Presentation on theme: "Open Days Brussels October 2008 Dr. Annette Fritz"— Presentation transcript:
1Micro-funds to help the development of micro-credit. The KfW experience. Open Days Brussels October 2008Dr. Annette FritzBusiness Policy Europe
2Overview. KfW Bankengruppe. Microfinancing. One Word – Different Meanings.KfW Microfinancing Activities.Framework Conditions for Micro-loans in Germany.KfW Micro-loan Programmes in Germany.Microfinance Fund Germany. - Key Elements. - The Structure. - Experiences.Conclusions.
3KfW Bankengruppe in brief. Promotional bank of the Federal Republic of Germany.Founded in 1948.Shareholders: Federal Republic of Germany (80%), German federal states (20%).Headquarter: Frankfurt am Main; branch offices: Berlin and Bonn.Balance sheet total at end-2007: EUR 354 billion.Financing Volume 2007: EUR 87 billion (+ 13%)Average number of employees in 2007: 3,700.Rating: AAA/Aaa/AAA.
4Brand structure. Promotion of developing and transition countries International project andexport financePromotion of housing,environmental andclimate protection,education, infrastructure,social issuesPromotion of SMEs,Business founders,Start-ups
5Microfinancing. One Word – Different Meanings. Microfinancing in Developing and Transition Countries - Financial sector development to improve lives and fight against poverty - Microfinancing has become an investment opportunity for private and institutional Investors. Esp. in Transition Countries funding is increasingly commercialMicrofinancing in the EU Different framework conditions!- Need to facilitate access to finance for start-ups and micro-enterprises - Inclusion lending Cost coverage is more challenging
6KfW Microfinancing Activities. Overview Developing and Transition Countries KfW Development Bank is one of the biggest financiers of microfinancing and brings in its know-how as financial institution.Germany - KfW Start-up Coaching - KfW StartGeld - Microfinance Fund Germany
7KfW Microfinancing Activities in Developing and Transition Countries KfW Development Bank employs and develops a range of different instruments:Basic products to support MFIsCredit linesGuaranteesEquityTechnical AssistanceElaborate products (in order to mobilize private resources)Structured finance, e.g.Mezzanine-FinanceMicrofinance Investment FundsSecuritizationDeposit insurance schemes
8EFSE - Flagship Initiative in Development Finance EFSE provides long-term funding to Partner Lending Institutions through a mix of different instruments.Contribution to regional integration and cooperation.Efficient use of public funds: Scarce public funds are used in a revolving manner. They constitute a risk cushion for leveraging private capital (public-private partnership)Incorporation of local stakeholders through the Advisory Group (Central Bank Governors) / future transfer of current donor shares to local governmentsEFSE pursues a Tiered Funding StrategyDonor fundsDevelopment Finance InstitutionsPrivate InvestorsA-Sharesand NotesB SharesC Shares
9Framework Conditions for Micro-loans in Germany. High density of banks in GermanyGood promotional infrastructureNevertheless: Financing gap in the area of micro-financing !Non-banks are not entitled to grant loans § 32 KWG (German Banking Act)No “special law” on micro-lending in GermanyMicro-lending involves high riskHigh administrative costsInterest ceilings
10KfW-StartGeld. Start-up and young enterprises up to 3 years No securityspecificationsSenior loan amountup to EURMonthly paymentsof interest and principalWorking capital up to EURPrepaymentfree of chargeTerm up to 10y andup to 2y repayment free80% of the liabilityassumed by KfWand EIFSecond applicationpossibleSimplified processes
11Integration of CIP-Guarantee into KfW-StartGeld 80% release of liabilityassumption of liabilty 40%on-lendingbankrefinancingloanfinal borrowerguarantee rate: max. 20%
12KfW Start-up coaching. Start-up coaching in Germany Companies up to 5 years after business establishmentCoachingperiod: max.12 months75% (50%)* allowance for coaching by professional advisormax. eligible daily net fee is EUR 800allowance of max 4,500 EUR (3,000 EUR)* Eastern Germany (Western Germany and Berlin)Special start-up coaching for unemployedAdditional support tool by BMAS* and KfWFirst year after business establishmentCoachingperiod: max 12 months90% allowance for coaching by professional advisormax. eligible daily net fee is EUR 800allowance of max. 3,600 EUR* Ministry of Labour and Social AffairsNew since 1st October 2008
13Microfinance Fund Germany. Key Elements Start in September Pilot phaseCapitalisation of Guarantee Fund: 2 Mio. EUR (initially)Fondsinvestors: BMWi*, BMAS**, GLS-Bank, KfW BankengruppeTarget group: Start-up enterprises and micro-enterprises with no access to bank loansMicrofinance Institution (MFI): is responsible for screening und monitoring of borrower; MFI services and advices borrower on site MFI assumes 20 % default risk (first-loss !)DMI: Coaching, support and accreditation of MFIMicrofinance Fund Germany: remaining 80% default riskBank: provides micro-loan to borrower (no risk - 100% cash collateral)* BMWi - Ministry of Economics and Technology**BMAS - Ministry of Labour and Social Affairs
14Microfinance Fund Germany. The Structure DMIMicrofinance Fund GermanyRecommendation on cooperation with micro-finance providerCash deposit (100%)FeeQualificationAccreditationMonitoringMicrofinance provider assumes 20% of the first lossBankLoan recommendationInterest and redemptionLoan agreementAdviceMicrofinance provider (e.g. start-up centre)Start-up / young enterpriseLoan application
15Microfinance Fund Germany. Experiences (1) Increasing number of micro-loans increase of 15% to 20% expected in 2008Loan commitments until 09/2008: some 180 loans and 1,1 Mio. EUR disbursedAverage loan size: ≈ 6,500 EUR (max. 10,000 EUR)Average term: ≈ 20 months (max. 36 months)Default Rate up-to-date: 4-5%2008 exp.
16Microfinance Fund Germany. Experiences (2) Low number of loans per MFI due to regional or local focus Lack of economies of scale and learning effects BUT: Success of MFIs can not only be seen in “number of loans”MFIs are very heterogeneous and act in principle independently20% First Loss Risk limits number and scale of MFIs Positive incentive Regional and local risk sharing solutions partially availableCapital Increase required Microfinance Fund Germany is looking for further investorsNetwork of different participants Connection of participants taking part in the cooperation is costly
17ConclusionsFramework conditions in Germany differ significantly from other European member states.Microfinance Fund Germany is still in an early stage of development.Performance so far satisfactory.Improvements on the way.External support required for capital increase and technical improvements.
18Thank you for your attention! Contact:KfW Bankengruppe Liaison Office to the EUPalmengartenstraße 5-9 Square de Meeûs 3760325 Frankfurt am Main B-1000 BrusselsGermany Belgium Internet: