Transcript Johannesburg branch Commerzbank’s investment in ProCredit Bank (a leading Global Micro Finance Group) 3rd Consultation on “Rethinking the role of National Development Finance Institutions in Africa”

Johannesburg branch
Commerzbank’s
investment in
ProCredit Bank
(a leading Global Micro Finance Group)
3rd Consultation on “Rethinking the role of National Development Finance
Institutions in Africa”
Commerzbank has a stake in Micro Finance
Since 2000 (starting in Kosovo) Commerzbank has acquired an equity
stake in seven Microfinance Banks.
They are all named ProCredit Bank. Former names in brackets:
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Albania (FEFAD Bank, Tirana)
Bulgaria (ProCredit Bank, Sofia)
Bosnia-Herzegovina (MEB, Sarajevo)
Romania (Miro Bank, Bucharest)
Serbia and Montenegro (MFB, Belgr.)
Kosovo (MEB Kosovo, Pristina)
to be mentioned Georgia (MBG, Tbilisi) with around 2%
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All ProCredit Banks in which Commerzbank has a
holding:
 have a similar shareholder structure;
(i.e. public private partnership, commercialization of
development aid in the financial sector)
 share the same basic business-policy orientation
 have received start-up support in the form of international
experts and training to promote institution-building. No
subsidies!
 use the same innovative credit technology developed by
IPC, a German management consulting firm based in
Frankfurt which also provides the management of the
investee banks
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ProCredit Micro Finance Banks share similar
structures and criteria
Initial shareholder structure
EBRD
20 %
20 %
KfW/
20 %
20 %
/IPC
20 %*
Current general criteria
 total assets: mostly about EUR
400m
 Paid in capital: up to EUR 34m
 management: mostly delegated
by IPC
 staff: up to 1380 (trained and
supported by IPC) mainly locals
 Targeted ROE (after tax): 15%
 Branches / offices reaching out
into the regions
* ProCredit Holding (formerly IMI) now holds a
majority in most of the banks as some IFIs sold
their stakes.
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…ProCredit Group - Banks for “ordinary people”
 19 Micro Finance Banks
 425 branches in Eastern Europe, Latin America, Africa,
 5 African Countries, Angola Congo, Ghana and
Mozambique.
 11,000 staff members
 656.000 business loans
 95% smaller than €10 000 and more than 50% for less
than €1 000
 issued to small or very small enterprises
 low level of arrears (< 1%)
ProCredit Group views itself as a global leader in
lending to households and enterprises that previously
had very little chance to become clients of mainstream
banks
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As an example the branch network of ProCredit Bank Bulgaria
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Key features of business policy
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The target group for the banks’ range of financial services, (not only for their
credit products), consists of the “lower end” of the market, i.e. micro and small
enterprises and private households.
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Target groups centred around retail business
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Target groups in Bulgaria and Serbia orientated towards leasing
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The shareholders measure the success and significance of the banks not only
in terms of business volume and profit but also by the number of customers
reached.
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The banks are profit-oriented, but do not aim for short-term profit
maximization. They seek a reasonable balance between social and economic
goals. In this respect, they are following the continental European tradition of
savings banks and co-operative banks.
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As universal banks, they are able to perform every kind of banking operation,
and indeed they provide all types of services as long as this does not conflict
with the interests of the target group.
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The banks strive to mobilize a sufficient volume of deposits from the general
public to make retail deposits an important source of funding.
Increased use of investment banking products (e.g. bonds, securitisation)
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Target-Group Orientation
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Through a strategy of Target-Group Orientation, banks aim at improved & sustained
economic growth by providing access to working capital for Micro clients and SMEs
(about 80% loans).
Sectors
An example of the distribution of Loan Sizes
in total portfolio of PCB Serbia as of Dec
2005
Portfolio (Volume) By Sectors
Portfolio by Loan Size (TEUR)
16%
28%
40%
16%
Production
Trade
Agriculture
Others
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(Symplified) example of an
organisational structure
Shareholders
Audit
Supervisory Board
Management
Asset - / Liability
Management
CEO
Credit Committee
CFO
COO
Legal Dep.
Treasury
International Business
Communication & Marketing
Balance, Accounting, Tax
HR
IT
Controlling & Reporting
Administration
Credit Dep.
Branches
Controlling Credit
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Provisioning policy
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Despite the low level of arrears (< 1%), all ProCredit Banks apply a very
conservative provisioning policy.
A general loan loss provision is maintained on the portfolio as a whole; for
loans that are more than 30 days past due, an individual provision of 50%
is set aside, and for those that are more than 90 days in arrears the
provision is increased to 100% . The value of any items provided as
collateral is not taken into account here.
As a result of this policy, the banks are accumulating a growing cushion
of reserves (“hidden reserves”) which they could fall back on under
extreme circumstances
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Auxiliary business
International Business
• money transfer (no limitation)
• letters of credits,
• guarantees,
• collections
• All banks, Commerzbank has a stake in, are linked to SWIFT
Commerzbank AG - a strong international partner:
• domestic: branch-network in Germany (“Mittelstand, Multinationals” )
• international: integration of the banks into its worldwide network of
correspondent banks (one of the largest in the world)
• equity/debt financing
• capital markets advisory/services
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The South African Retail Banking market offers enormous &
challenging opportunities:
Commercial
Commercial Banks
Commercial Micro-Loans
Industry
“ProCredit Model”
Non-commercial
Middle
class
Salaried working class
and self employed
(small business)
Economically Active Poor
Existing state
Agencies
(Khula,
Umsobomyu)
Credit Unions
Cooperatives
First Economy
Second Economy
(Micro Enterprise)
Very Poor (Survivalist Enterprise)
Developmental
Microfinance
Org. (NGOs)
State Agency
SAMAF
The ‘Hard Core’ Poor and Destitute
‘True microfinance’ is currently virtually non-existent in SA
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South Africa displays a highly challenging microfinance
environment…
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Highest ‘salary burden’ in the world
 Huge income disparities imply that local MFIs must recover “first world
costs” from revenues derived from clients who can only afford “third world
loans”
Lack of skilled professionals for the micro-finance industry
Rapid labor turnover
Small market for micro entrepreneurs due to two separate economies with
virtually no interdependencies
 Gap between the two economies too large,
to be able to service 1st economy
 Not able to compete with 1st economy in terms of productivity, quality and
price level – even 2nd economy consumes mainly products of 1st
economy
High competition from commercial banks regarding consumer finance
AIDS – 17% of black households have experienced income or job loss due to
illness
Culture of mistrust, high delinquency rates, high consumption rates and high
crime rates, mainly due to apartheid history
Poor infrastructure in rural areas
Microfinance customers poorly educated
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…with some very attractive features
 Strong government support of microfinance in terms of
legislation, funding and SME institutions (DTI with Khula and
SAMAF, IDC etc.)
 Good infrastructure in urban areas
 Sophisticated first economy financial services sector enabling
access to capital markets for funding and hedging
 Prudent macro-economic policies and environment
 Sound legal environment
 Weak competition regarding entrepreneurial microfinance
 Difficulties experienced by most MFIs seems to be mainly due
to lack of managerial capabilities, inefficiency and the lack of
strong support in unprofitable roll-out phase (first 3-5 yrs.)
 World-Cup 2010
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Strategic path for microfinance providers to ensure access to financial
resources and to growth
Integration into International
capital markets
Integration into local Capital
markets
Establishing full Range of
services for ordinary customer,
particularly deposits
Building professional credit
institutions
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Name
Clive Kellow
Contact details
Commerzbank - Johannesburg
Tel: +27 11 328 7601
Email: [email protected]
Eckard von Leesen
Commerzbank - Frankfurt
Tel: +49 69 136 23997
Email: [email protected]
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