Microfinance Conference 2011 Financieros sin Fronteras Microfinance in Eastern Europe and Central Asia

Guadalupe de la Mata European Investment Bank

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AGENDA

Microfinance in Eastern Europe and Central Asia

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3 4

Impact of the crisis in the region

Main risks for microfinance and proposed mitigants External support to strengthen the sector Opportunities for the future

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Microfinance in Eastern Europe and Central Asia

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Market structure in the region

N of countries Population (million) GNI average per capita % population below the national poverty line 15% 23.5% 22.3% 25.4% 13.1% 18,8%

Balkans Caucasus Eastern Europe Central Asia Rusia Total/weighte d average

7 3 6 5 1 22

23,6 16,1 126 57.3 141.8 365.6

7 097 3 157 6 863 2 299 9 620 70 868

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Main features of the sector in the region

General features

Young sector within the global industry Average loan amount double than world average Financing micro and SMEs more than micro-entrepreneurs and low income families More integrated in formal financial markets Credit risk Lowest delinquency levels globally prior to the crisis Portfolio at risk spiked in 2008 in environments of rising unemployment, high inflation, and over-indebtedness Currency risk High currency risk (most funding in hard currency and most lending in local currencies) Volatile currencies during the crisis

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Microfinance sector size and impact

All MFIs EECA MENA Asia Latin America 13 755 Africa

N of clients

15 553

6 040

13 463

21 974

21 974

% women 62.9%
Portfolio (million USD) Avg loan amount Avg loan amount /GDP per capita 5 347

59.5%
4 454

68.1%
3 339

71.2%
4 912

61.3%
8 559

70%
5 273

532

926

286

195

816

228

54%

79.7%

15.8%

35.9%

57.4%

69%

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How has the crisis affected the microfinance sector in Eastern Europe and Central Asia?

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Microfinance vulnerability to crisis: what has changed?

Previous crisis This time

MFIs seemed to be immune to economic cycles

MFIs and their clients not integrated in international markets

Economies more integrated

MFIs have financed SMEs MFIs have received finance from international financial markets Consumer loans Overindebtedness

More flexible to adapt to changes

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How has the crisis affected microenterprises in the region?

Economic deterioration Sales decreased Increased cost of basic products Drastic reduction of remittances Increased unemployment

Funding Over indebtedness Currency risk Lack of access to funding Increased demand for working capital vs. investment Smaller loan amounts and shorter terms

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How has the crisis affected MFIs in the region? Portfolio

Slower portfolio growth Portfolio quality deterioration

Funding
Problems to access it Increased cost Increased currency risk

Profitability
Profitability decreased drastically Increased cost of provisions and of funding Not always possible to pass the increased costs to clients

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The effect of the crisis after 2008:

MSME portfolio levels of partner lending institutions

6.000

5.000

4.000

EUR mln

3.000

2.000

1.000

Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009

Portfolio (Volume)

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The effect of the crisis after 2008:

Average PAR 30 of SBF partners institutions

7,00% 6,00% 5,00% 4,00% 3,00% 2,00% 1,00% 0,00% Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009
PAR>30 days

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What are the main risks for microfinance failure that should be avoided? How can this be done?

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Main challenges and proposed solutions

Lower growth rates

Consolidation Product diversification

Portfolio quality deterioration Improvement of credit methodologies and internal risk controls Increased exchange of information: Participation in credit bureau and regular meetings with other MFIs Improved MIS system Closer monitoring Refinancing risk Transformation- (deposit mobilisation) Currency risk

Deposit mobilization Guarantees / back-to-back loans with local banks Working with microfinance funds that offer local currency funding solutions

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External support to strengthen the sector: International Financial Institution's response to the crisis

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External support to strengthen the sector: IFIs response

Debt Increased funds Local currency when possible Increased monitoring Equity Improve capitalisation Improve corporate governance Guaranties Increased use of guarantees to reduce credit risk Preferred when local currency funding is not available Technical Assistance Refresher courses in fundamentals of credit and cash flow Corporate recovery techniques Risk management FX Risk courses Mid management support

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International Financial Institution's response to the crisis (II)

Increased coordination among IFIs

Increased communication and information exchange Co-financing and joint initiatives Principles for client protection

Efforts to improve regulatory framework

Policy dialogue with local authorities Implementation of laws Credit bureau

Institutional support
Transformations Consolidations Restructuring

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Opportunities after the crisis

Back to the microfinance essence

Consolidation and transformation

Increased coordination & information exchange

Institutional focus & Client protection

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Thanks.

Questions and answers

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