Promoting Sustainable Development in Emerging & Developing Countries via Non Sovereign Financing

1. Promoting Sustainable Developmentin Emerging & Developing Countries via Non Sovereign Financing

2. Presentation Outline • 1. AFD Non Sovereign Financing for Banks • 2. Challenges and opportunities of SME Finance • 3. AFD and Microfinance

3. AFD Non Sovereign Financing for Banks • Providing financing at market conditions or subsidized loans without any requirement of any State guarantee • Criteria for market based credit facilities: • Only State Owned Banks are eligible • Provide long term resources to viable financial institutions • Help State Owned Banks develop their strategy and portfolio on sectors of common strategic interest • Ease the public debt burden and help SOB access market funding • Criteria for subsidized credit facilities: • Privately Owned or State Owned Banks are eligible • Subsidiarity (i.e. non competition with commercial banks or financial markets) • Additionality: • Help banks to build capacity and experience on underserved markets, which are critical for development (energy & environmental projects, SME and small entrepreneurs, …) • Use the bank as an intermediary and a catalist to improve competitiveness (sector specific upgrading programs or CSR promotion projects)

4. AFD Non Sovereign Financing for Banks • Key Eligibility Criteria • Strong governance & autonomous financial management • Anti-Money Laundering / Terrorism Financing procedures in line with FATF 40 + 9 recommendations • Availability or willingness to develop an adapted Environmental & Social Risk Management System • Satisfactory risk rating based on AFD’s analysis and Ratings from International agencies (capital, asset quality, management, profitability, sensitivity to market risks Financial Tools : • Non sovereign loans (concessional or market conditions) • Technical Assistance (small grants) to help the implementation of the project, when needed • ARIZ Risk sharing scheme for SME financing Financial terms: • Maturity: from 10 to 15 years, grace periods • Hard currencies (USD, EUR), local currencies • Fixed or floating rate • Unsecured Senior Lending with cross –default and a negative pledge to protect pari passu status

5. Credit LineMechanism Bank AFD Credit Facility Eligibility criteria Loan Loan Loan Eligible Client Eligible Client Eligible Client

6. AFD Credit Line mechanism • AFD credit line can be used by the Bank to finance Long term loans to renewable Energy projects which respects eligibility criteria (financial and technical) • The projects will be selected according to bank’s standard norms and procedures • The Bank takes the full risk on the final beneficiary, AFD does not interfere in the bank’s selection process • Partnership AFD-partner bank: the partner bank passes on the soft component of the loan (if any) or maturity to the final beneficiary: the loans to final clients should mirror the lower than market rate or extended maturity of the AFD credit facility. • AFD to implement capacity building for the bank if required

7. The Currency Exchange Funds NV Providing local currency funding

8. Presentation Outline • 1. AFD Non Sovereign Financing for Banks • 2. Challenges and opportunities of SME Finance • 3. AFD and Microfinance

9. SME Banking opportunities and challenges Opportunities to finance SMEs

10. SME Banking opportunities and challenges Barriers to the SMEs financing

11. AFD’s Approach Towards SMEs AFD’s Objective: • Tackling this market failure by bridging the gap of the « missing middle finance » How? A. By providing a risk-sharing tool to commercial banks (ARIZ guarantee lines) B. By extending credit facilities at soft conditions to commercial banks engaged in an ambitious SME lending strategy

12. ARIZ – Partial Risk-Sharing Mechanism • To give SMEs and MFIs better access to financing through a program that encourages banks’ participation in a risk-sharing mechanism Key Objective Main Characteristics • Is targeted toward loans financing SME’s capital expenditures (i.e. medium term investments) or refinancing MFIs • Covers all risks including political risk and natural catastrophes • Potential beneficiaries • All small and medium private companies and MFIs • All business sectors (except real estate, tobacco, alcohol and weapons), • Start-ups or development projects • Applies to loans denominated in local currency, USD or EUR

13. AFD’s SME Credit Facility Objectives • To promote the missing-middle finance due to major potential for contribution to economic growth and employment • To engage banks in an opportunity to increase market shares and enhance profitability • To build banks capacities in the approach towards SME clients AFD’s Answer • Subsidized credit facilities and technical assistance scheme to implement a “downscaling” program • Integrate SME lending strategy into your institution’s business plan • Technical assistance and advisory services in the following main areas: • Staff training • Risk procedures and management • Operational Conditions to Be Eligible for a Subsidised Credit Facility from AFD • Set SME lending objective of at least the amount of the credit facility • Allocate specific means (small coordinating team, mobilisation of network) • Use the “financial advantage” of the AFD credit facility to cover its specific risks and additional costs (technical assistance)

14. Presentation Outline • 1. AFD Non Sovereign Financing for Banks • 2. Challenges and opportunities of SME Finance • 3. AFD and Microfinance

15. AFd and microfinance : more than 20 years of experience • Important Dates: AFD has been supporting Microfinance since 1988 • 1988: AFD’s first microfinance operations in Guinea and Burkina Faso • 1995: AFD joins the Consultative Group to Assist the Poor (CGAP) • 2002: A dedicated microfinance team is set up at AFD’s headquarters • 2005: “Year of Microcredit” and AFD organizes the Paris International Conference • 2007: Proparco, AFD’s subsidiary, completes the range of products to finance microfinance by offering equity investments, subordinated loans and commercial loans • 2009: FISEA (Investment and Support Fund for Businesses in Africa) is launched. The fund makes equity investments in Sub-Saharan Africa, particularly in microfinance • 2010: AFD adheres to the Client Protection Principles promoted by CGAP and ACCION International. AFD co-organizes the Marketplace on Innovative Financial Solutions for Development and Convergences 2015 conference in Paris.

16. Diversity of financial and non financial products • 2 complementary microfinance facilities: • Microfinance Investment Facility for loans and equity investments in LCY (30 MEUR) • Technical Assistance Facility (20 MEUR) • Credit lines at market rates (floating interest rate) through Proparco • Guaranties: ARIZ & ad hoc • Specific TA facility on AML and E&S risk management (max: 50 000 EUR) • Research and Knowledge Management projects

17. Strong growth of commitments • Over 350 MEUR of cumulated commitments in microfinance • 50 MFIs supported, mostly in rural areas • In 2010, over 75 MEUR invested Million EUR

18. Thank you !

19. SME Banking opportunities and challenges The « Missing Middle Finance » Domestic and International Commercial Banks LARGE CORPORATIONS Usually / Frequently Unaddressed Market by commercial banks SMALL and MEDIUM ENTERPRISES State or National Development Banks SMALL ENTREPRISES MICRO-ENTERPRISES MFIs

20. ARIZ Provides Two Types of Guarantees ARIZ INDIVIDUAL GUARANTEE ARIZ PORTFOLIO GUARANTEE • Issued on a deal-by-deal basis • Tailored to the bank’s needs • Guarantees any type of medium term investment (capex) loan • Guarantees maximum 50% of the loan (up to 75% for MFIs) with an upper limit of €2m (i.e. 50% of a €4m loan) • From 2 to 12 years maximum guarantee (starting at 1 yr for MFIs) • Targets the “Missing Middle” or “Mesofinance” sector • Guarantees up to 50% of loans between 10,000€ and 300,000€ with a maturity between 1 and 5 years • Defines a target group of final beneficiaries: by cluster, region, state, etc. • Delegation - ARIZ’s Portfolio Guarantee is a “guarantee line”: Guarantees are automatically issued by the bank with the loans provided these match the key qualification criteria defined by the bank and AFD

21. Technical Assistance Possible Points of Application

22. A multi-layered approach Foster access to financial services MACRO Work alongside with central banks, MFIs networks and regulators Creating an enabling legal and regulatory environment Develop synergies between actors Contribute to the debate and foster knowledge on microfinance Organize and take part in main conferences on microfinance MESO Strengthen financial institutions Commercial banks, Investments funds Capacity building … to use their financial resources and markets more efficiently MICRO Support local MFIs at different stages Transforming institutions Bringing resources Building capacity Providing technical assistance

23. Important projects in Asia Support the development of the People’s credit fund (PCF) - Viêtnam PCF is a network of 1000 rural cooperatives, with an outreach to 1,2 millions small producers, aiming at providing them with acess to financial services and to a sustainable financial situations. PCF is refinanced by the Central Credit Fund (CCF). • AFD financial commitments: • 30 M EUR concessional credit line, 20 years, to finance a new financial product : long term investment loans for rural small businesses and micro-entrepreneurs • 500 000 EUR grant for technical assistance to the PCF • Objectives : • - Support the growth of PCF • Support the diversification of PCF loan products to longer term Investment Loans • Support the management of the network and the quality of operations • Implementation details : • Allocation of the credit line and of the grant to the MoF (sovereign loan), then on-lending to the CCF, on-lending to the PCF • - Transfer of the management of the grant to the CCF

24. Important projects in Asia Support the First Microfinance Bank (FMFB) in Afghanistan FMFB is one the most important MFIs in Afghanistan. Member of AKAM and applying the best practices of the sector. • AFD Financial Commitments : • Granting of 2 Credit lines to refinance FMFB activities: • Credit line of 4 M USD, 10 years, market rate • Concessional Credit Line of 1 M EUR in LCY, 8 years • Objectives: • Strengthen the portfolio growth and financial performance of FMFB • - Foster LCY micro-credit offer • Promote the access of women to financial services • Implementation details : • USD Credit Line at market rate, dedicated to the refinancing of traditional lending activities • Concessional Credit line, exchange risk transferred to AFD, to promote LCY loans, in particular to women

25. Presentation Outline • 1. AFD Non Sovereign Financing for Banks • 2. Challenges and opportunities of SME Finance • 3. AFD and Microfinance • 4. Agricultural Finance Innovations

26. Financing the agricultural sector: obstacles • In most of the countries of AFD’s intervention, the financial needs of the agricultural sector are not covered. This situation leads to a lack of development, poverty in rural areas and absence of food security. • Difficulties for the financial institutions to finance the agricultural sector : 1 High delivery cost, proximity 2 Weak farm practices and farmers 3 Lack of banking technology 4 Collateral 5 Exogenous Risks (climate, price volatility) 6 Weak collaboration among farmers

27. Financing the agricultural sector : innovations and solutions

28. Financing the agricultural sector : innovations and solutions

29. AFD’s tools to support agricultural finance AFD can work with agricultural development banks, commercial banks, MFIs, Business Developement Services, Farmers Organisation and partners with smallholders as much as agroindustries.

30. Ghana Rubber Outgrower Scheme • Importance of AFD envolvement • Between 1986 and 1990: participation to the rehabilitation of plantations and creation of a new factory • Since 1995: Plantation Projects to Small Holders, 4 successive phases

31. AFD Loan in EURO Local Banks Loan in EURO Loan Repayment Investment Financing, cash advance Seedlings, Inputs Tecchnical Assistance Small Holders Technical Operator GREL Sale of the production

32. CECAM Madagascar : warehouse receipts and leasing • CECAM : major microfinance network of Madagascar for the number of clients, branches and loan portfolio • AFD has supported CECAM since its creation through, grants, guarantees and a concessional credit line. • CECAM offers specific products to cover agricultural sector’s needs for financing: • Warehouse receipts systems - Grenier Commun Villageois (GCV) : credit granted to the farmers based on warehouse receipts, to cover their financial needs between two harvets. • Leasing solution - Location Vente Mutualiste (LVM) : CECAM owns the equipment untill the credit has been completely reimbursed. • Harvets credits with possibility of in fine reimbursement • Those products account today for 90% of CECAM’s loan portfolio and are strongly contributing to its growth (+17,4% in 2010).

33. The synthetic Local Currency Loan ❶ AFD (lender) TCX (hedge provider) LCY 7% ❷ ❶ USD 3% offshore Interest Payments for 10-yr at LCY 7% settled in USD Principal repaid in USD Principal in USD ❸ onshore LCY Income Client (borrower) Product/Service Principal repaid in USD Principal in LCY ❸ USD equivalent Principal repaid at LCY 7% ❷ ❶ Interest Payment at LCY 7% Principal in USD FX Spot Market