Trends and Lessons from Global experience

1. Trends and Lessons from Global experience Renate Kloeppinger-Todd Rural Finance Advisor The World Bank Afghanistan Rural Finance Conference December 13-14, 2004

2. Presentation Outline • Regions and countries with relevant experiences • Relevant conditions • Solutions implemented • Lessons learnt • Recommendations Afghanistan Rural Finance Conference - December 13 - 14, 2004

3. Regions and countries with relevant experiences • Caucasus • Azerbaijan, Georgia, and Armenia • Eastern Europe and Central Asia • Lithuania, Bosnia, Kyrgyzstan, Tajikistan, • Africa • Mauritania, Afghanistan Rural Finance Conference - December 13 - 14, 2004

4. Relevant Conditions • Civil unrest or war • Absence of / Complete breakdown of banking system • Absence of or poor property rights • Little enforcement of laws and regulations • Loss of most external markets • Poorly maintained infrastructure • Little knowledge of market economy Afghanistan Rural Finance Conference - December 13 - 14, 2004

5. Solutions Implemented 1 • Financial cooperative / credit union system developed. • Kyrgyzstan, Moldova, Georgia, Azerbaijan, Albania • Specialized institution founded • Kyrgyzstan, Lithuania, Mauritania • Linking commercial banks to village level financial associations • Moldova • Setting up MFIs that also work in rural areas • Georgia, Kyrgyzstan Afghanistan Rural Finance Conference - December 13 - 14, 2004

6. Solutions Implemented 2 • Leasing • Kazakhstan, Uzbekistan, Romania, Pakistan, Uganda, Madagascar • Restructuring of State-Owned Agricultural Banks • Mongolia, Tanzania Afghanistan Rural Finance Conference - December 13 - 14, 2004

7. Lessons Learnt 1 • Creating Specialized Institutions from scratch • Creation of legislative framework • Significant amounts for technical assistance and capacity building • Strong, dedicated and knowledgeable management team and advisory board • Long-term vision Afghanistan Rural Finance Conference - December 13 - 14, 2004

8. Lessons Learnt 2 • Financial Cooperatives / Credit Union Systems • Appropriate legislative framework • Clear supervision responsibilities • Systems approach (networks of village-based CUs and second tier institution) • Significant amounts for TA and capacity building • Savings first approach until repayment is proven – then possibly credit lines for refinancing Afghanistan Rural Finance Conference - December 13 - 14, 2004

9. Lessons Learnt 3 • Linking Commercial Banks to Village – Level Associations • Motivated and capable commercial banks • Capacity building for banks and the new associations • Training of accountants and book-keepers on the village level • Capacity building of borrowers Afghanistan Rural Finance Conference - December 13 - 14, 2004

10. Lessons Learnt 4 • Setting up MFIs that also work in rural areas • Difficult to achieve significant outreach due to capacity constraints for small institutions • MFIs need to have a solid base before venturing away from their core business • Internal portfolio diversification between urban and rural areas reduces risks • Very close portfolio monitoring is required Afghanistan Rural Finance Conference - December 13 - 14, 2004

11. Lessons Learnt 5 • Restructuring of State-owned Agricultural Banks • Strong Government commitment to ring-fence the institution and to refrain from influencing decision making • Strong external management with decision-making powers • Significant funds for management, TA and capacity building Afghanistan Rural Finance Conference - December 13 - 14, 2004

12. Recommendations 1 • Creating an Enabling Environment • Appropriate legislative framework needs to come first for any chosen institutional forms • Supervision of FIs is needed, either directly by the Central Bank or by delegated authority • Property rights and land use rights in place Afghanistan Rural Finance Conference - December 13 - 14, 2004

13. Recommendations 2 • Guiding principals • Savings first approach where feasible • Strict insistence on loan repayments • Development of monitoring systems and follow-up capacity • Support in the form of TA, capacity building and training is MUCH more important than credit lines • No pushing out of money without considering the sustainability of the institutional arrangement Afghanistan Rural Finance Conference - December 13 - 14, 2004

14. Recommendations 3 • Product Offerings • Develop loan products appropriate for specific purposes (short-term, group loans, longer-term flexible agricultural loans) • Simple and easily accessible savings products • Possibly insurance products Afghanistan Rural Finance Conference - December 13 - 14, 2004

15. Recommendations 4 • Developing Service Providers • Extension services • Farmers’ associations for joint purchasing and marketing • BDS with special focus on rural issues Afghanistan Rural Finance Conference - December 13 - 14, 2004

16. Recommendations 5 • Creating Effective Demand • Matching grants for asset creation • Offer of savings facilities to create equity • Support all along the supply chain (product development, packaging, marketing, etc.) Afghanistan Rural Finance Conference - December 13 - 14, 2004

17. Recommendations 5 THANK YOU Afghanistan Rural Finance Conference - December 13 - 14, 2004