Partner Microfinance Foundation Weathering the storm Case Study from Bosnia and Herzegovina

Partner Microcredit Foundation Basic indicators as of Sept 30th 2011

Oncoming of the global economic crisis Strong growth of MFI Bad political and social situation The main reasons that caused the crises in MF sector: Global financial crisis Increasing unemployement rate Bad political situation and social tensions Market limitations Strong competition Poor response to the crisis from the Government Strong banking lobby

Factors from MF industry Clients’ over-indebtedness Insufficient loan appraisal process Highly competitive microfinance sector in B&H Flawed incentive systems for Loan Officers Lack of information on credit history (before CLR) Clients multiple lending High capital inflow to the financial sector Lack of industry code of conduct Fast institutional growth (profit-oriented)

Deterioration in portfolio quality as result of the financial crisis PUR > 30PartnerAverage of the sector ,79%0,76% ,62%1% ,57%2,40% ,72%8,30% I-Q ,94%10% II-Q ,88%10,42%

Compromised quality of portfolio The increase in the level of total debt write-offs The lack og demand General sense of insecurity among employees The effect of the crisis on Partner MCF:

Actions taken by Partner: Social responsibility Financial education of clients Inovative approach for lending (Mercy Corps projects) Innovative loan products (youth, farmers, etc). ISO standards (ISO 9001, 27001, 31000, 10000, etc)

The six principles Avoidance of over- indebtedness Transparent and Responsible pricing Appropriate collections practices Ethical staff behavior Mechanisms for redress of grievances Partner’s response in client’s protection: Privacy of client data

New products and services (Youth loan, Fruity loan, Insurance loan) Market leader in clients’ protection Rigorous analysis and approval Good image, clients’ trust Constant market survey Sophisticated internal systems Client oriented management Organizational: Centralization Separation of sales, approval and loan collection units Monitoring Separating sales, approval and collection of loans Employees’ satisfaction Partner’s response to the crisis:

Improvement in portfolio quality as result of taken actions PUR > 30PartnerAverage of the sector III-Q ,79%6,83% IV-Q ,05%5% I-Q ,05%7,09% II-Q ,58%5,91% III-Q ,88%5%

Financial or social performance objectives? Achieving social performance objectives leads to financial gain, which is necessary in order to continue providing social benefits to our clients.

Recommendations: Limit credit exposure per client Reduce internaly cross-borrowing from multiple institutions Strengthen loan appraisal and monitoring Develop industry-wide standards of conduct Investors should include the assessment of the compliance with the standards of the code of conduct into due diligence Harmonize risk classification (A-E) methodology in the county Clearly mark restructured loans Conduct trend analysis of comprehensive CRK data

Selma Jahic, Assistant Director for Marketing