WHY PRIVATE CAPITAL MATTERS: LINKING WITH BANKS TO EXPAND ACCESS TO CAPITAL–

1. WHY PRIVATE CAPITAL MATTERS:LINKING WITH BANKS TO EXPAND ACCESS TO CAPITAL– POLICY LESSONS FROM INDIA, SO. AFRICA, AND THE U.S. John Taylor President and CEO National Community Reinvestment Coalition

2. Title Subtitle Presentation overview: • About NCRC (www.ncrc.org) • Global Fair Banking Initiative • Innovative policy in INDIA • -- in SOUTH AFRICA • -- in the UNITED STATES

3. NCRC is the United States’ trade association for over 600 local government, social & community economic development practitioners, community-based credit unions, faith-based institutions, non-profit housing development organizations and others working to build wealth for traditionally excluded populations. Rev. Jesse Jackson Federal Reserve Chairman Alan Greenspan -- at NCRC’s annual meeting America’s leaders recognize and respect NCRC’s work. We now collaborate with more than 20 nations to expand planning and action toward greater economic opportunity around the globe. U.S. Senator Hillary Clinton Chairman Alan Greenspan at NCRC Annual Meeting www.ncrc.org

4. NCRC’s Global Fair Banking Initiative: ~~~~~ AIM – To provide a forum for collaboration on economic justice issues MISSION – Influence and augment global fair banking patterns of the private financial sector Build Principles of Fair Access to Capital and Financial Services into national and international mandates for banks

5. Global Fair Banking/GFB -- ACTIVITIES: 1. Collaborative planning 2. GFB listserve – Sign up at: <http://groups.yahoo.com/group/GlobalFairBanking> 3. GFB conferences & workshops 4. GFB website: <www.globalfairbanking.org>

6. Ideal scenario for sustainable development for excluded populations around the globe:Microfinance PLUSGlobal Fair Banking!

7. Proven fact – Microfinance works! Heavy investment already in MF Industry BUT – Funders seek to end subsidy TIME OF TRANSITION: Mergers, consolidations, even commercialization ~~~~~ How can MF Industry access private capital without being forcedto compromise mission? ~~~~~ Newest challenge for MFI leaders

8. MFI market = 260 million people 500 million un-banked people Credit need = US$9 billion Banks sanction only US$400 million THE CHALLENGE: Link with banking sector for a sustainable flow of credit, investment and financial services for excluded populations THE CASE OF INDIA

9. Microfinance feeds vibrant local economies Government loans to MFIs and runs its own MF programs However - Government & its agencies have limited outreach Innovations & creative partnerships key to success Microfinance benefits India

10. Cooperatives Rural branches of banks Non-banking financial institutions Government-funded public banks Differential rates of interest Government-issued credit cards HOW INDIAN GOVERNMENT REACHES MFIs & RURAL POOR

11. Government agency restrictions – In order to make large numbers of small loans, they must be risk free Slow economy limits cash flow for loans Rampant corruption LIMITATIONS OF GOVERNMENT PROGRAMS

12. By themselves, public banks & MFIs unable to raise sufficient funds Must link to private sector banks to achieve sustainable finance on such a large scale To reach massive population,COLLABORATION IS KEY

13. Successful model (small scale) now being expanded nationwide Potential MFI partners: - 27 nationalized/public sector banks - 36 foreign banks in 5 largest cities - 1000 urban, rural & cooperative banks - Thousands of non-banking financial institutions BANK LINKAGE PROGRAM

14. Lack bank regulation to encourage private banks to invest in low-income & rural communities Only a voluntary “Fair Practices Code” ~~~~~~~ Need for legislation in India Potential constraint – The limits to voluntarism

15. THE CASE OF SOUTH AFRICA

16. In 2003, only 48% of population had a transactions account Only 49% had savings accounts Only 57% had a form of credit Only 42% had insurance History of limited access to finance

17. Virtual monopoly in the South African banking system Government limits banks to 4 “pillars”: 1. Amalgamated Banks of South Africa/ABSA 2. Nedbank 3. First National Bank 4. Standard Bank

18. Recent & pending legislation to increase access & open opportunities for the poor: Financial Advisory & Intermediary Services Act of 2002 Home Loan & Mortgage Disclosure Act of 2000 Banks Act of 1990 & Amendment of 2000 Mutual Banks Act of 1993 & Amendment of 1999 Dedicated Banks Bill of 2003 Community Reinvestment Bill Financial Services Act Post-Apartheid Financial Sector:

19. CASE OF THE UNITED STATES

20. Before effective law was created: • Despite existing law, lenders avoided whole communities • Evidence became clear – Access to credit key to renewing economies in low-wealth neighborhoods • Government lacked resources to solve it all • Consensus grew that private financial institutions must become partners for a fair economy

21. In 1977, U.S. Congress passed theCommunity Reinvestment Act~~~~~ • Made illegal the practice of discrimination by banks on a neighborhood or geographic basis • Required that safe & sound credit be made available in a fair manner, regardless of class/class/gender

22. Lending Test Investment Test Financial Services Test~~~~~Rating Scale: 1. Outstanding 2. Satisfactory3. Needs to Improve 4. Substantial Non-Compliance The Mechanics of CRA

23. PERFORMANCE INDICATORS: Lending activity Geographic activity Borrower characteristics Community Development Lending Innovative or flexible lending practices Big Bank test(for banks with assets over $250 million)

24. THE INVESTMENT TEST: Banks With Assets >= $250 Million PERFORMANCE INDICATORS PERFORMANCE CONTEXT The dollar amount of qualified investments 1. Demographic data on median income levels, distribution of household income, nature of housing stock, housing costs, and other data. 2. Lending, investment, and service opportunities in the bank’s assessment area(s). 3. The bank’s product offerings and business strategy. 4. The institutional capacity and constraints, including the size and financial condition of the bank, the economic climate (national, regional, and local), safety and soundness limitations, and other considerations. 5. The bank’s past performance and the performance of similarly situated lenders. 6. The bank’s public file. The innovativeness or complexity of the qualified investments CRA RATING ON INVESTMENT TEST:• Outstanding • High Satisfactory • Low Satisfactory • Needs to Improve • Substantial Noncompliance The responsiveness of the qualified investments to credit and community development needs The degree to which the qualified investments are not routinely provided by private investors

25. • CRA Public Evaluations • Lending Data • Public Hearings on Mergers More Mechanics of CRA

27. CRA’s Impact

28. Measuring CRA SUCCESS • CRA has encouraged collaboration between banks & community groups (NGOs) across the U.S. –CRA Agreements • Lending to low/moderate-income borrowers way up • Minority homeownership rose over 200% in 10 years • Huge growth in # of NGOs funded by banks to serve low-wealth populations

29. Small business & micro-loans to woman & minorities is up across the U.S. Investments now in the 10’s of billions of U.S. dollars Traditionally poor neighborhoods recovering rapidly – in some instances with unwanted “gentrification” Multiple studies confirm CRA benefits CRA lending has proven to be safe, sound and profitable Measuring CRA SUCCESS[continued]

30. Steady Increase in CRA $ Commitments (in millions)

31. Distribution of bank commitments by category

33. CRA Challenges • Globalization of banking can result in safety & soundness issues, as well as less bank loyalty to local communities • Hybrid financial institutions, with predatory or extortionist lending practices strip assets • Financial education is also key to success in helping poor people build wealth

34. Critical importance of understanding the role of private sector capital in building communities Need laws & regulations that encourage and support banks to collaborate with MFIs and other NGOs to achieve outreach As finance goes global, NGOs must also organize across borders to achieve innovative and collaborative strategies for combating poverty and exclusion WE INVITE YOU TO JOIN US to help “get the framework right” for the global financial sector In conclusion

35. Thank youPlease contact me at<jtaylor@ncrc.org>