The goals to Access / Financial Inclusion 2020 Briefing for World Bank Group President Dr. Jim Yong Kim Terence Gallagher Senior Specialist in Micro and Small Enterprise Finance Financial Institutions Group IFC World Bank Group July 3, 2014
Half the World is Unbanked ECA 55% % of adults without a formal bank account OECD 11% MENA 82% EAP 45% LAC 61% SSA 76% SA 67% 77% of adults living on $2 a day or less do not have a formal bank account 1.3 billion women worldwide remain unbanked Only 15% of adults in fragile and conflict affected states have a formal account 2
Access to Credit in the Formal Micro Enterprise Sector 37 Million - over 50% - of formal micro-enterprises worldwide are unserved or underserved Credit gap of $0.4-0.5 trillion for formal micro-enterprises in developing economies Deposit services gap of $195-238 billion in developing economies Source: IFC Enterprise Finance Gap Database (2011) 3
Financial Inclusion World Bank Annual Meetings / UN post-2015 development goals / Alliance for Financial Inclusion s Maya Declaration / World Bank Group President Jim Yong Kim recently launched an initiative to provide universal financial access to all working-age adults by 2020. Many factors still stand in the way. In the case of regulatory accommodation to new technology, for example, the gaps result from such factors as the pace of the spread of know-how among policymakers globally, national legislative and political processes, and uncertainty about the risks involved with new models. In the case of fully addressing the needs of customers at the base of the pyramid (BOP), gaps stem from a combination of doubt among providers about the likely profitability of these customers and limited knowledge inside institutions about the financial lives of the poor. In the case of client protection, providers face perverse incentives, while many regulatory bodies are only beginning the major task of establishing robust oversight of market conduct. 4
Roadmap 5
Why Does Financial Inclusion Matter? Key for economic activity Improves quality of life Helps create middle class Builds social infrastructure 6
Microfinance Contribution to Financial Inclusion Microfinance is scalable (already 200 m people reached) Microfinance is replicable (IFC has invested in more than 70 countries) Microfinance is sustainable (profitable institutions, excellent portfolio quality) Microfinance is responsible and offers a full range of services to clients Microfinance is rooted in communities and builds physical and social infrastructure 7
Microfinance Contributions to Institution Building Microfinance has become a sizeable segment in financial services: Several thousand microfinance institutions now serve more than 200 million clients globally, most of whom previously ignored by formal financial sector. Microfinance industry has established 72,000 offices in challenging locations and rural areas Larger MFIs are leading institutions in their markets providing full-fledged banking services Some MFIs are among top 3 banks in their countries (ACLEDA, Mibanco, ACBA, Equity Bank) And has accumulated substantial social capital: Industry has led to creation of supporting frameworks in form of specialized regulatory structures, transparency standards and best practices Continuous industry commitment to both social development and financial sustainability The microfinance industry employs 950,000 staff (~50% female), lending to 115 million active borrowers. There are 13,000 members of MFI boards, a third of whom are female 8
One World Bank Group Collaboration as one World Bank Group will achieve stronger Financial Inclusion World Bank & CGAP Macro Level Legislation, Regulation, Supervision IFC & CGAP Meso Level Support Services, Infrastructure IFC Micro Level Financial Service Providers Clients 9
Loans Investments - Project and corporate financing - On-lending through intermediary institutions IFC Product Offerings Industry Development Advisory - Market Diagnostics - Regulatory & legal framework advisory Equity - Direct equity investments (up to 20% of company s equity) - Private equity funds Knowledge & Expertise - Guidelines & Toolkits - Dissemination of lessons learned & good practices Trade Finance - Guarantee of trade-related payment obligations of approved financial institutions Product Development - Upscaling to SME segment & downscaling for commercial banks - Non-credit product development Syndications - Capital mobilization to serve developmental needs - Over 60 co-financiers: commercial banks, fund, and DFIs Capacity building - Training for MFI staff & management - Financial education for borrowers Structured Finance - Products including credit guarantees, liquidity facilities, risk sharing facilities, securitizations, Islamic finance Operational Support - Advice on credit technology, portfolio management, strategic planning & efficiency Risk Management - Derivative products to hedge interest rate, currency, or commodity-price exposures of IFC clients Risk Management - Comprehensive risk-management diagnostics - Risk management best practices & Toolkits for MFIs Blended Finance - Combination of concessional funds with IFC resources to finance initiatives & achieve impact that would otherwise be unattainable Technology & new growth areas - Mobile banking and alternative delivery channels, housing microfinance, responsible finance, micro-insurance 10
Achievements: IFC Investments Scale and Reach: Reached 26 million directly, 120 million projected*. IFC partner MFIs account for 40% of microfinance in India Investment: $3.5 billion committed to 215 clients across 400 projects in 73 countries (32 IDA and 10 FCS countries) Mobilization: Attracted $14 billion from other funders. Issued $1.5 billion worth of microfinance bonds to Japanese retail investors Capacity building: 400 direct projects with 215 clients, plus 200 clients through MIVs Built critical capacity in Africa and created greenfield institutions in 33 countries (commitments of $285m) Transformed 25 MFIs into full-fledged commercial banks Co-created five holding company networks with 61 subsidiaries in 44 countries Helped build microfinance fund industry, by investing $350million in 25 MIVs Leadership in governance and responsible finance Produced healthy profits *Cumulative Microfinance IDGs 2011-2014 11
Achievements: IFC Advisory Services IFC has cumulatively managed $123 million for microfinance advisory services on 190 projects in 62 countries since 2008: Capacity building, risk management, product development, responsible finance, corporate governance, mobilization of savings, transformation IFC Advisory services, by $ value of advisory projects (as of June 2013) Florence Valentina Cordero is a farmer from Yungay province in Peru and a client of Edyficar MFI. IFC advisory team worked with Edyficar to develop a microloan product for rural communities. 12
IFC Microfinance Greenfield Projects Large-scale success in capacity building: IFC helped to found 20 greenfield microfinance institutions in SSA, establishing a microfinance sector from the ground up Senegal 2 Greenfield clients Liberia 1 Greenfield client Cote D Ivoire 1 Greenfield client Ghana 2 Greenfield clients Cameroon Nigeria 2 Greenfield 4 Greenfield clients clients, 1 Transformation DRC 2 Greenfield clients, 1 existing Zambia Rwanda 1 Greenfield client Kenya 2 transformation clients Tanzania 1 existing client, 1 greenfield Madagascar 2 Greenfield clients 1 Greenfield client 13
IFC Microfinance Strategy Strategic Pillars Increased Reach and Impact Large Countries Focus 15 countries house 75% of the world s poor China, India, Ethiopia, Nigeria, South Africa, Pakistan, Bangladesh, Mexico, Indonesia, Russia, Brazil, Turkey, Egypt, Morocco, Philippines Savings Mobilization & Diversification Key for sustainability and poverty alleviation Regulatory improvements Back-office capacity Incentive structures Product diversification Capacity & Institution Building Critical for most regions Establishing flagship local or regional MFIs Greater integration with the conventional financial sector Governance and Responsible Finance Innovation & Technology Prerequisite to further sector expansion Attract new funding sources through structured finance vehicles Support product development and use of mobile & branchless banking, rural finance innovations 14
What Are We Planning to Do? Technology: Support adoption of technological solutions on national level Distribution and Reach: Develop alternative channels and new partnerships Product Innovation: Develop innovative solutions for unbanked beneficiaries Digital ID technology (India Aardhar program, Nigeria ID program) Digital Payment and Mobile Banking services (Tameer Bank, BSP PNG) Client Upscaling (Bandhan transformation) Co-operation with real sectors: Value Chain integration (Renewable Energy Facility, Ali Baba) Micro-franchising (Unilever/Shakti, Essilor) SOEs(India Post, China Postal Bank) and Cooperatives Agri-Finance / Rural Finance / Education-targeted credit products Healthcare services (ProMujer) Banking on Women services Innovative Finance: Develop additional channels of financing Public + Private Sector collaboration : One Bank approach to meso/macro level engagement Structured finance solutions (e.g. asset side and liability side securitizations, covered bond issuance, ) Broadening impact investment fund involvements Greater availability of local currency funding Coordinated effort on regulatory improvements Collaboration on Apex and blended finance program activities (MISFA Facility) 15
What are Our 2020 Targets? In addition to our existing reach: Mobile Technology 200 million clients Bank Downscaling 50 million clients Alternative Delivery Channels 100 million clients Transformation / Scaling up 50 million clients 16
Potential, and our own work Digital Finance Growth in digital financial services has outstripped all others (commercial banking/microfinance etc) Growth particularly impressive in Africa: 100 million registered mobile money accounts (43% active): twice as many as Facebook users representing 70% of active mobile money users globally 17
Digital Finance Implications for Financial Inclusion: Rapid increase in participation in formal financial services Kenya: 66.7% usage in 2013, vs 27.4% in 2006 Tanzania: 58% usage in 2013 up from 16% in 2009 Corresponding rise of use of formal bank accounts 18
Conclusions Financial inclusion matters for development, poverty reduction, and shared prosperity Microfinance is key building block in infrastructure for financial inclusion IFC has played leading role by building MF industry through investment, mobilization, partnerships, capacity building, and creating momentum for reach and scale The reach agenda remains significant and daunting IFC is well positioned to utilize its built up capacity and private sector leadership But we need to expand the use of new and alternative platforms (mobile technology, alternative delivery channels, MNCs, PPPs) Reaching financial inclusion is only possible if we can solve the big country problems 19