Minutes of the Conference - Réseau Européen de la Microfinance

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9 EMN Annual Conference 25-27 April, 2007 – Berlin (Germany) used the word “franchise” because it keeps together procedures, but the operation is based on the reality of each city and each MFI in a city can cater to the specific, real circumstances of a given location. Having acquired two franchisees so far, Angel Font’s organisation will try to expand the procedure to other non-profit institutions, and hopes to open a third franchise in Valencia soon. Jan Evers then asked the fourth speaker, Krzysztof Jaczewski, to describe the Polish environment for financing SMEs. Krzysztof Jaczewski said that from 1945 to 1999 Poland had only three stateowned banks. Since 1999, 70 new, different networks of MF banks have been established. In the 1990s in Poland, mainstream banks were focused on large and medium-sized companies with no interest in microlending. There are 38 million citizens in Poland, and at present MF has 1.5 million clients. Regular banks have no idea how to enter this market. The MFIs mostly operate at a local level and most of them are subsidised by donors or international organisations. Funduszmikro was set up in 1994 and received USD 20 million in aid. Its main purpose was to support microlending companies. In addition, Funduszmikro gives support in setting up business plans and the like. It is starting to prepare to be market-oriented and self-sufficient, although it previously operated as a non-profit institution. Jan Evers said that in 2006, Funduszmikro handled 14,000 loans. What type of lending was involved? Krzysztof Jaczewski replied that start-ups comprise only about 1%, as their loans are very risky. There are many special programmes financed to support and assist start-up businesses that are more attractive than Funduszmikro. Therefore, 99% of their clients are active businesses. Their initial requirement is that the business should operate in the market for a minimum of three months, and their typical business has already been operating in the market for more than one year. Jan Evers stated that while for Angel Font microcredit is focused on inclusion lending, Funduszmikro carries out more corporate lending to help in the growing process. He asked about the nature of its relationship to the Polish banks. Krzysztof Jaczewski replied that it does not really compete; its credit portfolio is merely EUR 28 million. However, with regard to self-sustainability Funduszmikro grants the maximum amount of loans possible, tries to find products for mature clients, and is in cooperation with banks to offer clients some credit lines and some sophisticated services. Jan Evers summarised the first model – in Poland, Funduszmikro has developed a business making profit with micro-enterprise lending, while in the other countries, at the moment MF is not very profitable. In Angel Font’s view, for saving banks in Spain, it is good for business, but not for the short term. Poland has developed a model that is profitable even in the short term, possibly because it began in the 1990s, when banks were not very sophisticated. There is a model which concentrates on a target group or on a product, and the next step is to build a bank to retain clients longer. That is a model for upgrading microfinance organisations. Jan Evers then ended the interview session and gave delegates the opportunity to ask questions from the floor. The first person said that in the USA one of the new markets is the immigrant market, and asked if panellists could discuss immigrant participation in their countries. Another member of the audience asked for an elaboration of the guarantee funds’ (supported by KfW) 100% risk cover. A third delegate stated that microfinance in Europe could learn from the South – in Peru the interest rate for sustainable microfinance is 40% – and asked how MF could possibly be profitable in Germany at a level of about 23%. The speakers took turns to answer the questions. First, Norbert Irsch said that, generally, KfW cooperates with commercial banks “utilising them as a branch network”. This is because KfW has only three branch offices of its own in Germany; to reach a
10 EMN Annual Conference 25-27 April, 2007 – Berlin (Germany) large number of clients KfW must therefore rely on the commercial banks (and also has to do so because of regulatory requirements). With regard to the pilot project Microfinance fund Germany, the Fund assumes a large portion of the credit risk, to enable MFIs to go into the market. Thus, one part of the strategy is to increase loan engagements by existing MFIs as well as to encourage the establishment of new MFIs by providing risk coverage. Ultimately, MFIs should become more professional so that they can bring costs down. In responding to the third question, Norbert Irsch began by saying that in Germany it has been estimated that about 23% would be necessary to cover costs. He said that a profitable market for microfinance for non-bankables does not exist in Germany. If this “disadvantaged” target group is addressed, it cannot be done profitably in commercial terms, so that one solution could be to subsidise the advisory element and split it off from the credit process cost, whereas lending costs could be covered by charging interest. Jan Evers added that inclusion lending will always be non-profitable. Second, Angel Font answered the first delegate’s question by saying that 50% of European migrants arrive in Spain, resulting in a substantial integration effort; 70-75% of loans go directly to first generation migrants. He expected this to continue. Concerning interest rates, he agreed with the philosophy of pushing down interest rates but, in fact, experience has shown that people are less interested in the rate of interest than in how to obtain money fast. Spain has a good financial system to provide support to include more people, so why not take advantage of it? This is not paternalistic; he agreed that interest rates would ideally be close to 10% to allow MFIs to become self-sufficient, but rates are currently closer to 6% and subsidised. Next, Krzysztof Jaczewski said that in their portfolio, there are very few immigrants – below 1% – but that this is an interesting process. In recent years, 1.5 million Polish citizens have moved to Western countries, and when Poland joined the EU (in 2004), it became more attractive to former Soviet republics and now has immigrant citizens from different countries. Funduszmikro is going to begin to offer opportunities to immigrants. Responding to the question about interest rates, Krzysztof Jaczewski said that inflation rates are at 1.5%, interest rates are about 5-6%, and the interest rate charged by Funduszmikro is 18%. Funduszmikro’s main aim is to be self-sufficient, and it offers a range of interest rates. The greatest drawback is the government’s ceiling on interest rates. Lastly, Jenna Eastlake responded that migrants are a new and growing market in the UK. In terms of the banking sector, this is a new market; 60% of Barclays’ new accounts are for migrants in the UK. Many migrants are entrepreneurial. Responding to the question about interest rates, she said that for mainstream banks to charge high interest rates would not be appropriate for general public awareness. Account needs to be taken of the question of where people would go if not to CDFIs. To be sustainable, CDFIs need to charge high rates. Credit unions were capped at 12% until recently; this has now increased to 24% to help their growth. Jan Evers said that Europe is very diverse and incorporates a plethora of MF models, which will turn out to be an advantage because it provides an opportunity to observe which models work best, and they can then be applied widely.
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Page 3 and 4: Table of Contents 2 EMN Annual Conf
Page 5 and 6: Introduction Willkommen in Berlin,
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Output Interactivity MF Practitione
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Minutes of the Conference - Réseau Européen de la Microfinance

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