The goals to Access / Financial Inclusion 2020 Briefing for World Bank Group President Dr. Jim Yong Kim

Terence Gallagher Senior Specialist in Micro and Small Enterprise Finance

Financial Institutions Group IFC – World Bank Group

July 3, 2014

Half the World is Unbanked

• 77% of adults living on $2 a day or less do not have a

formal bank account

• 1.3 billion women worldwide remain unbanked

• Only 15% of adults in fragile and conflict affected

states have a formal account

OECD

11% MENA

82%

LAC

61%

ECA

55%

SSA

76%

SA

67%

EAP

45%

% of adults without a formal

bank account

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Access to Credit in the Formal Micro Enterprise Sector

Source: IFC Enterprise Finance

Gap Database (2011)

37 Million - over 50% - of formal micro-enterprises worldwide are unserved or

underserved • Credit gap of $0.4-0.5 trillion for formal micro-enterprises in developing economies

• Deposit services gap of $195-238 billion in developing economies

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Financial Inclusion • World Bank Annual Meetings / UN post-2015 development goals / Alliance for Financial

Inclusion’s Maya Declaration / World Bank Group President Jim Yong Kim recently

launched an initiative “to provide universal financial access to all working-age adults by

2020.”

• Many factors still stand in the way. In the case of regulatory accommodation to new

technology, for example, the gaps result from such factors as the pace of the spread of

know-how among policymakers globally, national legislative and political processes, and

uncertainty about the risks involved with new models. In the case of fully addressing the

needs of customers at the base of the pyramid (BOP), gaps stem from a combination of

doubt among providers about the likely profitability of these customers and limited

knowledge inside institutions about the financial lives of the poor. In the case of client

protection, providers face perverse incentives, while many regulatory bodies are only

beginning the major task of establishing robust oversight of market conduct.

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Roadmap

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Why Does Financial Inclusion Matter?

• Key for economic activity

• Improves quality of life

• Helps create middle class

• Builds social infrastructure

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Microfinance Contribution to Financial Inclusion

• Microfinance is scalable (already 200 m people

reached)

• Microfinance is replicable (IFC has invested in more

than 70 countries)

• Microfinance is sustainable (profitable institutions,

excellent portfolio quality)

• Microfinance is responsible and offers a full range of

services to clients

• Microfinance is rooted in communities and builds

physical and social infrastructure

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Microfinance Contributions to Institution Building

Microfinance has become a sizeable segment in

financial services:

Several thousand microfinance institutions now serve more

than 200 million clients globally, most of whom previously

ignored by formal financial sector.

Microfinance industry has established 72,000 offices in

challenging locations and rural areas

Larger MFIs are leading institutions in their markets

providing full-fledged banking services

Some MFIs are among top 3 banks in their countries

(ACLEDA, Mibanco, ACBA, Equity Bank)

And has accumulated substantial social capital:

Industry has led to creation of supporting frameworks in

form of specialized regulatory structures, transparency

standards and best practices

Continuous industry commitment to both social development

and financial sustainability

The microfinance industry employs 950,000 staff (~50%

female), lending to 115 million active borrowers. There are

13,000 members of MFI boards, a third of whom are female

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One World Bank Group

Clients

IFC & CGAP

World Bank & CGAP

IFC

Collaboration as one World Bank Group will achieve stronger Financial

Inclusion

Macro Level

Meso Level

Micro Level

Legislation, Regulation, Supervision

Support Services, Infrastructure

Financial Service Providers

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Loans

Equity

Trade Finance

Syndications

Structured

Finance

Risk

Management

Blended Finance

IFC Product Offerings

- Project and corporate financing

- On-lending through intermediary

institutions

- Direct equity investments (up to 20% of

company’s equity)

- Private equity funds

- Guarantee of trade-related payment

obligations of approved financial

institutions

- Capital mobilization to serve developmental

needs

- Over 60 co-financiers: commercial banks,

fund, and DFIs

- Products including credit guarantees,

liquidity facilities, risk sharing facilities,

securitizations, Islamic finance

- Derivative products to hedge interest rate,

currency, or commodity-price exposures of

IFC clients

- Combination of concessional funds with

IFC resources to finance initiatives &

achieve impact that would otherwise be

unattainable

Industry

Development

Knowledge &

Expertise

Product

Development

Capacity

building

Operational

Support

Risk

Management

Technology &

new growth

areas

- Market Diagnostics

- Regulatory & legal framework advisory

- Guidelines & Toolkits

- Dissemination of lessons learned &

good practices

- Upscaling to SME segment &

downscaling for commercial banks

- Non-credit product development

- Training for MFI staff & management

- Financial education for borrowers

- Advice on credit technology, portfolio

management, strategic planning &

efficiency

- Comprehensive risk-management

diagnostics

- Risk management best practices &

Toolkits for MFIs

- Mobile banking and alternative delivery

channels, housing microfinance,

responsible finance, micro-insurance

Investments Advisory

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Achievements: IFC Investments

• Scale and Reach: Reached 26 million directly, 120 million

projected*. IFC partner MFIs account for 40% of microfinance in

India

• Investment: $3.5 billion committed to 215 clients across 400

projects in 73 countries (32 IDA and 10 FCS countries)

• Mobilization: Attracted $14 billion from other funders. Issued

$1.5 billion worth of microfinance bonds to Japanese retail

investors

• Capacity building: 400 direct projects with 215 clients, plus 200

clients through MIVs

Built critical capacity in Africa and created greenfield institutions in 33 countries

(commitments of $285m)

Transformed 25 MFIs into full-fledged commercial banks

Co-created five holding company networks with 61 subsidiaries in 44 countries

Helped build microfinance fund industry, by investing $350million in 25 MIVs

Leadership in governance and responsible finance

• Produced healthy profits

11 *Cumulative Microfinance IDGs 2011-2014

Achievements: IFC Advisory Services

IFC has cumulatively managed $123 million for microfinance advisory services on 190

projects in 62 countries since 2008: Capacity building, risk management, product

development, responsible finance, corporate governance, mobilization of savings,

transformation

IFC Advisory services,

by $ value of advisory projects (as of June 2013)

Florence Valentina Cordero is a farmer from Yungay

province in Peru and a client of Edyficar MFI.

IFC advisory team worked with Edyficar to develop a micro-

loan product for rural communities.

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Cote D’Ivoire

1 Greenfield

client

Senegal

2 Greenfield

clients

Liberia

1 Greenfield

client

Ghana

2 Greenfield

clients

Nigeria

4 Greenfield

clients, 1

Transformation

Madagascar

2 Greenfield

clients

Cameroon

2 Greenfield

clients

Tanzania

1 existing client,

1 greenfield

DRC

2 Greenfield

clients, 1

existing

Kenya

2 transformation

clients

Zambia

1 Greenfield

client

Rwanda

1 Greenfield client

IFC Microfinance Greenfield Projects

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• Large-scale success in

capacity building:

• IFC helped to found 20

greenfield microfinance

institutions in SSA,

establishing a

microfinance sector

from the ground up

Strategic Pillars

Increased Reach and Impact

Large Countries

Focus

15 countries house 75% of

the world’s poor

China, India,

Ethiopia, Nigeria,

South Africa,

Pakistan,

Bangladesh,

Mexico, Indonesia,

Russia, Brazil,

Turkey, Egypt,

Morocco,

Philippines

Savings

Mobilization &

Diversification Key for sustainability and

poverty alleviation

Regulatory

improvements

Back-office

capacity

Incentive

structures

Product

diversification

Capacity &

Institution Building Critical for most regions

Establishing

flagship local or

regional MFIs

Greater integration

with the

conventional

financial sector

Governance and

Responsible

Finance

Innovation &

Technology Prerequisite to further

sector expansion

Attract new

funding sources

through structured

finance vehicles

Support product

development and

use of mobile &

branchless banking,

rural finance

innovations

IFC Microfinance Strategy

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What Are We Planning to Do?

Innovative Finance: Develop additional channels of

financing

Structured finance solutions (e.g. asset side and liability side

securitizations, covered bond issuance, )

Broadening impact investment fund involvements

Greater availability of local currency funding

Product Innovation: Develop innovative solutions for

unbanked beneficiaries

Agri-Finance / Rural Finance / Education-targeted credit products

Healthcare services (ProMujer)

Banking on Women services

Distribution and Reach: Develop alternative channels and

new partnerships

Client Upscaling (Bandhan transformation)

Co-operation with real sectors: Value Chain integration (Renewable Energy

Facility, Ali Baba)

Micro-franchising (Unilever/Shakti, Essilor)

SOEs(India Post, China Postal Bank) and Cooperatives

Technology: Support adoption of

technological solutions on

national level

Digital ID technology (India Aardhar program, Nigeria ID program)

Digital Payment and Mobile Banking services (Tameer Bank, BSP PNG)

Public + Private Sector

collaboration : One Bank approach to

meso/macro level engagement

Coordinated effort on regulatory improvements

Collaboration on Apex and blended finance program activities (MISFA

Facility)

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What are Our 2020 Targets?

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In addition to our existing reach:

Mobile Technology

200 million clients

Alternative Delivery

Channels

100 million clients

Bank ‘Downscaling’

50 million clients

Transformation /

Scaling up

50 million clients

Digital Finance

• Potential, and our own work

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• Growth in digital financial services has outstripped all others (commercial banking/microfinance etc)

• Growth particularly impressive in Africa:

• 100 million registered mobile money accounts (43% active): twice as many as Facebook users

• representing 70% of active mobile money users globally

Digital Finance

• Implications for Financial Inclusion:

Rapid increase in participation in formal financial services

• Kenya: 66.7% usage in 2013, vs 27.4% in 2006

• Tanzania: 58% usage in 2013 up from 16% in 2009

Corresponding rise of use of formal bank accounts

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Conclusions

• Financial inclusion matters for development, poverty

reduction, and shared prosperity

• Microfinance is key building block in infrastructure for

financial inclusion

• IFC has played leading role by building MF industry through

investment, mobilization, partnerships, capacity building,

and creating momentum for reach and scale

• The reach agenda remains significant and daunting

• IFC is well positioned to utilize its built up capacity and

private sector leadership

• But we need to expand the use of new and alternative

platforms (mobile technology, alternative delivery

channels, MNCs, PPPs)

• Reaching financial inclusion is only possible if we can solve

the big country problems

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