1. Micro-funds to help the development of micro-credit. The KfW experience.
Open Days Brussels October 2008
Dr. Annette Fritz
Business Policy Europe

2. Overview. KfW Bankengruppe.
Microfinancing. One Word – Different Meanings.
KfW Microfinancing Activities.
Framework Conditions for Micro-loans in Germany.
KfW Micro-loan Programmes in Germany.
Microfinance Fund Germany. - Key Elements. - The Structure. - Experiences.
Conclusions.

3. KfW Bankengruppe in brief.
Promotional bank of the Federal Republic of Germany.
Founded in 1948.
Shareholders: Federal Republic of Germany (80%), German federal states (20%).
Headquarter: Frankfurt am Main; branch offices: Berlin and Bonn.
Balance sheet total at end-2007: EUR 354 billion.
Financing Volume 2007: EUR 87 billion (+ 13%)
Average number of employees in 2007: 3,700.
Rating: AAA/Aaa/AAA.

4. Brand structure. Promotion of developing and transition countries
International project and
export finance
Promotion of housing,
environmental and
climate protection,
education, infrastructure,
social issues
Promotion of SMEs,
Business founders,
Start-ups

5. Microfinancing. One Word – Different Meanings.
Microfinancing in Developing and Transition Countries - Financial sector development to improve lives and fight against poverty - Microfinancing has become an investment opportunity for private and institutional Investors.
 Esp. in Transition Countries funding is increasingly commercial
Microfinancing in the EU Different framework conditions!
- Need to facilitate access to finance for start-ups and micro-enterprises - Inclusion lending
 Cost coverage is more challenging

6. KfW Microfinancing Activities. Overview
Developing and Transition Countries KfW Development Bank is one of the biggest financiers of microfinancing and brings in its know-how as financial institution.
Germany - KfW Start-up Coaching - KfW StartGeld - Microfinance Fund Germany

7. KfW Microfinancing Activities in Developing and Transition Countries
KfW Development Bank employs and develops a range of different instruments:
Basic products to support MFIs
Credit lines
Guarantees
Equity
Technical Assistance
Elaborate products (in order to mobilize private resources)
Structured finance, e.g.
Mezzanine-Finance
Microfinance Investment Funds
Securitization
Deposit insurance schemes

8. EFSE - Flagship Initiative in Development Finance
EFSE provides long-term funding to Partner Lending Institutions through a mix of different instruments.
Contribution to regional integration and cooperation.
Efficient use of public funds: Scarce public funds are used in a revolving manner. They constitute a risk cushion for leveraging private capital (public-private partnership)
Incorporation of local stakeholders through the Advisory Group (Central Bank Governors) / future transfer of current donor shares to local governments
EFSE pursues a Tiered Funding Strategy
Donor funds
Development Finance Institutions
Private Investors
A-Shares
and Notes
B Shares
C Shares

9. Framework Conditions for Micro-loans in Germany.
High density of banks in Germany
Good promotional infrastructure
Nevertheless: Financing gap in the area of micro-financing !
Non-banks are not entitled to grant loans  § 32 KWG (German Banking Act)
No “special law” on micro-lending in Germany
Micro-lending involves high risk
High administrative costs
Interest ceilings

10. KfW-StartGeld. Start-up and young enterprises up to 3 years
No security
specifications
Senior loan amount
up to EUR
Monthly payments
of interest and principal
Working capital up to EUR
Prepayment
free of charge
Term up to 10y and
up to 2y repayment free
80% of the liability
assumed by KfW
and EIF
Second application
possible
Simplified processes

11. Integration of CIP-Guarantee into KfW-StartGeld
80% release of liability
assumption of liabilty 40%
on-lending
bank
refinancing
loan
final borrower
guarantee rate: max. 20%

12. KfW Start-up coaching. Start-up coaching in Germany
Companies up to 5 years after business establishment
Coachingperiod: max.12 months
75% (50%)* allowance for coaching by professional advisor
max. eligible daily net fee is EUR 800
allowance of max 4,500 EUR (3,000 EUR)
* Eastern Germany (Western Germany and Berlin)
Special start-up coaching for unemployed
Additional support tool by BMAS* and KfW
First year after business establishment
Coachingperiod: max 12 months
90% allowance for coaching by professional advisor
max. eligible daily net fee is EUR 800
allowance of max. 3,600 EUR
* Ministry of Labour and Social Affairs
New since 1st October 2008

13. Microfinance Fund Germany. Key Elements
Start in September  Pilot phase
Capitalisation of Guarantee Fund: 2 Mio. EUR (initially)
Fondsinvestors: BMWi*, BMAS**, GLS-Bank, KfW Bankengruppe
Target group: Start-up enterprises and micro-enterprises with no access to bank loans
Microfinance Institution (MFI): is responsible for screening und monitoring of borrower; MFI services and advices borrower on site MFI assumes 20 % default risk (first-loss !)
DMI: Coaching, support and accreditation of MFI
Microfinance Fund Germany: remaining 80% default risk
Bank: provides micro-loan to borrower (no risk - 100% cash collateral)
* BMWi - Ministry of Economics and Technology
**BMAS - Ministry of Labour and Social Affairs

14. Microfinance Fund Germany. The Structure
DMI
Microfinance Fund Germany
Recommendation on cooperation with micro-finance provider
Cash deposit (100%)
Fee
Qualification
Accreditation
Monitoring
Microfinance provider assumes 20% of the first loss
Bank
Loan recommendation
Interest and redemption
Loan agreement
Advice
Microfinance provider (e.g. start-up centre)
Start-up / young enterprise
Loan application

15. Microfinance Fund Germany. Experiences (1)
Increasing number of micro-loans increase of 15% to 20% expected in 2008
Loan commitments until 09/2008: some 180 loans and 1,1 Mio. EUR disbursed
Average loan size: ≈ 6,500 EUR (max. 10,000 EUR)
Average term: ≈ 20 months (max. 36 months)
Default Rate up-to-date: 4-5%
2008 exp.

16. Microfinance Fund Germany. Experiences (2)
Low number of loans per MFI due to regional or local focus  Lack of economies of scale and learning effects  BUT: Success of MFIs can not only be seen in “number of loans”
MFIs are very heterogeneous and act in principle independently
20% First Loss Risk limits number and scale of MFIs  Positive incentive  Regional and local risk sharing solutions partially available
Capital Increase required  Microfinance Fund Germany is looking for further investors
Network of different participants
 Connection of participants taking part in the cooperation is costly

17. Conclusions
Framework conditions in Germany differ significantly from other European member states.
Microfinance Fund Germany is still in an early stage of development.
Performance so far satisfactory.
Improvements on the way.
External support required for capital increase and technical improvements.

18. Thank you for your attention!
Contact:
KfW Bankengruppe Liaison Office to the EU
Palmengartenstraße 5-9 Square de Meeûs 37
60325 Frankfurt am Main B-1000 Brussels
Germany Belgium Internet: