1. EBRD’s Support to Territorial Development Francesca Pissarides Office of the Chief Economist Lisbon, 3 December 2007

2. What is the EBRD? AAA-rated international financial institution founded in 1991, owned by 61 national and two inter- governmental institutions € 20 billion capital base The largest lender and private equity investor in Central & Eastern Europe and CIS

3. What are the EBRD’s objectives? To promote transition to market economies by investing mainly in the private sector To mobilise significant foreign direct investment To support privatisation, restructuring and better municipal services to improve people’s lives To encourage environmentally sound and sustainable development

4. Foundations of EBRD operations Apply sound banking principles to every project Support but not replace private investors Advance the transition to a full market economy

5. How does EBRD support territorial development? Some examples: Municipal and environmental infrastructure Agribusiness sector Non-financial support to small and medium sized enterprises Financial support to micro, small and medium sized enterprises And also large projects → Russia, Kazakhstan

6. Agribusiness development Involvement spans all activities throughout the production chain, from processing and trading to food distribution, packaging and retailing Leveraging on upstream linkages in farming sector Major role in developing the sector by supporting local and foreign corporate clients as well as micro, small and medium-sized enterprises with both debt and equity financing

7. Commercial structuring of financing for local authority infrastructure, equipment and services Promotion of commercialisation and corporatisation of services Support for improved legal / regulatory structures Facilitation of appropriate private sector involvement Environmental improvement in line with EU directives Financial support from EU, others EBRD helps local authorities meet their infrastructure needs Municipal and Environmental Infrastructure

8. Municipal business: sectoral breakdown (cumulative) € mm

9. Non-Financial support to SMEs TurnAround Management (TAM) & Business Advisory Services (BAS) Programmes are non-financial enterprise support programmes assisting private enterprises in the SME Sector Not-for-profit and 100% donor funded Managed by EBRD London Works directly with enterprises, providing industry specific advice to individual SMEs with 10-2000 employees Assists enterprises to operate successfully and develop new business skills

10. TurnAround Management (TAM) Programme Started in 1993 Almost 1,300 projects in 27 countries Private enterprises with 100-1,500 employees Uses industry specific management expertise Works at senior management level of enterprises Maintains a database of over 3,200 advisors

11. Business Advisory Services (BAS) Programme Started in 1995 4,245 projects with 3,667 enterprises to date in 17 countries Currently 23 local offices Private micro, small and medium enterprises Utilises local consultancy services Removes barriers to growth Develops local consultancy capacity Over 1,600 accredited consultants

12. TAM/BAS Programme Team Based in London/EBRD BAS 4,245 projects to date in 17 countries (Currently 23 local offices) TAM 1,282 projects in 27 countries Engaged 1,600 local consultants Aggregate turnover EUR 10 billion Total employees 312,000 During evaluation we have found 92% projects rated satisfactory or better Productivity increased by 16% Turnover increased by 28% Employment increased by 19% Aggregate turnover USD 18.5 billion Total employees 860,000 During evaluation we have found 82% projects rated satisfactory or better Productivity increased by 26% Turnover increased by 26%

13. Financial Support to MSMEs Objective: –Provide sustainable access to financial services to micro and small enterprises not catered for by the formal financial sector

14. Ensure fast and broad outreach, including remote areas, i.e. disbursements of loans under $2,000 within 24 hours and >1,850 outlets Ensure commercial viability of MSE lending as building block for sustainability Integration of MSE lending operations into formal financial system as a standard product, including micro loans under $1,000 Efficient use of Technical Assistance funds: with clear and measurable performance benchmarks / CGAP Best Practice Standards Principles

15. Results Loan Range –Micro Loans typically between $50 and $10,000 –Small Loans typically between $10,000 and $200,000 –Medium up to $500,000 –Overall average loan size $5,968 Over 4,400 loans per working day disbursed Lending through existing commercial banks –55 active partner banks Lending through specialised microfinance institutions –13 “Greenfield” MSE Banks, delivering wide range of financial services to MSEs, where EBRD participates –22 NGOs

16. Successes (end September 2007) 2.8 million loans disbursed for US$ 18.4 billion –88,000 loans disbursed for $600 million monthly –Arrears over 30 days: 1.6% of portfolio –Strong year on year growth –10,450 banking staff intensively trained (on the job, minimum one year)

17. Total Number of MSE Loans Disbursed as of September 2007

18. Total Volume of MSE Loans Disbursed as of September 2007 (million US$)

19. training well qualified lending personnel, putting in place streamlined and well monitored lending procedures, and replacing collateral-based lending with proper cash- flow based credit analysis Strict attention to terms & conditions to: i) lower transactions cost for banks and borrowers, and ii) increase the boundaries of who’s ‘bankable’ TA covers initial start-up training costs and regional expansion on a declining scale as local experts start to replace external experts. Banks always co-finance Objectives of technical assistance in MSE lending

20. Subsidy efficiency (Kazakh Small Business Programme)

21. Where there are commercial banks that meet standards, TA and loan funds are provided Where no suitable commercial banks are available, specialised MFIs are set up NGOs – ‘best-practice’, track-record, and preferably ‘commercialising’ so that they can attract capital market funds rather than scarce donor resources for lending Commercial banks, dedicated Microfinance banks and NGOs

22. Total Assets (EUR mln) Total Equity (EUR mln) Gross Loan Portfolio (EUR mln) Number of LoansRoAE Portfolio-at- risk KMB, Russia7107557558,98417.5%1.6% Microfinance Bank of Azerbaijan4253616,67515.8%0.1% ProCredit Albania221179029,72018.1%2.7% ProCredit Bosnia1521311838,6569.5%0.8% ProCredit Bulgaria3462724449,73218.4%1.2% ProCredit Georgia1913114058,9678.4%1.9% ProCredit Kosovo4362521952,01538.4%1.2% ProCredit Macedonia110127321,27713.4%0.9% ProCredit Moldova2721914,09640.5%1.2% ProCredit Romania2192015829,6219.7%1.1% ProCredit Serbia5014430787,5547.1%0.7% ProCredit Ukraine2673122749,27015.1%0.9% TOTAL (or avg. %)3,2223022,206506,56717.7%1.2% Greenfield Microfinance Institutions

23. NBMFIs: IMON, Tajikistan Started as the National Association of Business Women in Tajikistan Provides over 2,000 loans monthly Serves over 18,000 clients with a portfolio of $7.8m Transforming into a deposit-taking MFI

24. Exposure Issues: Undercapitalisation of banks limits on- lending capacity (first-loss, risk sharing, and co-financing funds needed to leverage EBRD funding) Technical Capacity is scarce and far more extensive intervention required: –Lack of basic skills in all spheres – Individual problems greater but their sum does not add up to impediments, but rather opportunity to work with management and build-up efficient lending departments thus contributing to well-functioning banks –Institution building at its best –Broader intervention, e.g. facilitating equity investment, TFP and other products Issues in more difficult environments

25. Increase rural lending and village outreach, e.g. mobile micro-banks at ProCredit Georgia and Procredit Moldova; mobile units and credit unions in Mongolia Farm Lending – specialised loan officers (crop/climate patterns)/modified group methodologies Push extremes – particularly, express micro loans (under $1,000, no collateral, 24 hrs.) and longer term fixed asset loans as borrowers grow Innovation in MSE lending programmes

26. Looking Forward: New Initiatives Developing rural finance and agri-lending Local currency funding Institutional transformation (Azerbaijan, Bosnia, Kazakhstan) Commercial syndication Specialised lending products: energy efficiency, tourism, etc. Remittances Legal and regulatory framework support Innovations to increase efficiency, market outreach and competition

27. Why not more MSE lending? The MSE market penetration remains low in most countries Market opportunities remain unexploited Banks still have a lot of room to enter the market Existing loan products might not be complete answer (training, insurance, etc.) to clients