1. contact@e-mfp.eu www.e-mfp.eu Keeping the Quality Standards in MFIs Niclaus Bergmann Acting Managing Director Savings Banks Foundation for international Cooperation Luxembourg, November 2009

2. contact@e-mfp.eu www.e-mfp.eu Keeping the quality standards in MFI Savings Banks Foundation for international Cooperation Founded in 1992 by the German Sparkassen (savings banks) Non-profit provider of technical assistance Portfolio end of 2009: 26 projects in 22 countries Projects mainly funded by German Government (BMZ, KfW, GTZ), Worldbank and EBRD Supporting retail banks, cooperative bank, MFIs 20 staff in HO in Bonn, Germany 100+ staff in projects

3. contact@e-mfp.eu www.e-mfp.eu Keeping the quality standards in MFI I.Challenges for MFIs General problems Fast growth Outreach vs. Sustainability Refinancing of loan business Development of new products Growing competition (Legal) environment

4. contact@e-mfp.eu www.e-mfp.eu Keeping the quality standards in MFI Changes in the donor community Shrinking role of ODA and social investors More profit-oriented MIVs (with private investors), i.e. with less developed social objectives Large funds become available to „good“ or well known MFIs „Competition“ between (social oriented) donors and (profit-oriented) MIVs

5. contact@e-mfp.eu www.e-mfp.eu Keeping the quality standards in MFI Global financial (and economic) crisis Clients: problems to repay Reduced remittances Exchange rate risks:  Refinancing in hard currency (USD and EUR)  Lending in local currency  Exchange rates dropped in many developing countries during 2009: 15 – 20 % in a few months  Repayment of existing refinancing lines becomes very expensive

6. contact@e-mfp.eu www.e-mfp.eu Keeping the quality standards in MFI Drop in EUR exchange rates in 2009 (Oct. 31, 2008 to Oct. 31, 2009) Mexico - 15.1 % Bangladesh - 15.2 % Rwanda- 17.9 % Serbia- 9.8 % Armenia- 43.3 % El Salvador- 14.3 % Vietnam- 21.0 %

7. contact@e-mfp.eu www.e-mfp.eu Keeping the quality standards in MFI II.Fields of action for MFIs Loan Portfolio Improve quality (i.e. reduce PAR) Be more selective Quality of portfolio is more important than growth/outreach

8. contact@e-mfp.eu www.e-mfp.eu Keeping the quality standards in MFI Cooperation with donors / MIVs Don’t take too much money Be selective with donors / MIVs Control/reduce FX risk (hedge or let donor take currency risk) Mix of currencies Mix of durations

9. contact@e-mfp.eu www.e-mfp.eu Keeping the quality standards in MFI Risk Management Introduce / Improve risk management  FX risk  Interest rate risk  Operational risk  Counterpart risk Hire professional staff for risk management Make risk management a priority

10. contact@e-mfp.eu www.e-mfp.eu Keeping the quality standards in MFI Professionalism in banking Efficient workflows and procedures MIS and cost management Internal audit HRM / HRD (training of management and staff) Economies of scale  Cooperation with other MFIs as alternative to growth  Setting up service-oriented networks and national MFI associations

11. contact@e-mfp.eu www.e-mfp.eu Keeping the quality standards in MFI III.Conclusions 1.Large MFIs have to develop into professional (MF-) banks 2.Profitability and social objective are no contradiction 3.Anyway, professional banking without a social objective is not microfinance Combine banking professionalism and microfinance !

12. contact@e-mfp.eu www.e-mfp.eu Keeping the quality standards in MFI Thank you !