1. European Fund for Southeast Europe Monika Beck, KfW, EFSE Board Member Sylvia Wisniwski, Frankfurt School of Finance & Management, EFSE Fund Advisor Brussels, 17 June 2008

2. Overview  Mission and Objectives  Structure, Features and Organization  Monitoring System: Development Performance and Impact  Development Impact Study 2007: Impact on Human Capital Development at MSE Level and at the Level of Financial Institutions

3.  The Fund aims to foster economic development and prosperity in the Southeast European region through the sustainable provision of additional development finance through qualified financial institutions, notably for micro and small enterprises and low-income private households. Mission and Objectives Income generation Job creation Strengthening local financial markets Providing decent shelter

4.  The Fund operates in ten nations: Target Region Products and Services 1 2 3 4 5 6 7 8 9 10 1.Albania 2.Bosnia & Herzegovina 3.Bulgaria 4.Kosovo 5.FYR Macedonia 6.Republic of Moldova 7.Montengro 8.Romania 9.Serbia 10.Ukraine Local Office

5. Structure, Features and Organization EFSE is a Luxembourg-registered SIF Fund with First Class Stakeholders Donor Agencies International Financial Institutions Private and Institutional Investors Omidyar-Tufts Microfinance Fund

6. Organisational Chart Structure, Features and Organization Shareholders Board ofDirectors InvestmentCommittee Fund Management Custodian FundAccounting LocalOffice PLIs Transaction Investment LocalOfficeLocalOffice AdvisoryBoard Promoter Shareholders Board ofDirectors InvestmentCommittee Fund Management Custodian FundAccounting LocalOffice PLIs Transaction Investment LocalOfficeLocalOffice AdvisoryBoard

7. Development Facility Principles of the Development Facility (DF)  Focused technical assistance  Link to investment  Separation from the EFSE Investment Fund  Possible earmarking of donor funds  Cost sharing of PLIs  Transparency  Co-operation with other donors Stakeholders Donors DFC OAM FS Manager Partner Institutions IF Fiduciary Agent Citigroup

8. Monitoring System The Fund’s development mission and objective receive particular attention in the monitoring and reporting. Two levels: A: Development Performance B: Development Impact

9. A: Development Performance  Quarterly monitoring of subloan portfolio  Focus on key development performance indicators: outreach and sustainability  Outreach to target group: Breadth of outreach: number of borrowers Depth of outreach: average loan balance Depth of outreach: % of loans granted < EUR 10,000 Distribution of borrowers by economic sector Loan purpose: working capital, fixed assets Maturity of the loans  Sustainability: Sub-loan portfolio quality: Portfolio at risk Principles What do we analyse?

10. Development Performance …in a Nutshell (March 2008)

11. Development Performance Subloan Portfolio Performance

12. B: Development Impact  Annual impact assessment  Development Impact Study is carried out by a third party to ensure independent opinion  Empiric study using a sample that generates statistically valid results  Results are published on the Fund’s website  Development impact on the ultimate target group  Development impact on the partner lending institutions  Development impact on the financial sector and economy, including compliance with environmental and social standards Principles What do we analyse?

13. Development Impact Study 2007 Desk study based on available data from EFSE, the sample institutions and review of relevant literature  concept paper including hypotheses and analysis approach Implementation of field study, involving a primary survey with 277 sample MSE clients from Montenegro, Serbia and Romania and interviews with 11 sample financial institutions Methodology Two-Stage approach, combining desk study and field study Based on comprehensive data analysis elaboration of study report

14. Development Impact Study 2007 Profile of MSE sample  Economic sector:  Construction: 5%  Production: 32%  Services: 29%  Trade: 34%  Size of enterprise:  63% micro enterprises (less than 10 employees)  37% small enterprises (10 – 50 employees)  Age of enterprise:  1-3 years: 10%  3-5 years: 16%  > 5 years: 74%  Gender structure: 75% male  Educational level:  Elementary school: 5%  Secondary school: 51%  Undergraduate degree: 13%  University degree: 31%

15. Impact of EFSE – End-borrower level  Vast majority of the MSE (88%) have sustained or created paid full time employment since a loan was taken in 2005 Employment Impact – Main findings 10 and > jobs created 1-9 jobs created Employment sustained Employment reduction 11% 35% 42% 12%

16. Impact of EFSE – End-borrower level  Promotion of long-term relationship between EFSE, partner institutions and end-borrowers fosters job creation  Positive correlation between number of loans taken and number of jobs created

17. Impact of EFSE – End-borrower level  More labour-intensive economic sectors - Construction (57%) and Production (56%) - more likely to create jobs than the Services and Trade sector (46% and 32%)

18. Importance of loan in the creation of jobs for the MSEs Impact of EFSE – End-borrower level  For 67% of the MSEs the loan was important to very important for the creation of jobs in their business

19. Impact of EFSE – End-borrower level Average number of full-time paid employments created 2.95 Loans to MSEs doe not primarily increase self employment or family labour – 53% show increased full-time paid employment Total number of full-time paid employment created by EFSE loans 2006-2007: > 230,000 Total number of employment (self-employment/ paid employment) created by EFSE loans 2006-2007: > 385,000 EFSE subloan amount per employment: 800 EUR

20. Access to loans and impact on enterprise growth and economic situation Impact of EFSE – End-borrower level Majority of the MSEs reported business growth  18% reported that their business would not exist or would have closed without the loan Improvement of (household) economic situation for 75% of MSEs because of the loan Without EFSE…

21. Impact of EFSE – Financial institution level Introduction of target group oriented lending  Promotion of target-group specific lending products  Cash-flow based lending methodology instead of collateral-based lending methodology Promotion of responsible finance practices  EFSE funds not used for consumer finance  Social and environmental exclusion list  Promotion of transparent and fair business operations -> transparency towards clients, fair competition  Promotion of good corporate governance

22.  EFSE is most important source of external (non-donor, non-equity) financing  EFSE financing permits partner institutions to increase portfolio volume and maturities – critical for serving the MSE market Financial impact on partner institutions Impact of EFSE – Financial institution level  EFSE often the first commercially-based funding source  prestige of EFSE allows the partner institutions to borrow on local and/or international markets or increase equity contributions from shareholders  Prestige of EFSE helps to increase savings from the general public Impact on attracting additional funds  EFSE as a spring board

23. Impact of EFSE – Financial institution level  Creation of jobs at the financial institutions level Impact on employment in financial institutions 633708743238310325  16,7%  5,5%  29,1%  6,4% 19,40022,60024,000 5,1006,600 7,000

24. Impact of EFSE – Financial institutions level  Building up know-how at all staff levels through training and consulting: top-management, mid-management, loan officers and other support staff  73 top-management staff, 188 mid-management staff and 157 loan officers and other support staff have benefited from activities initiated by the EFSE Development Facility Impact of EFSE Development Facility activities on staff development of the PLIs Consulting Training

25. Thank you for your attention!