1. 1 Trends and Lessons from Global experience Renate Kloeppinger-Todd Rural Finance Advisor The World Bank Afghanistan Rural Finance Conference December 13-14, 2004

2. Afghanistan Rural Finance Conference - December 13 - 14, 2004 2 Presentation Outline Regions and countries with relevant experiences Relevant conditions Solutions implemented Lessons learnt Recommendations

3. Afghanistan Rural Finance Conference - December 13 - 14, 2004 3 Regions and countries with relevant experiences Caucasus Azerbaijan, Georgia, and Armenia Eastern Europe and Central Asia Lithuania, Bosnia, Kyrgyzstan, Tajikistan, Africa Mauritania,

4. Afghanistan Rural Finance Conference - December 13 - 14, 2004 4 Relevant Conditions Civil unrest or war Absence of / Complete breakdown of banking system Absence of or poor property rights Little enforcement of laws and regulations Loss of most external markets Poorly maintained infrastructure Little knowledge of market economy

5. Afghanistan Rural Finance Conference - December 13 - 14, 2004 5 Solutions Implemented 1 Financial cooperative / credit union system developed. Kyrgyzstan, Moldova, Georgia, Azerbaijan, Albania Specialized institution founded Kyrgyzstan, Lithuania, Mauritania Linking commercial banks to village level financial associations Moldova Setting up MFIs that also work in rural areas Georgia, Kyrgyzstan

6. Afghanistan Rural Finance Conference - December 13 - 14, 2004 6 Solutions Implemented 2 Leasing Kazakhstan, Uzbekistan, Romania, Pakistan, Uganda, Madagascar Restructuring of State-Owned Agricultural Banks Mongolia, Tanzania

7. Afghanistan Rural Finance Conference - December 13 - 14, 2004 7 Lessons Learnt 1 Creating Specialized Institutions from scratch Creation of legislative framework Significant amounts for technical assistance and capacity building Strong, dedicated and knowledgeable management team and advisory board Long-term vision

8. Afghanistan Rural Finance Conference - December 13 - 14, 2004 8 Lessons Learnt 2 Financial Cooperatives / Credit Union Systems Appropriate legislative framework Clear supervision responsibilities Systems approach (networks of village- based CUs and second tier institution) Significant amounts for TA and capacity building Savings first approach until repayment is proven – then possibly credit lines for refinancing

9. Afghanistan Rural Finance Conference - December 13 - 14, 2004 9 Lessons Learnt 3 Linking Commercial Banks to Village – Level Associations Motivated and capable commercial banks Capacity building for banks and the new associations Training of accountants and book- keepers on the village level Capacity building of borrowers

10. Afghanistan Rural Finance Conference - December 13 - 14, 2004 10 Lessons Learnt 4 Setting up MFIs that also work in rural areas Difficult to achieve significant outreach due to capacity constraints for small institutions MFIs need to have a solid base before venturing away from their core business Internal portfolio diversification between urban and rural areas reduces risks Very close portfolio monitoring is required

11. Afghanistan Rural Finance Conference - December 13 - 14, 2004 11 Lessons Learnt 5 Restructuring of State-owned Agricultural Banks Strong Government commitment to ring- fence the institution and to refrain from influencing decision making Strong external management with decision-making powers Significant funds for management, TA and capacity building

12. Afghanistan Rural Finance Conference - December 13 - 14, 2004 12 Recommendations 1 Creating an Enabling Environment Appropriate legislative framework needs to come first for any chosen institutional forms Supervision of FIs is needed, either directly by the Central Bank or by delegated authority Property rights and land use rights in place

13. Afghanistan Rural Finance Conference - December 13 - 14, 2004 13 Recommendations 2 Guiding principals Savings first approach where feasible Strict insistence on loan repayments Development of monitoring systems and follow-up capacity Support in the form of TA, capacity building and training is MUCH more important than credit lines No pushing out of money without considering the sustainability of the institutional arrangement

14. Afghanistan Rural Finance Conference - December 13 - 14, 2004 14 Recommendations 3 Product Offerings Develop loan products appropriate for specific purposes (short-term, group loans, longer-term flexible agricultural loans) Simple and easily accessible savings products Possibly insurance products

15. Afghanistan Rural Finance Conference - December 13 - 14, 2004 15 Recommendations 4 Developing Service Providers Extension services Farmers’ associations for joint purchasing and marketing BDS with special focus on rural issues

16. Afghanistan Rural Finance Conference - December 13 - 14, 2004 16 Recommendations 5 Creating Effective Demand Matching grants for asset creation Offer of savings facilities to create equity Support all along the supply chain (product development, packaging, marketing, etc.)

17. Afghanistan Rural Finance Conference - December 13 - 14, 2004 17 Recommendations 5 THANK YOU