1 / 34

Marco Elia, University of Turin - Italy Turin, 19 th January 2006

“Women’s Empowerment” Project - Pilot Course 9th- 20th January 2006. School of Management.  lfa. Marco Elia, University of Turin - Italy Turin, 19 th January 2006. Summary.  lfa. Focus and clarify what is financial sustainability Is FSS important to reduce poverty?

parson
Download Presentation

Marco Elia, University of Turin - Italy Turin, 19 th January 2006

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. “Women’s Empowerment” Project - Pilot Course 9th- 20th January 2006 School of Management lfa Marco Elia, University of Turin - Italy Turin, 19th January 2006

  2. Summary lfa • Focus and clarify what is financial sustainability • Is FSS important to reduce poverty? • An example of a commercial bank in microfinance: Banco Procredit El Salvador

  3. lfa 1. Financial sustainability

  4. Financial sustainability lfa • Financial sustainability is the ability of an MFI to cover all of its costs An institution is financially viable when it generates sufficient income from its financial services and investment activities to cover its operating expenses Financial viability requires that all the effects of subsidies, in cash and in kind donations have been removed from financial statements. Only then does an MFI has the resources to provide ongoing financial services without donor support.

  5. Financial sustainability lfa • According to the United Nations sustainability is necessary to reach a larger number of people on an ongoing basis • If MFIs remain dependent on limited donor funding they will be able to reach only a limited number of people • Financial sustainability is not an end in itself but it is the only way to reach significant scale well beyond what donor agencies can fund

  6. Financial sustainability lfa To analyze the level of sustainability of an MFI two main indicators have been developed: Operational Self Sufficiency (OSS) Financial Self Sufficiency (FSS)

  7. Financial sustainability lfa Financial Self Sufficiency (FSS) It measures the degree to which operating income covers adjusted operating expenses. The adjustments attempt to show how the financial picture of the MFI would look on an unsubsidised basis FSS shows how an MFI would look if funds had been raised on a commercial basis and if services or equipment had been purchased at a market rate and were not received as a donation

  8. Financial sustainability lfa Example The MFI ABC in 2004 showed operating expenses of 254.200 and an operating income of 255.400. It received subsidised loans (soft loans) from an international development agency (200.000 at 2%, while the market rate is 22%) and donations for 6.000. OSS= = 255.400/254.200 = 100,4%

  9. Financial sustainability lfa ADJUSTMENTS • Subsidized loans 200.000 Commercial rate of interest 22% (44.000) Actual interest expense 4.000 (2% of 200.000) ADJUSTMENT 40.000 (44.000 – 4.000) • Donations 6.000 ADJUSTMENT 6.000 FSS= = 255.400 / (254.200 + 40.000 + 6000) = 255.400/ 300.200 = 85%

  10. Financial sustainability lfa • The MFI ABC does nor show losses because it receives loans at below-market rate and donations • It is operationally self sufficient but after the adjustments needed to account all the resources on a market-price basis it shows a loss The MFI ABC does not have the resources to deliver its services without donor support

  11. lfa 2. Is FSS important to reduce poverty? The Institutionists and the Welfarists

  12. Institutionists ans Welfarists lfa Unity of commitments and concerns It masks different approaches Different types of institutions, borrowers, delivery systems put (sometimes incorrectly) under the term “MICROFINANCE”

  13. Institutionists ans Welfarists lfa MICROFINANCE SPECIALIZED FIELD THAT COMBINES BANKING WITH SOCIAL GOALS

  14. Institutionists ans Welfarists lfa • Institutionist approach (WB, CGAP, USAID) Focus on Financial self-sufficiency (FSS) and institutional scale • Welfarist approach Direct poverty alleviation among the very poor Jonathan Morduch(1998) “The Microfiance Schism”

  15. Institutionists ans Welfarists lfa THE INSTITUTIONISTS • Emphasis: FSS and breadth over depth of outreach • Center of attention: The institution • Main success index: achieve FSS

  16. Institutionists ans Welfarists lfa THE WELFARISTS • Emphasis: Depth of outreach • Center of attention: Clients • Accept and require subsidies • Grameen Bank of Bangladesh THE INSTITUTIONIST HAVE CLEARLY WON THE DEBATE TO DATE

  17. Institutionists ans Welfarists lfa PRACTICAL IMPLICATIONS • Different clients served • Different methodologies • Different institutional structures and financing

  18. Institutionists ans Welfarists lfa The Institutionist argument • Recognition of scarsity (potential demand cannot be met only by donors) • Poverty reduction requires masssive scale • BEST PRACTICES: essential step for FSS, CAPITAL MARKET ACCESS and MAXIMUM OUTREACH TO POOR CLIENTS

  19. Institutionists ans Welfarists lfa The Welfarists • Depth over breadth of outreach • FSS desirable, not necessary • Concerns that “profit-making MFIs” will lose their “social mission”

  20. lfa 3. Banco ProCredit: a Commercial Bank in the business of microfinance “Conocemos el trabajo de nuestra gente. Somos su banco” “We know the work of our people. We are their bank”

  21. Banco ProCredit lfa • Country overview • Earthquakes • Civil war (1980 – 1992) • El Salvador signed the Central America Free Trade Agreements (CAFTA) • GDP per capita US$2,100 (4,900 at purchasing power parity exchange rates) • Dollarization (2001) – increased inequalities • Huge remittances (17% GDP)

  22. Banco ProCredit lfa • Banco ProCredit • It is a for profit commercail bank that directly provides microfinance services • Founded in 2004 • Offers a full range of financial services (Loans, Savings, Insurance and money transfer) • 23 Branches

  23. Banco ProCredit lfa Map El Salvador and Banco Procredit branches

  24. Banco ProCredit lfa • History • 1988: AMPES (Asociacion de Medianos y Pequenos Empresarios Salvadorenos) it was an NGO • 1995: The NGO was transformed into Financiera Calpia • Financiera Calpia was the first example of NGO transformed into a regulated financial institution in Central America and the fourth in all Latin America after BancoSol in Bolivia, BancoSol in Colombia and Caja de los Andes again in Bolivia. • 2004: Financiera Calpia transformed into Banco ProCredit

  25. Banco ProCredit lfa The ProCredit Network Founded in 1998 with aim to create and shape commercially sustainable institutions designed explicitly to serve socially relevant target groups excluded from the formal financial sector. Now the network comprises 19 financial institutions in Eastern Europe, Latin America and Africa - FOCUS ON MICROLOANS ProCredit Holding controlling shareholder in all these institutions

  26. Banco ProCredit lfa The ProCredit Network

  27. Shareholder % Country Procredit Holding AG 25.125 Germany FUNDASAL 21.013 El Salvador Internationale Finance Corporation (IFC) 15.181 U.S.A. Nederlandse Financierings Maatschappi voor Ontwikkelingslanden (FMO) 15.181 Netherlands Entwicklungsgesellschaft (DEG) 15.181 Germany Internationale Project Consult (IPC) 7.912 Germany Other 0.407 El Salvador Source: FitchRatings Banco ProCredit lfa Ownership structure – Banco ProCredit

  28. Shareholder Sector Headquarters Share Paid-up Capital (EUR) IPC Consulting Germany 21.8% 16,095,040 IPC invest Consulting staff Germany 4.2% 3,111,160 DOEN Foundation Netherlands 24.4% 17,990,960 DEG Banking Germany 4.3% 3,172,000 ProCredito Foundation Bolivia 3.5% 2,600,000 IFC Banking USA 9.2% 6,812,000 FMO Banking Netherlands 8.5% 6,240,000 BIO Banking Belgium 8.2% 6,055,400 KfW Banking Germany 10.6% 7,804,160 Fundasal Foundation El Salvador 3% 2,222,480 Responsability Investment Switzerland 1.1% 780,000 Andromeda Investment UK 1.1% 780,000 Total 100% 73,663,200 Source: ProCredit Holding Annual Report 2004 Banco ProCredit lfa Ownership structure – ProCredit Holding

  29. Banco ProCredit lfa • Products • Loans • Savings In December 2004 deposits totalled 61,530, 68% of the gross loan portfolio. Minimun balance: US$3 • Insurance on assets given as collateral • Money transfer in partneship with Western Union – also to non-clients as part of a promotional strategy

  30. Banco ProCredit lfa • Loans • Not for start-ups (min. 1 year experience) • Collaterals: traditional and alternative collaterals • Repayment capacity is analyzed • Stepped approach (Automatic loans for best customers) • Fast process • Direct visit loan officer • Weekly, biweekly,monthly instalments • Most of these features come from moneylenders’ practices

  31. Amount (US$) Interest rate Micro enterprise 25 – 10,000 18% - 30% Small enterprise 10,001 – 100,000 12% - 18% Medium enterprise 100,001 – 250,000 10% - 12% Automatic loans 25 – 10,000 15% - 27% Housing loans Maximum 40,000 14% - 18% Housing improvement loans Maximum 5,000 18% - 24% Source: Banco ProCredit Banco ProCredit lfa Banco Procredit main loan categories

  32. Loan size categories Number Gross loan portfolio (amount in US$ ‘000) < US$1,000 43,452 13,362 > US$1,000, < US$10,000 18,761 48,606 > US$ 10,000, < US$ 50,000 1,049 17,166 > US$ 50,000 106 11,199 Source: Banco ProCredit Banco ProCredit lfa Loans data

  33. Banco ProCredit lfa Gender issue 43 % total amount loans owned by women 56% number clients are women

  34. lfa Thank you • E-mail: progettomeda.saa@unito.it

More Related