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Microfinance Regulation. Arnaud Ventura Co-founder, Vice President PlaNet Finance Founder, President & CEO MicroCred. Content. I. An Introduction to PlaNet Finance II. An Introduction to MicroCred III. A few concrete cases: Regulation & microfinance investments Mexico Madagascar

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Microfinance regulation l.jpg

Microfinance Regulation

Arnaud Ventura

Co-founder, Vice President PlaNet Finance

Founder, President & CEO MicroCred


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Content

I. An Introduction to PlaNet Finance

II. An Introduction to MicroCred

III. A few concrete cases: Regulation & microfinance investments

  • Mexico

  • Madagascar

  • China

  • Senegal

  • Algeria


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Introduction to PlaNet Finance


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I. Introduction to PlaNet Finance Group

PlaNet Finance is an International Non Profit Organization that contributes to the improvement of human condition by ensuring each person’s dignity through the development of microfinance worldwide.

PlaNet Finance focuses on

  • Strengthening the capacity of the microfinance sector (Microfinance Institutions, Governments, Banks & Financial Institutions, etc.)

  • Increasing the transparency of the microfinance sector

  • Increasing the funding available to Microfinance Institutions


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I. Introduction to PlaNet Finance Group

  • I.1. Services

  • 1. Consulting,Technical Assistance & Training services to :

    • Microfinance Institutions (NGOs, Cooperatives, Regulated financial institutions),

    • National Microfinance Network

    • Governments (defining strategies, setting up regulations)

    • Banks interested in downscaling or supporting the sector

    • Microentrepreneurs (Business Development Services)

    • 2. InvestmentManagement & Advisory Services for microfinance investors:

    • PlaNet MicroFund a 1 M€ fund managed by PlaNet Finance

    • responsAbility Global & responsAbility Leader Fund:

    • 2 funds with cumulated assets of 200M€ advised by PlaNet Finance

    • 3. Rating Services to MFIs through an independant affiliate

  • 4. Equity Investment through MicroCred, a Microfinance Holding Company


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I. Introduction to PlaNet Finance Group

I.2. Network

  • Operations & Programs in 60 countries

  • Permanent Country presence in 36 countries

  • More than 400 staff

  • 100 experts


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I. Introduction to PlaNet Finance Group

2006: 9.188 M€

PF: 7.2 M€

PRating: 0.7 M€

MicroCred: 1.3 M€

I.3 Resources and Partners

2005: 8.167 M€

PF: 7 M€

PRating: 0,5 M€

MicroCred: 0,6 M€

A few partners:



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II. Introduction to MicroCred

II.1Mission and Objectives

To become one of the leading group specialized in providing financial services to low income micro-entrepreneurs in emerging countries

To have a global presence with a diversified investment strategy involving investments in at least 15 different countries before 2011.

To offer a diversified range of products for a segmented clientele including credit & savings, but also insurances and remittances and other target-group oriented financial services.

MicroCred’s mission is to provide financial services to microentrepreneurs excluded from the traditional financial sector by building a group of leading microfinance banks and finance companies in at least 15 countries by 2011.


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II. Introduction to MicroCred

II.2. Competitive Advantages

To have a Diversified investment strategy mitigating country / currency risks by a diversified exposure

To focus on markets where access to financial services is still underdeveloped.

To take advantage of the global presence and the local expertise of PlaNet Finance, the technical partner of MicroCred to access more easily to these markets.

Use a standardized model to leverage economies of scale and accelerate the development of each new institution

  • A diversified International Strategy:Existing Investments 2006: Mexico, Madagascar

  • Planned Investments 2007-2008 : Argentina, Brazil, China, Senegal, Algeria, Nigeria etc.

  • B. A unique Business ModelMicroCred will adapt a unique business model by leveraging worldwide common tools, procedures & methodologies :

    • A strong brand and marketing strategy;

    • A common Management Information System (MIS);

    • A consistent product offering within the Group;

    • A comprehensive methodology of staff training;

    • Strict governance and internal control policies;

    • Human Resources Management in order to create a strong “corporate culture”;

  • C. The support of PlaNet Finance

  • MicroCred will use PlaNet Finance’s network to increase its development


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II. Introduction to MicroCred

II.3. Shareholders

An initial capital of 25 Millions USD with strong shareholders support :


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A few Concrete Cases:MexicoMadagascarChinaSénégalAlgeria



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III. Case of Mexico

Greenfield institution started in Veracruz region

  • One of the largest country in Latin America with a high market potential:

    1. 75% of the 106 million inhabitants do not have access to financial services

    2. Veracruz State with a population of 7 million people is underserved by MFI

Total Investment : 4,2 M€ of equity, 15 M€ of quasi equity & debt

in MicroCred SA, a Mexican Sociedad Anonyma

Creation Date : January 2006

Shareholding Structure


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III. Case of Mexico

No specific regulation for microfinance in Mexico but regulation concerning financial institutions & Credit & Saving Cooperatives applying to the target group of microfinance.

“Ley de Institutiociones de Credito” for banks & financial institutions & “Ley de Credito y Ahorro Popular” published on June 4th 2001 regulating credit & savings cooperatives.

  • Some issues linked to this regulatory framework:

  • designed considering the need of cooperatives structures

  • no specific considerations for other type of structures : NGOs, Private Company

  • Consequences:

  • As a Private company operating in Microfinance in Mexico MicroCred can not benefit from the advantages of the ley de credito y ahorro popular, specifically it can not offer savings services



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III. Case of Madagascar

Context :

Greenfield institution in a country where less than 7% of the population has access

1. 68% of micro-entrepreneurs surveyed are in needs of microfinance services.

  • Only 7% of the population have access to financial services.

Total Investment : 3 M€ of equity, 10 M€ of quasi equity & debt

in MicroCred Madagascar, a Malagasy NBFI

Creation Date : August 2006

Shareholders * :

*Currently being finalized


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III. Case of Madagascar

Madagascar, has issues a specific microfinance law “loi n°- 2005 - 016 du 29 septembre 2005“ in 2005. but at the date, no implementation rules have been adopted.

The law mentions 3 types of MFI : Category 1, 2 and 3 including both cooperatives and non cooperatives institutions.

  • Some issues linked to this regulatory framework:

  • not finalized yet (no “decret d’application” yet)

  • Consequences:

  • As a Private company operating in Microfinance in Madagascar MicroCred was started as Non bank financial institution and is now considering transforming into a full fledge bank



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III. Case of China

Context:

  • Extremely promising market

  • Underdevelopped financial and microfinance sector

  • One of the four first licenses for commercials MicroFinance being offered in China

  • Nanchong Municipality: more than 108,000 MPME among 94,000 individual enterprises.

  • Support of Local Authorities in the creation of a Commercial Institution.

Total Investment : 5 M€ of equity, 20 M€ of quasi equity & debt

in MicroCred China, a Chinese WFOE

Creation Date : April 2007

Shareholders :

The following investors have agreed to take an equity participation into MicroCred China:


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III. Case of China

A specific microfinance framework has been issued under PBOC initiative, the microfinance pilot framework allows for private investors to invest in the development of microfinance companies serving the rural areas and offering credit services.

No specific law but rather a loose regulation issued by PBOC

  • Some issues linked to this regulatory framework:

  • a pilot program, so the sustainability is not yet clear

  • Very limited scope of activities allowed

  • Limitation of financing sources (the approved companies can not mobilize savings

  • neither can they access bank loans)…

  • Consequences:

  • As a Private company operating in Microfinance in China MicroCred is starting in a very unsecured position, but trust that the regulation will be formalized in the coming years.



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III. Case of Senegal

Context :

  • There is no Microfinance institution under the legal form S.A. (Société Anonyme)

  • A new legislation concerning the MFI is being developped

Total Investment : 5 M€ of equity, 20 M€ of quasi equity & debt

in MicroCred Senegal, a Senegal Société Anonyme

Creation Date : April 2007

Potential Shareholders :

SONAM

50%

15 %

35 %


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III. Case of Senegal

A specific regulation for microfinance exist in West Africa under the CBWAS (Central Bank of West African States) Senegal “ Loi PARMEC”. The regulation has been designed for Cooperatives rather than for microfinance institutions.

The regulation is currently being revised.

  • Some issues linked to this regulatory framework:

  • Designed for Cooperatives structures, does not facilitate NGOs, nor private company

  • Different fiscal treatment for each legal form

  • Specific approval with 5 years license for Private Companies

  • Consequences:

  • As a Private company operating in Microfinance in Sénégal MicroCred is starting in a very unsecured position, but trust that the regulation will be formalized in the coming months.



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III. Case of Algeria

  • Strong economic growth (7% growth of GDP in 2005)

  • Lowest banking coverage rate in the Arab world

  • No microfinance sector developed in Algeria

  • Strong potential market (73% of interviewed microentrepreneurs interested in a loan)

Total Investment : 5 M€ of equity, 20 M€ of quasi equity & debt

in MicroCred Algeria, a Non Bank Financial Institution

Creation Date : 2007 /2008, depending on the aproval process

Potential Shareholders :


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III. Case of Algeria

No specific regulation for microfinance exist in Algeria.

Only a very strict banking regulation allowing for Banks & NBFI (minimum equity for NBFI 6 M€)

  • Some issues linked to this regulatory framework:

  • Minimum equity to create a Microfinance Company very high 6 M€ as NBFI

  • Limited scope of services (credit only)

  • Long and very difficult approval process

  • Approval to be sought for each branch opening.

  • Consequences:

  • As a Private company operating in Microfinance in Algeria MicroCred is making a huge investment only to fill the un-adpated conditions of the “Banque d’Algérie”.

  • MicroCred is treated as a bank and not as a Microfinance Institution.



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Conclusions

  • Bad Regulatory Framework can limit Microfinance development.

  • Main obstacles are :

  • No regulation for Microfinance (Algeria, China)

  • Regulation targeting a limited legal form of MFIs (Mexico, West Africa)

  • Regulations not allowing deposit taking MFI (China, Mexico)

  • Bureaucratic Obstacles : long approval process, etc.. (Algeria)

  • Solution :

  • In the same way the financial & banking sector is adopting international regulations (Basle I, Basle II) to improve efficiency, Microfinance development could be foster with international regulations or at least international guidelines helping local regulatory body facilitate the development of microfinance.


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