1. Status of the Bank’s Rural Finance Loan Portfolio: Summary Statistics and Main Issues Jacob Yaron (RDV) June 2002

2. Bank RF Projects $855 m (17) $336 m (8) $693 m (18) $530 m (14) $715 m (20) $993m (24) Avg. Ann. Commitments = $688m Total lending = $4,122 m

3. Bank RF Lending in 149 Client Countries Number of Countries 33% 67%

4. Major Reasons for Not Having a RF Project (in 100 countries)

5. Characteristics of Rural Finance Subsidized credit offered Poor Infrastructure Urban Bias Policies Covariance Risk Low pop. Density = small average size loans/ savings accounts Lack of traditional collateral Fragmented markets Seasonality and income shocks Poor complementary insurance and labor markets

6. New Emphasis 1)income expansion 2)poverty reduction OUTREACH + SELF SUSTAINABILITY through GOALS TWO PRIMARY PERFORMANCE CRITERIA

7. Primary Assessment Criteria

8. Optimizing Self-Sustainability Sustainable financial services that reach the target clients Highly subsidized financial services that reach the target clients Sustainable financial services with low outreach to the target clients Highly subsidized financial services with low outreach to target clients High Outreach Low Outreach High Self- Sustainability Low Self- Sustainibility Source: Majahan, 1994.

9. The Remaining Issues Is the volume of RF lending important? Does the WB have a comparative advantage in implementing RF projects? What do we know about the financial performance of RFIs?

10. How important is the volume of lending if borrowing countries have: Free convertibility of the currency Sound monetary policies Adequate foreign exchange reserves

11. How to Achieve a Higher Value Added in Bank RF Lending Incorporating a holistic approach (creating an enabling environment by addressing macro and sectoral policies, the legal and regulatory framework, and institutional capacity building) Identify both macro and micro-level binding constraints to efficient functioning of rural financial markets Lend when sufficient absorptive capacity exists at the institutional and client levels Develop innovative solutions to increase financial intermediation for low income, rural clients (credit, savings, and insurance)

12. Supervision Staff Weeks and Project Success Rates Other Bank Other Rural excluding RF Rural Finance Avg. Ann. Supervision StaffWeeks/Project (FY94 - FY99) Percentage of Successful Projects (satisfactory rating)

13. Inadequate Financial Reporting on PFI Performance Financial reporting is often deficient The summary of the PSR does not systematically provide meaningful and uniform information on financial performance of the project’s PFI(s)

14. What Information Is Missing? Nominal and real interest rates on loans to the ultimate clients and deposit interest rates Spreads Subsidy dependence index Deposit-to-loan ratio Return on Equity (ROE) and Return on Assets (ROA) Loan collection performance and quality of the loan portfolio (information on NPLs and NPAs) and arrears age analysis Output performance indicators of Technical Assistance Assumption of foreign exchange risk and related subsidies, if any