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Microfinance: How to fight poverty when you are a commercial bank The BNP Paribas Model

Microfinance: How to fight poverty when you are a commercial bank The BNP Paribas Model. By Alain Lévy. « The poor stay poor not because they are lazy but because they have no access to capital » Milton Friedman Nobel Prize for economics. Introduction. Plan of the Presentation. 1.

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Microfinance: How to fight poverty when you are a commercial bank The BNP Paribas Model

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  1. Microfinance: How to fight poverty when you are a commercial bank The BNP Paribas Model By Alain Lévy

  2. « The poor stay poor not because they are lazy but because they have no access to capital » Milton Friedman Nobel Prize for economics Introduction

  3. Plan of the Presentation 1 Brief Presentation of BNP Paribas 2 How and why BNP Paribas is involved in Microfinance A pioneer in microfinance in France An increasing involvement in the world since the years 2000s The stakes of BNP Paribas to be in microfinance 3 A specific model designed for this mission In an increasing market with different kinds of MFIs,… …our business model aims to reach a double bottom line BNP Paribas is looking for MFIs with criteria meeting our policy In that purpose, all the departments of the bank are involved. 4 Based on our experience, 6 key success factors are necessary for a commercial bank to be active in Microfinance 5 Our results Conclusion

  4. Presentation of BNP Paribas Group A global presence BNP Paribas is present in 88 countries (coloured), including around twenty where microfinance plays an important role (dark blue) Main Figures

  5. Plan of the Presentation 1 Brief Presentation of BNP Paribas 2 How and why BNP Paribas is involved in Microfinance A pioneer in microfinance in France An increasing involvement in the world since the years 2000s The stakes of BNP Paribas to be in microfinance 3 A specific model designed for this mission In an increasing market with different kinds of MFIs,… …our business model aims to reach a double bottom line BNP Paribas is looking for MFIs with criteria meeting our policy In that purpose, all the departments of the bank are involved. 4 Based on our experience, 6 key success factors are necessary for a commercial bank to be active in Microfinance 5 Our results Conclusion

  6. How andwhy BNP Paribas is involved in Microfinance A pioneer in Microfinance in France 1. A pioneer in France… • Since 1993, partnership between BDDF (FRB – French Retail Banking) and Adie (Association pour le Droit à l’Initiative Economique): EUR300 000 a year • In 2009,Projet Banlieue (project for underpriviledged areas) coordinated by the BNP Paribas Foundation supports job creation via microcredit, in partnership with Adie: • 650 000 euros/year grant over 3 years • Support for the creation of 6 new microcredit branches in problem urban areas • Coaching of 700 microentrepreneurs • In 2006, 1400 projects were financed by BNPP through Adie for a total of EUR 5 million Other initiatives in France • Obli Etheis: mutual fund part of the Retail Banking range of product for private individuals including a 5-10% microfinance pocket, since 2008 • JACADIE Project – Voluntary Work (J’Accompagne les Créateurs de l’Adie) • Involvement of active and/or retired Group staff members in France to help Adie microentrepreneurs: 66 persons involved since 2005

  7. How andwhy BNP Paribas is involved in Microfinance An increasing involvement in the World since the years 2000s • Positive experience in refinancing MFI since 2001 through International Retail Banking Network in Africa (Morrco, Guinea, Egypt, Madagascar) in developing countries • Target countries (* already active in microfinance) • Africa: Mauritania*, Morocco*, Algeria, Tunisia*, Egypt*, Senegal*, Guinea*, Mali*, Burkina*, Madagascar* • Asia: India*, Vietnam, Philippines*, Indonesia, China • LatinAmerica: Mexico*, Argentina*, Brazil, the Caribbean, Colombia, Perou; Distribution of Microfinance fundsembedding international MFIs • ResponsAbility Fund / Planet Financedistributed by BNP Paribas international private banking since 2005 • Dexia Blue Orchard Fund distributed by Banque Privée Anjou Voluntary Work through MFSF Initiative (Microfinance Sans Frontières) Employees and retired staff members bring their skills to MFI: 10 projects supported since 2007.

  8. How andwhy BNP Paribas is involved in Microfinance A social responsibility stake • Microfinance is a natural field for bank social responsibility • Poor people inclusion in financial system Implementation of Microfinance Group An innovation and social entrepreneurship stake • 100% business (costs and risks coverage) • 100% social in its objectives (maximising the social impact) • June 2006 : Agreement in principle of the Group Executive Committee • November 2006 : analysis of the risk model • December 2006: Operational Launch • May 2007 : Allocation of a €100 Millions envelope for risks • According to Global People Survey, social responsibility is the strongest leverage for collaborators motivation • Particular impact on young employees who want to match professional life with social commitment A Human Resources stake

  9. Plan of the Presentation 1 Brief Presentation of BNP Paribas 2 How and why BNP Paribas is involved in Microfinance A pioneer in microfinance in France An increasing involvement in the world since the years 2000s The stakes of BNP Paribas to be in microfinance 3 A specific model designed for this mission In an increasing market with different kinds of MFIs,… …our business model aims to reach a double bottom line BNP Paribas is looking for MFIs with criteria meeting our policy In that purpose, all the departments of the bank are involved. 4 Based on our experience, 6 key success factors are necessary for a commercial bank to be active in Microfinance 5 Our results Conclusion

  10. According to the Deutsche Bank survey “ Microfinance: An emerging Investment Opportunity” (December 2007) A specific model designed for this mission In an increasing Market with different kinds of MFIs 1. The MFIs we target Targets for refinancing activity 2% Regulated MFIs 8% Sustainable and profitable MFIs Future banks Targets for Technical assistance 20% Almost sustainable MFIs ( lack of funding, managerial skills…) 70% Local MFIs 100 million of customers in 2006 1’000 million of expected customers in 2015 Based on a sample of 3 000 MFIs Current penetration rate 10%

  11. Aspecific model designed for this mission Our business model aims to reach a double bottom line A banking business Microfinance includes every element of the banking process (business relationships, risk analysis) but will never be an ordinary banking business because of its extraordinary social impact + Maximise the number of poor people assisted Help to promote women’s condition (3/4 of the borrowers) A social impact A micro loan in a developing country: from 20€ to 200€ Big impact Small money = Double Bottom Line Seek community impact Seek a fair return (i.e. covering the costs)

  12. A specific model designed for this mission BNP Paribas is looking for MFIs with criteria meeting our policy Country Risk Our Policy Local (or regional) presence of BNP Paribas Our Critera Social Outreach Regulation Funding in local currency (local capacity, guarantee swap…) The Ideal MFI Equity & Funding Management Our financial target: to cover our costs at least Asset Quality Sustainibility Conservative approach (tenor, amount) with a view of long-term relationships Risk Management Each Credit file is presented to our Credit Committee. All those elements are taken into account for the final approval. Of course, perfect MFIs do not exist. BNP Paribas is choosing MFIs to fund contingents on their strengths and weakenesses with room for improvement.

  13. BNP PAM BP AMS / BP FIN CIB IRS GRM Cellule micro- A specific model designed for this mission 3. An intra-group activity In that purpose, all the departments of the banks are involved Professionals 50 people involved in the group, managed by central team in AMS BP with correspondent in CIB and IRS Volunteers 60 retired people from the banqk giving technical assistance to IMF or ADIE

  14. Plan of the Presentation 1 Brief Presentation of BNP Paribas 2 How and why BNP Paribas is involved in Microfinance A pioneer in microfinance in France An increasing involvement in the world since the years 2000s The stakes of BNP Paribas to be in microfinance 3 A specific model designed for this mission In an increasing market with different kinds of MFIs,… …our business model aims to reach a double bottom line BNP Paribas is looking for MFIs with criteria meeting our policy In that purpose, all the departments of the bank are involved. 4 Based on our experience, 6 key success factors are necessary for a commercial bank to be active in Microfinance 5 Our results Conclusion

  15. Based on our experience, 6 key success factors are necessary for a commercial bank to be active in Microfinance Based on BNP Paribas experience in microfinance, we identified 6 key factors for a commercial bank to launch a microfinance project The Committment of the top Management • The top management must be convinced about the social benefits and the seriousness of the economic model Local partnership with MFIs Local bankers know better the MFI than people from the Head Office. Moreover local staff is always very proud to contribute to such a social responsibility action Project leaderskills He should be a social entrepreneur, able to move the bank from the inside into innovative fields

  16. Based on our experience, 6 key success factors are necessary for a commercial bank to be active in Microfinance Taming the risks • Each case must be examined individually in the framework of the microfinance policy. A specific credit has to be defined with the risk management Social indicators • We must be able to measure our social impact. 3 simple indicators are: how many people do we finance through our loan? Proportion of women? What is the average retail loan? Communicate but not overstate • We are proud of what we do in microfinance, we must communicate. But too much communication kills communication. Image has to perfectly match the reality of the business

  17. Our results • BNPP Microfinance covers its costs • EUR 60 Mio inutilisations with 21 partners in 12 countries • Social Impact: 438 000 borrowers, representing 2 million impacted people • Technical Assistance - MSF (Microfinance Sans Frontières) : 10 projects - JACADIE: 60 people involved • Microfix: Specialised funds to hedge foreign currency risk, to be launched in 2009 with Fixed Income • Health and Life Micro-Insurance, Partnership with SBI in India. 10 Mio of contracts for 2009 Equity stake in Planet Guarantee to serve worldwilde the reinsurance demand of MFIs • Financités/Planet Finance (France): 1 Mio € is invested in equity in small business units in underpriviledged areas

  18. Microfinance is not a magic tool to eradicate poverty Microfinance is not a new market segment to maximize our profits Microfinance should remain a responsible business and not a usual business Do MFIs really finance the poor? What is the real interest rate they charge? What about the risk of overindebtness? Where are the limits between microfinance and consumer lending? In those conditions, responsible banks will be able to contribute really to financial inclusion and poverty alleviation Conclusion

  19. Thank you for your attention -Questions-

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