Enhancing Transparency and Creating Impact in Microfinance Experiences of KfW

Transcription

1 Enhancing Transparency and Creating Impact in Microfinance Experiences of KfW Impact & Transparency The Investor s Persepctive 8th University Meets Microfinance Workshop of the e-mfp UMM Action Group Matthias Adler, KfW Frankfurt School of Finance & Management July 20 th, 2012

2 Overview 1. Why is impact and transparency so relevant? 2. Dimensions of lack of transparency and its consequences 3. How does KfW create impact and transparency in microfinance? 4. Conclusions 2

3 Why is Impact and transparency so relevant? 1. No sustainable impact without responsible service delivery 2. Over-indebtedness, governance and management quality top 3 banana skins (7 of top 10 banana skins are responsible finance related) 3. Transparency needs responsible investors DFIs are part of the story 4. Microfinance under scrutiny role for DFIs to set standards, particularly for large funders, such as KfW impact in microfinance = professional microfinance = responsible finance 3

4 Dimensions of lack of transparency and its concequences High growth/ return expectations Low credit approval standards Regulators Investor/ Financiers fund managers financial institutions clients Funding distortions Unhealthy Competition, multiple borrowing Client overindebtedness Low client awareness/irresponsible borrowing 4

5 Responsible Finance as a Response Strategy what does it mean to KfW s role? Strengthening responsible finance practices is part of KfW s additionality as microfinance funder Promote transparency and fair treatment at institutional, policy and sector levels Be a patient investor - buy and hold Strengthen MFIs governance through board seats Crowd in the private sector, through Public Private Partnerships 5

6 How does KfW create impact and transparency in microfinance? Board/IC Meetings internal mainstreaming (Due Diligence Check lists, concept paper etc.) Yellow/ Red Lines Working with the Private Sector (PPP) Impact and transparency through responsible finance Strong Management Buy-in Financing market infrastructure Performancebased monitoring Responsible Finance Contract clause 6

7 Conclusions DFIs role far beyond mere financing DFIs have been the drivers of promoting responsible delivery Key challenges: preparing the ground for future responsible investors and for conducive MFI governance; creating sound financial institutions capable of providing for impact 7

8 Thank you for your attention! Matthias Adler KfW, Competence Centre Financial Systems Development Tel.: (more background info on LinkedIn)

9 KfW-Microfinance portfolio 2011 (I): (Mio. EUR) Portfolio outstanding, EUR million : EUR 2.1 bn invested in nearly 200 Microfinance projects in more than 70 countries 9

10 KfW Microfinance portfolio 2011 (II) Growing share of equity finance, predominance of funding with KfW s own funds 7% 24% German Budget Funds 2% 8% KfW Funds Fixed Income 12% 69% Mandates Equity Finance Mezzanine- Financing TA 54% Guarantee 24% 10

11 KfW-Development Bank Important Microfinance provider in Developing and Transition countries Others 44% KfW 18% EBRD 7% Total commitments, 2010 of all DFIs: 9,1 bn. USD Source: CGAP, funder survey 2011 IFC 13% World Bank 11% AsDB 11% 11

12 How to avoid irresponsible finance: Critical Aspects at institutional level! Low quality standard for loan procedures Very bad portfolio quality Significant portfolio growth High staff turnover Very short credit analysis, no questions asked Insufficient loan loss reserve Significant evidence on multiple loans! Exclusive/Predominant share of consumer loans in loan portfolio! unfair marketing, low level of transparency! Doubtful loan enforcement practices! Currency risk with end borrower! Violation of local regulations at sector level! Ruinous competition in relevant segment of the market! High number of non-sustainable MFI/MCI! Excessive interest rates in the market! High share of consumer lending! Absence of effective credit bureaus, no Government willingness to address this! Weak banking supervision 12