of MSEs because of the loan

Without EFSE…

Impact of EFSE – Financial institution level

Introduction of target group oriented lending

Promotion of target-group specific lending products

Cash-flow based lending methodology instead of collateral-based lending methodology

Promotion of responsible finance practices

EFSE funds not used for consumer finance

Social and environmental exclusion list

Promotion of transparent and fair business operations -> transparency towards clients, fair competition

Promotion of good corporate governance

Impact of EFSE – Financial institution level

Creation of jobs at the financial institutions level

Impact on employment in financial institutions

633 708 743 238 310 3250

5000

10000

15000

20000

25000

Commercial banks MF banks and MCOs

2006

2007

Q1 2008

16,7% 5,5%

29,1% 6,4%

19,400 22,600 24,000 5,100 6,600 7,000

Impact of EFSE – Financial institutions level

Building up know-how at all staff levels through training and consulting: top-management, mid-management, loan officers and other support staff

73 top-management staff, 188 mid-management staff and 157 loan officers and other support staff have benefited from activities initiated by the EFSE Development Facility

Impact of EFSE Development Facility activities on staff development of the PLIs

16%

33%

51%

Top Management

Mid Management

Loan Officers andother staff

20%

66%

14%ConsultingTraining

Thank you for your attention!