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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