The International Finance Corporation (IFC) is a member of the World Bank Group. IFC works to reduce poverty and improve peo- ple’s lives in emerging economies by enabling and promoting sustainable private sector investment at the frontiers of economic development. IFC itself is the world’s largest multi- lateral investor in emerging markets. Who We Are IFC’s Private Enterprise Partnership works to develop strong, self-sus- taining economies in the former Soviet Union that serve all levels of society. Together with our donor partners, we assist private compa- nies and governments to: • Attract private direct investment to all areas of the economies, • Stimulate the growth of small and medium-sized enterprises, and • Improve the business enabling environment. Countries we serve: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Russia, Tajikistan, Ukraine, and Uzbekistan. We thank our donor partners for making our programs possible. In This Issue pg. 2 Interview with E. Klepikova, PEP Interview with V. Palatkin, URALSIB pg. 3 Program Launch: Georgia, Ukraine pg. 4 Program in Focus: Expanding Access to Finance pg. 6 Impact on the Ground: Armenia, Russia IFC Helps Herder Households in Mongolia Obtain Solar Energy Panels through Leasing Herder families in remote rural areas of Mongolia have a strong de- mand for electricity. IFC's assistance to a new rural finance company has brought electricity within their reach by making solar panels avail- able through leasing. Electricity is one of the fundamental needs of isolated herder families in Mongolia: solar energy panels can provide energy for the radio, TV and other appliances. Herders are particularly interested in receiving information on the weather, livestock prices, news and entertainment. Former civil servant, Mr. Ganbold, founded his Undrakh company in 2002 to provide such families with access to financial services and products. At the time, there were only three commercial banks operat- ing in Uliastai, the capital of the western province of Zavkhan. MONGOLIA continued on page 5 T H E PRIVATE ENTERPRISE P ARTNERSHIP PERSPECTIVE SUMMER 2006 Mortgages: from "Haute Couture" to Mass Production Interview with Elena Klepikova, PEP Senior Operations Manager, Housing Finance Why are Housing Finance programs an IFC priority? Not long ago, in Russia, the phrase 'residential mortgage loan' was seen only in textbooks. It was nearly impossible to find a bank offering mortgage loans. No one understood what these were or how to use them to improve housing conditions. All this was at a time when nearly every family in Russia, without exaggeration, needed better accommodation. Such a situation is typical not only in Russia, but in any developing country. Accordingly, the formation of a national housing finance system is vital for such countries. An efficient housing finance system enables the majority of people to gain access to better housing and ensures long-term benefits for the whole econ- omy. For this reason, setting up advisory programs to facilitate the formation of national housing finance systems are a World Bank and IFC priority. These programs aim, in the long run, to make residential mortgages a common, instrument for improving standards of living. continued on page 2 Partnership Herder families use solar panels to fulfil basic needs such as cooking 39542 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
The International FinanceCorporation (IFC) is a member of theWorld Bank Group. IFC works toreduce poverty and improve peo-ple’s lives in emerging economies byenabling and promoting sustainableprivate sector investment at thefrontiers of economic development.IFC itself is the world’s largest multi-lateral investor in emerging markets.
Who We Are
IFC’s Private Enterprise Partnershipworks to develop strong, self-sus-taining economies in the formerSoviet Union that serve all levels ofsociety. Together with our donorpartners, we assist private compa-nies and governments to:
• Attract private direct investmentto all areas of the economies,
• Stimulate the growth of small andmedium-sized enterprises, and
• Improve the business enablingenvironment.
Countries we serve: Armenia,Azerbaijan, Belarus, Georgia,Kazakhstan, Kyrgyz Republic,Russia, Tajikistan, Ukraine, andUzbekistan.
We thank our donor partners formaking our programs possible.
IInn TThhiiss IIssssuueeppgg.. 22 Interview with E. Klepikova, PEP
Interview with V. Palatkin,
URALSIB ppgg.. 33 Program Launch: Georgia, Ukraineppgg.. 44 Program in Focus: Expanding
Access to Financeppgg.. 66 Impact on the Ground: Armenia,
Russia
IIFFCC HHeellppss HHeerrddeerr HHoouusseehhoollddss iinn MMoonnggoolliiaa OObbttaaiinnSSoollaarr EEnneerrggyy PPaanneellss tthhrroouugghh LLeeaassiinnggHerder families in remote rural areas of Mongolia have a strong de-mand for electricity. IFC's assistance to a new rural finance companyhas brought electricity within their reach by making solar panels avail-able through leasing.
Electricity is one of the fundamental needs of isolated herder families inMongolia: solar energy panels can provide energy for the radio, TV andother appliances. Herders are particularly interested in receivinginformation on the weather,livestock prices, news andentertainment.
Former civil servant, Mr.Ganbold, founded his Undrakh company in 2002to provide such families withaccess to financial servicesand products. At the time,there were only three commercial banks operat-ing in Uliastai, the capitalof the western province ofZavkhan.
M O N G O L I A
continued on page 5
TH
EPRIVATE ENTERPRISE PARTNERSHIP
P E R S P E C T I V ES U M M E R 2 0 0 6
MMoorrttggaaggeess:: ffrroomm ""HHaauuttee CCoouuttuurree"" ttoo MMaassss PPrroodduuccttiioonnInterview with Elena Klepikova, PEP Senior Operations Manager, Housing Finance
Why are Housing Finance programs an IFC priority?
Not long ago, in Russia, the phrase 'residential mortgage loan' was seen onlyin textbooks. It was nearly impossible to find a bank offering mortgage loans.No one understood what these were or how to use them to improve housingconditions. All this was at a time when nearly every family in Russia, withoutexaggeration, needed better accommodation. Such a situation is typical notonly in Russia, but in any developing country. Accordingly, the formation ofa national housing finance system is vital for such countries.
An efficient housing finance system enables the majority of people to gainaccess to better housing and ensures long-term benefits for the whole econ-omy.
For this reason, setting up advisory programs to facilitate the formation ofnational housing finance systems are a World Bank and IFC priority. Theseprograms aim, in the long run, to make residential mortgages a common,instrument for improving standards of living.
continued on page 2
Partnership
Herder families use solar panels to fulfil basic needs such as cooking
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thePartnershipPerspective Summer 2006
22Currently, PEP implements two projectsfocused on mortgage market development.In Russia we run a full-scale project whilein Central Asia PEP runs a study to pin-point the elements hamperingdevelopment and then use its analysis toset out an action plan. The experiencegained from these two projects could beemployed in other regions, includingUkraine and the Caucasus.
Which mortgage lending developmentsin Russia are, in your opinion, of pri-mary importance at present?
The Russian project began a year ago and, since then, we've seenpositive developments in the Russian housing finance market. Lend-ing is becoming more common, new players are appearing on themarket, mortgage portfolios are increasing and regional expansion isaccompanied by a growing range of mortgage products. Interestrates have fallen slightly but steadily, showing a general positive ten-dency.
On the other hand, it's clear that Russia's mortgage industry, as abranch of the economy, still has some way to go to become estab-lished. Legislation connected with mortgage lending needs to be putin place and common standards must be applied. Long-term in-vestors, both foreign and Russian, are also required.
The Russian project is working towards making mortgages availableto all, transforming them from "haute couture" to "pret-a-porter".
Although the Russian mortgage market has been operationalfor some time, mortgage lending is still a small scale busi-ness. The project aims to consolidate efforts to solve themajor problems hampering the mortgage industry. Themain accent is on standardization. By creating an easilyreplicable formula, lending volumes can be raised. The ulti-mate goal is to allow banks to mass produce mortgages,rather than spending large amounts of time and resources inindividually tailoring each one.
It is important that all key market participants support theproject's work. As of today, the 'SUPER' Working Group(Standards and Unification of the Primary Market) com-prises 74 member-organizations, and this number isconstantly growing.
The project team has gained an excellent reputation for itsexpertise with legislators, experts and market players; thishas been greatly beneficial. For example, one of the largestbanks in Russia, URALSIB, is currently employing the rec-ommendations laid out in the project's due diligence report.This document is the principle instrument used to encour-age the development of mortgages.
It's now vital to preserve the project's reputation, maintainits pace and to disseminate its findings to the market effec-tively.
The ultimate goal for mortgage lending in Russia is to, atleast, return to 1913 levels - when the mortgage portfolioaccounted for 20% of GDP.
Elena Klepikova
PEP Senior OperationsManager, HousingFinance
Interview with Vasily Palatkin, Director of the Retail DevelopmentBusiness Line, the URALSIB Financial Corporation (FC)
URALSIB is a long-standing partner of IFC. How would youassess your co-operation?
Our business relations began in 2003. At the time, our focus lay infinancing small and medium sized businesses. As a result of co-op-eration with IFC, we gained a credit line of $30 million withURALSIB Bank (a component of URALSIB FC) - for financingsmall business.
We were mutually satisfied with the partnership and, in 2005, de-cided to unite IFC expertise with the potential of URALSIB toprovide mortgages. This has been part of a nationwide drive to pro-vide affordable housing for the population; fittingly, IFC sees thedevelopment of housing finance as a top-priority within Russia's fi-nancial sector.
IFC has shared its vast range of worldwide expertise in creating effi-cient mortgage packages and refinancing mortgage loans. We askedIFC to help implement these major developments.
URALSIB Bank ranks among the top five Russian banks by prof-itability. We provide services from Kaliningrad to Irkutsk and aresecond only to Russia's Sberbank as regards our number of branches.
2005 was a turning point for our understanding of the potential ofthe mortgage market. Our share of the mortgage market reached4.9%, placing us among the four largest mortgage banks in Russia.
How is URALSIB benefitting from the work of IFC’s RussiaPrimary Mortgage Market Development Project?
We are optimising our mortgagebusiness and promoting it at newlevels, according to internationalstandards.
IFC recommendations concerningthe refinancing of our mortgageportfolio have already enabled usto optimise our mortgage pack-ages. We aim to ensure customerloyalty while retaining investors'interest in refinancing projects.
What has already been achievedand what plans are there for thefuture?
To date, IFC has conducted a detailed audit of our mort-gage lending business. We've received qualitativerecommendations regarding future development, based ontrends in Russian mortgage lending, internal and externalobstacles and potential gains.
We plan to continue working with IFC under the project inorder to further develop financing for mortgage deals. IFCwill advise us on choosing contractors, creating analyticalfacilities for mortgages and the property market and on se-lecting innovative insurance products.
I believe we are a key partner for IFC and our co-operationis mutually beneficial.
Vasily Palatkin
Director of the RetailDevelopment BusinessLine, URALSIB FC
To stimulate the growth of Ukraine'spulp and paper industry, IFC recentlylaunched a project to create a Strate-gic Development Plan for the industry.The project is co-funded by the Min-istry of Foreign Affairs of Finland, theAssociation of Ukrainian Enterpriseswithin the Pulp and Paper Industry("Ukrpapir"), and IFC trust funds.
The plan addresses key private andpublic sector issues in the pulp andpaper industry for the next 15 years to2020: these include analyses of thetechnical, financial, and environmentalstatus of the industry, assessment ofkey issues affecting growth, evaluationof new investment opportunities, andidentification of regulatory changesneeded to improve the investment cli-mate.
At the official project launch cere-mony in Kyiv on 21 March 2006,Finland's Ambassador to Ukraine, Ms.Laura Reinila, noted that the FinnishMinistry of Foreign Affairs has workedclosely with IFC on private sector de-
velopment since the early 1990s. "Wewelcome the opportunity to continuethis co-operation in Ukraine, liaisingwith Ukrpapir. Finland has extensiveexperience in forestry and its relatedindustries. We can share our know-how while developing contacts withUkrainian counterparts within the sec-tor," she explained.
Evgeny Lobanov, Chairman of thePresidium of Ukrpapir, said that, "Ukr-papir is very keen to implement thisproject in co-operation with IFC andthe government of Finland. It will cre-ate a solid foundation from whichUkraine's pulp and paper industry cangrow while attracting more invest-ment into this strategic sector."
It is s said that a good beginning ishalf the battle. The Georgia SME Pol-icy Project was successfully launchedin April 2006. The three-year $1.5million project, financed by BP, theCanadian International DevelopmentAgency (CIDA) and IFC will supportthe development of Georgia's businessenvironment by assisting the govern-ment to streamline regulation of theprivate sector. In addition, the projectwill monitor the local business envi-
ronment throughregular surveysof business own-ers, as well aswork to facilitateSME access toinformation.
Currently, Geor-gia has fewerSMEs per capitathan neighboringcountries, whilegrowth of smallbusinesses is
nearly stagnant. Major obstacles toSME development lie in the adminis-trative system. According to the surveyof SMEs conducted by IFC in 2005,lack of transparency in procedures andstate requirements were named amongkey problems by business owners. IFCwill work closely with the Georgiangovernment to improve inspectionsand permits/licenses system by stream-lining them according to bestinternational practices.
The official project launch ceremonyaimed to show the project's strongpresence in Georgia and introduce theIFC team as an asset with an extensiveexpertise in the field of regulatory andadministrative reforms. About 100guests including government officials,business associations, private sectorand media representatives attendedthe launch to acquaint themselves withthe project components and identifyavenues for cooperation.
Mikheil Saakashvili, the President ofGeorgia, showed strong interest inproject activities through a special re-quest for additional information.Vakhtang Lezhava, Deputy State Min-ister for reforms, stressed theimportance of the project, "Even if aninspector does not become a friendfor business, the fact that inspectionsare no longer viewed as a source ofevil already counts for success of ouradministrative system. I believe theproject will make it."
Celebrating the launch (left to right): Christian Grossmann, PEP Director, Ambassador Laura Reinala, andEvgeny Lobanov, Chairman of the Presidium of Ukrpapir
PrograminFocus
thePartnershipPerspective Summer 2006
44
The Challenge
Access to finance is crucial to busi-ness development. Yet the financialsector in the countries of Eastern Eu-rope and Central Asia is still largelyunderdeveloped. Limited access to fi-nancing remains a major constraintto the growth of local companies, es-pecially for those enterprises thatneed capital the most - start-ups andSMEs.
IFC's Solution
IFC's Private Enterprise Partnershipworks to build healthy financial mar-kets and increase the financial optionsavailable to local businesses. Our proj-ects improve the enablingenvironment for financial services,develop alternative financial prod-ucts, strengthen financial institutions,and attract new investment.
Catalyzing Leasing Sector Develop-ment
Leasing is a critical form of financingfor start-up and expanding enter-prises, particularly SMEs whichtypically lack credit history and col-lateral to access bank credit.
To build competitive leasing indus-tries in the countries of EasternEurope, Central Asia and Mongolia,we:
Work with governments and the
private sector to improve regula-tions and laws governing leasing.
Develop local expertise by train-ing leasing companies and banksto structure leasing transactions,to assess and manage risks of leas-ing operations, and to manage thelegal, taxation, and accounting as-pects of leasing deals.
Expand the client base for leasingby training SMEs to evaluate dif-ferent financing options, to workwith leasing companies, to writebusiness plans and investment pro-posals, and to manage theirfinances under lease agreements.
Expanding the Availability of Hous-ing Finance
The development of housing financehas a tremendous developmental im-pact in terms of increasing living
standards, expanding financial mar-kets, and fostering private sectordevelopment.
To spur the development of mort-gage lending, we:
Work with select banks to imple-ment standardized, world-classpractices in mortgage origination,underwriting and servicing;
Advise and lobby federal and re-gional governments to improvethe enabling environment forhousing finance;
Deliver trainings and consulta-tions to financial institutions,mortgage-related service providersto encourage industry develop-ment and the adoption of bestpractices and standards;
Conduct public awareness cam-paigns to improve consumerunderstanding of the benefits ofhousing finance.
In order to develop financial marketsin the region, the Parnership alsoruns select programs in additional ar-eas. Examples include rural financeand microfinance programs in Tajik-istan, and training bank personnel inthe Central Asia region.
The Partnership expects to expandand deepen its access to finance busi-ness line in the near term. This willbe done by rolling our housing fi-nance portfolio out to additionalcountries, by exporting our successfulleasing program model to IFC's tech-nical assistance facilities working inother regions of the world, and bydeveloping additional innovative ad-visory products for the countries ofour own region.
Uzbekistan: the number of active leas-ing market participants doubled, andthe value of leasing financing grew bynearly 400%.
Azerbaijan: the leasing market hasgrown from $2.1 million to $30 million,and investments enabled into the leas-ing sector through IFC's technicalassistance work, have reached $34.4million.
Results of IFC's work:
Uzbekistan: on June 28, 2006 the Law"On Mortgage", developed by the gov-ernment in cooperation with IFC, passedthrough Parliament, and was submit-ted for presidential approval.
Russia: IFC's Russia project developeda standard mortgage note which is cur-rently being tested at partner banks.
Undrakh equipped a model gurt (around nomadic tent) with solar energypanels and leading home appliances.Mr. Ganbold then demonstrated hismodel to all 24 soums (municipalities),visiting some of the most remote fam-ilies living in Zavkhan province.Herders were keenly interested butfew could afford the solar panels. Manyapproached the company with offersof paying in kind or requested thatpayment be made in spring, after they'dsold their cashmere. Very soon, Un-drakh became engaged in barter ratherthan being a financial service provider,as it had intended.
High quality solar panels produced inGermany and South Korea are expen-sive so herders prefer cheaper importsfrom China. From 2002 to 2003, a to-tal of 60 panels were sold by thecompany but, in many cases, herdersfailed to pay in full. They began usingthe equipment while postponing pay-ments. Meanwhile, the cheapequipment was easily damaged and re-quired maintenance. By the end of2004, sales had fallen significantly and,in 2004, only two herders applied tobuy the panels.
In June 2005, Mr. Ganboldparticipated in a seminar for localbusinesses, organised by the Mongo-lian Employer's Federation in Zavkhanprovince. The IFC Mongolia LeasingDevelopment Project had been invited
to speak on finan-cial leasing. Afterthe seminar, Gan-bold approachedproject staff ask-ing for their adviceon financial leas-ing. Projectpromotion mate-rials, sampleagreements andleasing guidelineswere widely dis-tributed throughthe province ofZavkhan in re-sponse to multipleenquiries.
Undrakh company then beganintroducing flexible lease agreements,interest-free terms when paymentswere completed over three monthsand a discount at the end of a leasewhen payments were made in a fulland timely manner. Additionally,Undrakh introduced additionalservices: maintenance by the companyand training and consultancy onassembly, installation and disassemblyof solar panels (herders movefrequently to find better pastures).
These measures attracted 53 newherder clients from 10 out of 24municipalities of Zavkhan province.This resulted in a 250% rise in leases- worth US $10,427 by the end of2005. Ganbold is happy that leasing isbenefitting the herders and hiscompany. He has provided solarpanels to a school dormitory in onesoum and wind generators to twohospitals in other soums. He is nowenthusiastically planning furtherinvestments in leasing services.
Solar antenna in Nomrog hospital
M O N G O L I A
AA BBrrooaaddeerr VViieeww
Since its launch in 2004, the Mongolia Leasing Development Project has:
advised the Government of Mongolia on the Law on Financial Leasing and on amend-ments to the Taxation Law. On June 22nd, 2006, Parliament adopted the Law on FinancialLeasing, including project recommendations.
conducted over 40 training courses in the capital city of Ulaanbaatar and six in provincialcapitals and municipalities, educating over 650 private enterprises and financial institu-tions on the advantages of leasing.
provided more than 100 hours of consultation to leasing companies regarding improve-ment of terms, risk management and business plans for new start ups.
assisted four universities and three training centers in developing courses on financialleasing. These are now included in their syllabus.
trained journalists and had materials on leasing published in popular daily newspapers.Additionally, a series of radio spots on leasing have been broadcast on national radio.
The project is financed by the Japan-IFC Trust Fund and the IFC Technical Assistance Trust Fund.
thePartnershipPerspective Summer 2006
66 ImpactOntheGroundR U S S I A
AA SSuuppeerr MMoorrttggaaggee ffoorr RRuussssiiaaRussia, with a population of over140 million, has the largest poten-tial mortgage market in Europe.
Yet currently, the market isnowhere near this potential, stand-ing at less than 1% of GDP. Despitestrong housing demand from thepopulation and skyrocketingprices, the development of mort-gage lending is hindered byimperfect legislation, lack of uni-fied market standards, and a lowlevel of public awareness aboutthe benefits of mortgages.
In summer of 2005 IFC, in coopera-tion with the governments of theNetherlands and Switzerland,launched a three year advisory proj-ect to address the key issues hinderingdevelopment of the mortgage lend-ing industry, the Russia PrimaryMortgage Development Project.
IFC is Russia's largest financier ofhousing finance, with investmentsover $250 million. Drawing on itsmarket knowledge, IFC matched theadvisory project to the current needsof the Russian mortgage industry, fo-cusing on three objectives: buildingthe mortgage industry and improvingthe legislative environment, develop-ing the capacity of partner banks, andincreasing outreach to potential bor-rowers.
"The voice of the industry"
IFC established a working groupwhich brings together all key marketplayers in mortgage lending in Russia- 74 organizations including majormortgage lenders, international rat-ing agencies, insurance companies,tax and accounting firms, and otherindustry stakeholders.
The working group consolidates theefforts of each discrete market partic-ipant, allowing stakeholders todevelop and then lobby common so-lutions to the sector's key problems.The group's collaborative efforts havebrought the following results:
Standard Mortgage Note (Zaklad-naya), a single document which
summarizes the key terms and con-ditions of a mortgage loan. Untilrecently each lender had its ownform of the Zakladnaya, whichstrongly complicated subsequenttransactions. The standard versioncan be used as an asset for securi-tization of receivables on mortgageloans - allowing banks to sell,pledge or entrust it to other enti-ties, facilitating market liquidity.
NORMA (National OperationsReference Manual): a compilationof best practices in the Russianmortgage lending industry. Themanual can be used by the entireindustry as a tool to improve lend-ing policies and procedures.
Activities for partner banks
IFC is also working with eight part-ner banks to assist in enhancing theirmortgage lending procedures.Among these banks there are two in-vestment clients - Absolut Bank andMoscow Credit Bank, as well as Rus-sia’s fourth largest bank - URALSIB.Once these banks introduce best prac-tices into their operations, this willhave a strong demonstration effecton the rest of industry.
The project is developing standardtools to address fundamental defi-ciencies of the Russian residentialmortgage lending market.
First, the M-LOAN product, whichstandardizes the process to be fol-lowed during due diligence assessmentat mortgage banks. The second prod-uct created is M-DATA. Designed toimprove the lenders' data manage-ment practices, this comprehensiveset of document templates provideinformation on a mortgage loan, theborrower, and the bank's mortgageportfolio in a standardized manner.
IFC has performed M-LOAN-baseddue diligence review of three banks,and has a pipeline of three more tobe completed in the coming months.Reviewed banks have begun to im-plement the project'srecommendations, such as introduc-ing new mortgage loan products andimproving internal procedures.
“The formation of our group has been avery important event for the industry, be-cause many key market development issuescan really only be solved by uniting our ef-forts.”
Sergey Dankov, Head of Mortgage Lending, Absolut Bank
“The working group sessions are very effi-cient - they serve to help lenders identifykey issues and develop common positionson how to address them. The fact that IFChas been able to unite all key market par-ticipants is extremely important. We'vebeen recommending the meetings to allour colleagues.”
Oksana Likhacheva, Head of Retail Department, Moscow Credit Bank
A R M E N I A
Outreach to potential borrowers
The IFC project, in cooperation withthe European Mortgage Association,
are drafting the Mortgage Lender'sCode of Ethics, based on best interna-tional practices. This initiative is thefirst step toward formalizing mort-
gage-related information disclosure tothe borrower and is supported by theFederal Antimonopoly Agency, theCentral Bank and major Russian bank-ing associations.
To educate the media on mortgage re-lated issues and to ensure that the topicis professionally covered, the projectregularly holds press events for jour-nalists and conducts a specialthree-semester academic course onmortgage finance for the studentsstudying Journalism at Moscow StateUniversity.
ImpactOntheGround 77
In May 2006, IFC conducted a three-day workshop for top managers andBoard members of Armenian bankswith the support of the Dutch gov-ernment and under the auspices ofthe Central Bank of Armenia. Theseminar was devoted to key issues ofcorporate governance in the bankingsector, such as the role of the Super-visory Board, related partytransactions, risk management andinternal control. Experts from theIFC corporate governance cadre werejoined by Dr. Wolfgang Amann fromthe International Management De-velopment Institute (IMD, Lausanne,Switzerland) to discuss these issueswith 15 Armenian banks.
At the event, the IFC team presentedresults of its survey on corporate gov-ernance practices in Armenian banks,conducted in March-April, 2006. Ar-menian credit organizations were thusable to identify specific areas needing
attention: ownership structure, work-ing practices of the Supervisory andManagement Boards, disclosure andtransparency policies and internalcontrol systems.
The banks realise that good corpo-rate governance will help attractstrategic investors, raise funds in cap-ital markets, increase operationalefficiency, minimise credit loss andprotect all stakeholders'rights. This should thenbuild investor and depositortrust.
Participants agreed that thesecurity of the banking sys-tem shouldn't rely purely onthe support of regulatory au-thorities and that banks musttake responsibility for them-selves. Strengtheningcorporate governance is animportant step and Armen-ian banks are aware of the
need for further improvement. IFCwill continue to support Armenianbanks in their effort to develop busi-ness, as well as to actively invest inArmenia's banking sector - IFC's to-tal net commitments in Armenianfinancial markets sector as of June2006 is $8.7 million.
IIFFCC oorrggaanniizzeess aa wwoorrkksshhoopp oonn ccoorrppoorraattee ggoovveerrnnaannccee ffoorr AArrmmeenniiaann bbaannkkeerrss
Gained new insights and ready to implement them: Ms. Anahit Simonyan, member of the Board of Directorsof Armeconombank, Yerevan
"I've been able to broaden my knowledgeby attending the mortgage lectures. Thelessons on refinancing, security and thestructure of the mortgage market wereparticularly useful to me. I'd like to ex-press my thanks to all involved."
Olga Salobai, student of Moscow StateUniversity
R U S S I A
available in May 2006. IFC's assistanceis enabling Center-Invest to extendand improve its lending in energy effi-ciency projects. As of July 2006, thereare 23 additional projects in the bank'spipeline, totaling at least $8.4 million.Among the banks's clients are bak-eries, factories processing meat andmilk and those producing confec-tionary, sunflower oil, machinery,bricks, leather goods and printing andpackaging materials.
In the other regions, IFC's programhas helped four partner financial insti-tutions develop a pipeline of projectproposals exceeding $90 million. En-ergy-saving projects assist financialinstitutions to develop expertise in en-ergy efficiency lending and todifferentiate themselves from competi-tors. They also positively impact theregional economy as enterprises tap animportant reserve - energy cost reduc-tions.
The program is funded by Denmark'sEnvironmental Protection Agency,Finland's Ministry of Foreign Affairsand the Ministry of Trade and Indus-try, the Free State of Saxony, the WorldBank’s Global Environment Facility,and IFC's Sustainable Financial Mar-kets Facility.
fit from the program was Center-In-vest Bank of Rostov-on-Don, thelargest privately owned bank in theRostov region. Center-Invest is a long-standing IFC partner, having receivedinvestments and assistance to improveits management and operations, thebank successfully attracted foreign in-vestment, and now has the secondlargest retail deposit base in the re-gion.
Center-Invest's leadership in the areaof energy efficiency is explained by themanagement's vision. Vasily Vysokov,Center-Invest Chairman, says, "En-ergy prices in Russia are approachingworld levels so energy efficiency proj-ects are becoming increasinglyattractive to companies; banks simplyneed to respond accordingly."
In August 2005, IFC began assistingCenter-Invest in developing energy ef-ficiency projects. Training events forstaff and clients were held in Rostovand Krasnodar and IFC worked withCenter-Invest to establish a network ofenergy efficient equipment suppliers.
IFC also helped Center-Invest evalu-ate project proposals for eligibility andfeasibility. Eight projects received fi-nancing under IFC's initial $4 millioncredit line to Center-Invest, made
To facilitate investments in energyefficiency projects in Russia, IFClaunched a program combiningtechnical assistance with dedicatedcredit lines for banks. The first $4million credit line was fully allo-cated within one month of becomingavailable.
Russia consumes ten times more en-ergy per unit of GDP than the U.K.and six times more than Canada. Thisinefficiency impedes the competitive-ness of individual companies as well asthat of the national economy.
Despite growing demand for energyefficient technology, financial institu-tions and enterprises' lack of experiencedeters them from investing in suchprojects. To encourage investment inenergy efficiency projects, IFC de-signed a program combining creditlines to banks and advisory services tosupport these investments.
IFC's program, operating in Moscow,St. Petersburg, Ekaterinburg, Rostov-on-Don and Nizhny Novgorod, aimsto disburse $20 million over its firstyear and a total of $100 million withinthe first three years solely on sustain-able energy projects.
Opt-Trade is one of the 10 largest grain traders in Russia. Opt-Trade also sells bottled vegetable oil.To expand the vegetable oil business, the company is investing in a new plant for oil production.
The plant will generate over 2,000 tons of sunflower husk waste a month as a by-product of its oilproduction. Disposal of these husks is a huge problem for the company: to haul this away municipalauthorities were requesting $700,000 per year. Another problem is in the cost of gas needed for theoil production process: an additional $400,000 per year.
IFC and Center-Invest specialists helped the company find a solution to both problems: sunflowerhusks will fuel the plant's boilers instead of gas. Acquisition of special boilers, fueled by husks, is fi-nanced by a loan from Center-Invest.
Company estimates show that the annual savings will thus exceed $1 million per year. Investmentsof $1.3 million into the new boilers will have a pay back period of about a year. Implementation ofthe project will also lead to reduction of carbon dioxide emissions of 10,600 tons annually.
thePartnershipPerspective Summer 2006
88 ImpactOntheGround
TThhee PPaarrttnneerrsshhiipp PPeerrssppeeccttiivveeis a publication of the IFC’s Private Enterprise Partnership.
