Links between Banks & Non-Banks to promote Access to Financial Services for the Poor - PowerPoint PPT Presentation

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Links between Banks & Non-Banks to promote Access to Financial Services for the Poor

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  1. Links between Banks & Non-Banksto promote Access to Financial Services for the Poor Douglas Pearce, CGAP ABA Annual Meeting 2003 San Francisco, August 10, 2003

  2. Banks and Microfinance • Banks have significant strengths as vs. specialist non-bank microfinance institutions • Wider range of financial services • Existing infrastructure & systems • Access to funds

  3. Banks and Microfinance • But: • May not view poorer clients as attractive • Lack market knowledge • Inappropriate methodologies/services • Inflexible procedures • Attitudinal and career factors • Bank branches may not be viable • Non-bank financial institutions (NBFIs): • can be more flexible, innovative, closer to microfinance clients, more motivated

  4. Links between Banks and NBFIs offer a way forward

  5. Links between Banks & NBFIs can take the form of: Strategic Alliances Ownership-based Finance Loan/Credit Facility Merger or takeover Sharing/renting facilities NBFI clients accessing bank services Bank contracting NBFI to conduct operations Bank creates Service Company Bank buying NBFI portfolio Banks providing front or back office functions

  6. Links between Banks & NBFIs can take the form of: Strategic Alliances Ownership-based Finance Loan/Credit Facility Merger or takeover Sharing/renting facilities NBFI clients accessing bank services Bank contracting NBFI to conduct operations Bank creates Service Company Bank buying NBFI portfolio Banks providing front or back office functions

  7. Bank providing Loan or Credit Facility • NBFIs = good SME clients • Bank financing quicker to access & in local currency Bosnia: direct Bank-NBFI lending • Microfinance NBFIs have lending arrangements with >4 banks Moldova: Bank lending to NBFIs, with ‘guarantee’ from NBFI network • MAIB lends to savings & credit associations (SCAs) • Moldova Microfinance Alliance creates & supports/monitors SCAs

  8. Constraints to Banks financing NBFIs • Short-term and high cost • NBFI Collateral • Banks may lack skills to assess risk presented by MF portfolio • Reporting & financial management by NBFIs may not be acceptable • Legal and tax constraints to linkages • Lack of trust/poor communication

  9. Constraints to Banks financing NBFIs: Responses • Complementary sources of funds • Technical assistance & tools for banks in assessing NBFI risk • Technical assistance, CGAP tools, to assist NBFIs in reporting, negotiating etc • More conducive legal environment • Promote bank-NBFI communication and links [www.mixmarket.org]

  10. (Microloan) Service Company • Provides loan origination & administration services to a bank • Uses specialized microfinance methodologies and staff • Selects clients & monitors loans, but loans on bank’s books • Can take advantage of bank’s capacity and services • Is not a financial entity, therefore easier to set-up • Allows for transparent relationship • Most appropriate for: • Banks with large branch networks • Banks that wish to expand into microfinance market • Banking sectors where strong competition for SME clients

  11. Sogesol, Haiti • Loan service company to Sogebank • Sogesol originates & manages loans • Mini-branches in or near Sogebank branches • Sogebank books loans, providing teller function and support services • Sogebank owns 35% of Sogesol • Portfolio $3.2 million, 6,500 active clients, av. loan balance $500

  12. Conclusions • Bank-NBFI links offer way forward to scale, & financial services ‘for all’ • In order to promote Bank-NBFI links: • Require NBFI reporting in line with good practice & IAS • Wean NBFIs off dependence on donor funds and don’t ‘crowd-out’ banks • Address any legal and tax constraints • Help ‘broker’ and facilitate linkages – and not just with guarantees…

  13. Further CGAP Resources include: Consensus Principles on Regulation & Supervision of Microfinance adopted by CGAP’s 29 member agencies in September 2002 Glossary of standard (micro)financial terms, ratios & adjustments agreed by leading donors and microfinance assessment/rating agencies Microfinance orientation for Central Bankers and Supervisors www.cgap.org www.microfinancegateway.org www.mixmarket.org