2012 Eastern Europe and Central Asia Regional Snapshot

Microfinance Information Exchange

2012 Eastern Europe and Central Asia
Regional Snapshot

The Premier Source for Microfinance
Data and Analysis

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Agenda

1. ECA microfinance in a global context

2. Social performance management in ECA

3. ECA funding

4. Bosnia & Herzegovina: Crisis recovery?

5. Kyrgyz Republic: Stricter regulations to avoid over-indebtedness

6. Azerbaijan: Responsible pricing versus profitability dilemma

7. Conclusions

2

ECA microfinance in a global context



3. ECA funding




7. Conclusions

Return to the main agenda slide
3

ECA microfinance in a global context

On MIX Market, ECA accounts for
100%
only 3% of global loans
90% outstanding, but has 10% of the
global portfolio. ECA MFIs have
80% the highest median outstanding
loan balance globally equal to
70%
USD 1,930.
60% S. Asia
MENA ECA’s median outstanding
50% LAC deposit amount accounts for
40%
ECA over USD 2,037, which is almost
EAP 4 times that of the second
30% Africa highest average in LAC, driven
by the fact that most ECA NBFIs
20% are not allowed to attract
deposits and banks are the
10%
primary deposit-taking
0% institutions. The downscaling
Loans GLP Deposit Accounts Deposits banks increase the average
Outstanding
deposit balance due to the
Source: MIX Market, 2013. View the graph data here. inclusion of commercial deposit
accounts. ECA’s global coverage
share is small, with 7% of global
depositors and 9% of global
deposits volume.
4

ECA growth and portfolio quality

12 12
Loan portfolio growth continues for ECA,

Millions

Number of loans/deposit accounts
USD, Billions

10 10 while the number of loans outstanding and
GLP and deposits

8 8 deposits remain flat.
6 6
4 4 Banks are the main drivers of deposits
2 2 trends, considering NBFIs are not allowed
0 0 to attract deposits outside of Central Asia.
2008 2009 2010 2011 Deposit-taking NBFIs in Central Asia,
GLP Deposits however, continue to grow. In 2011,
Loans outstanding Deposit Accounts deposits in Tajikistan nearly doubled,
Mongolian NBFIs experienced 50% growth in
5% deposits, and the one deposit-taking NBFI
4% in Kyrgyzstan increased deposits from USD
100,000 in early 2011 to almost USD 1
3% million by 3rd quarter 2012 serving over
2% 1,500 depositors.

1%

0% Portfolio quality continued to improve since
2008 2009 2010 2011 2009, as PAR>30 decreased to 2.9%.
PAR>30 (Medians) ROA (Medians)
Meanwhile, profitability for ECA MFIs
increased by 0.3% since 2010. Positive trends
Source: MIX Market, 2013. View the 1st graph data here. View 2nd graph signal an ECA recovery from the crisis.
data here.
5

Social performance management in ECA



3. ECA funding




7. Conclusions

6

ECA social performance reporting

Share of ECA in global SP reporting
ECA accounts for 21% of the
global social performance
ECA
19% 21%
reporting, as MFIs in the
Africa region continue to focus on
4% EAP social performance
17% LAC management.
30% MENA
9%
S.Asia
ECA increased its social
performance reporting by
SP reporting growth 54% in 2012 with a total of
over 180 MFIs reporting to
Africa
MIX. National associations
S.Asia participating in the Start-up
ECA Fund for social performance
reporting supported their
EAP
member MFIs in reporting
MENA data. MIX has played a
LAC fundamental role by
facilitating this reporting.
0% 20% 40% 60% 80% 100% 120%

Source: MIX Market, 2013
7

Gender outreach and staff composition

Source: MIX Market, 2013. View graph data here.

Although female outreach in ECA is the lowest globally, it has increased by 2% since 2010.
However, ECA has the second highest percentage of female board members, managers and staff.
Conversely, in South Asia where female borrowers comprise a large percentage of borrowers, the
board and management’s gender composition are comparatively low.

8

Gender outreach and group loans

60% ECA’s portion of female staff and
Share in percentages (medians)

female loan officers increased almost
in unison over 2011, which indicates
MFIs hired female staff mostly for the
Female staff front office. The share of female
50%
Female LOs borrowers also grew by 2%.
Female borrowers
Of the countries in the ECA region,
Russia has the highest median share of
40% female board members, loan officers,
2010 2011 staff and borrowers.
ECA number of loans outstanding
100%
The use of group lending in ECA grew;
the share of group loans rose from 19%
80%
in 2008 to 23% in 2011 in terms of
60% loans outstanding. However, group
40% loans only account for 5% of the total
20%
GLP signaling lower average balances.
,
0%
Kyrgyzstan, Kazakhstan, Azerbaijan
2008 2009 2010 2011
and Tajikistan are the markets with
ECA Group Loans ECA Individual Loans over 20% of loans in group lending.
Kyrgyzstan leads with over 85% of
Source: MIX Market, 2013. View female outreach data here. loans through group lending.
9

Rural outreach in ECA

100%
ECA Percentage (average)

80% The share of rural borrowers has
increased from 54% in 2008 to 66%
60%
in 2011, while GLP in rural loans
40% has decreased from 53% in 2008
to 51% in 2011. This signals
20% decreasing average loan balances
0% in rural areas.
2008 2009 2010 2011

Share of rural borrowers Share of urban borrowers

100% MFIs that offer incentives
90%
(bonuses) to loan officers for
Rural outreach (medians)

80%
70% increasing rural outreach clearly
60% have stronger rural outreach than
50% MFIs that don’t offer the same
40%
30% incentive. MFIs with a rural target
20% in their incentive systems have a
10% 22% higher share of active rural
0%
Percentage of rural borrowers Percentage of rural borrowers
clients relative to MFIs without
for MFIs with rural outreach in for MFIs without rural this incentive.
incentive system outreach in incentive system

Source: MIX Market, 2013.
10

Does staff turnover affect client retention rate
in ECA markets?
Bosnia and Herzegovina vs ECA Azerbaijan vs ECA
90% 90%
80% 80% Borrower retention (ECA,
median)
70% Borrower retention (ECA, 70%
60% median)
60%
Borrower retention (BiH, Borrower retention
50% 50% (Azerbaijan, median)
median)
40% 40%
Staff turnover (ECA,
30% median) 30% Staff turnover (ECA,
median)
20% Staff turnover (BiH, 20%
10% median)
10%
Staff turnover (Azerbaijan,
0% 0% median)
FY10 FY11 FY10 FY11

Kyrgyzstan vs ECA It is widely believed that lower staff turnover
yields a higher client retention rate. Reason?
90% Borrower retention (ECA,
median) Client loyalty depends on the relationship with
80%
staff, and new staff do not always maintain
70%
relationships with old clients.
60% Borrower retention
(Kyrgyzstan, median)
50%
While the broader ECA region does not fit this
40% relationship, the three biggest microfinance
Staff turnover (ECA,
30%
median) markets in the region do. In these markets, a
20% decrease in staff turnover from 2010 to 2011
10% matched an increase in the client retention rate
Staff turnover (Kyrgyzstan,
0% median) (Kyrgyzstan demonstrates the inverse
FY10 FY11 relationship).
Source: MIX Market, 2013. View client retention and staff turnover data here 11

ECA funding

1. ECA Microfinance in a global context

2. Social Performance Management in ECA

3. ECA Funding




7. Conclusions

12

Cross-border funding for microfinance by region
(2009-2011)
Regional Allocation of Total Commitments, 2009-2011
Cross-border funding
includes funders’
commitments for debt
financing, equity and
grants to all levels of the
financial system (retail,
market infrastructure and
policy).

To see a definition of
commitments click here.

Source: Graph taken from 2012 CGAP Cross-Border Funder Survey.

• SA, ECA, and LAC continue to be the regions that receive the highest amounts of cross-border funding
(a combined 60% of total commitments).
• Commitments in the ECA region decreased by 5% per year on average between 2009 and 2011 to
reach US$3.1 billion.
• In contrast, commitments to SSA, MENA, and EAP increased during the same period.
13

Cross-Border funding for microfinance in most ECA
countries is decreasing
Commitments by Country*
(as of Dec. 2011, and 2009/20011 Trend)
09/11
Dec 2011 Country
Growth
$300 - $499 mln Turkey 
Russia 
Serbia 
Azerbaijan 
$100 - $299 mln Bosnia 
Tajikistan 
Armenia 
Romania 
Colors denote the amount of cross-border
Ukraine  funding (USD)
Kyrgyz Republic 
Uzbekistan  Cross-border
Georgia  commitments decreased
$50 - $99 mln
Mongolia  in 2/3 of countries in
Belarus  ECA as more projects
Albania  were closed in 2011
Moldova  than new projects were
Kazakhstan  started. Cross-border
Bulgaria  funding is being
Poland  reallocated to other
$2 - $49 mln Montenegro  regions.
Kosovo 
Macedonia 
* Country allocation is available for 75% of ECA committments
Turkmenistan 
All data and graphs from the 2012 CGAP Cross-Border Funder Survey. 14

Funding structure for MFIs: Equity investments
continue to grow?
Reliance on deposits as a funding
source by banks decreased in
2011, compensated by a small
increase in borrowing. This
change is driven by several banks
in Central Asia.

Equity levels for NBFIs and NGOs
continues to increase sharply
since 2009. This was led by
increasing retained earnings for
Georgian NBFIs and Bosnian NGOs;
and sharp increases in paid-in
capital for big NBFIs in Kazakhstan
and Russia, as well as BaiTushum
& Partners (Kyrgyzstan) as it
prepares to transition from an
NGO to a bank.

Borrowings decreased for both
NBFIs and NGOs. Bosnia’s
microfinance meltdown is the
main reason for the decrease in
borrowings for NGOs.

Source: MIX Market, 2013. View the graph data here.
15

Funding structure: Debt funding for NBFIs and
NGOs decreased

Each type of funder increased their
debt funding to banks during FY 2011.
The trend is heavily driven by funds and
DFI investments in Georgia, Armenia
and Mongolia.

Financial institutions, governments and
funds decreased their presence in NBFIs
and NGOs in 2011. The main reason for
the trend is the lack of investor
confidence in the Bosnian market,
whose recovery from the crisis has yet
to be confirmed. Bosnia accounted for
over 42% of the total ECA borrowings in
2008. Currently, the share slipped to
21% of the total regional funding.

Finally, cross-border debt financing is
90% of all debt financing in ECA, a
trend which has not changed for the
last three years.

Source: MIX Market, 2013. View the graph data here. Fund lender type category is comprised of local funds and cross-
border microfinance intermediaries (MIIs). 16

Bosnia & Herzegovina: Crisis recovery?



3. ECA funding




7. Conclusions

17

Bosnia & Herzegovina: Profitability and portfolio
quality do not mean growth
12% In Bosnia, PAR figures and the write-off ratio
10% significantly decreased, thus helping Bosnian
8%
6%
MFIs become profitable for the first time
4% since 2009. A report on the microfinance
2% sector by the Banking Agency of the
0% Federation of Bosnia And Herzegovina,
-2% however, argues the validity of presented
-4%
figures.
-6%
2008 2009 2010 2011
Although profitability and risk figures were
ROA PAR>30 Write off ratio
quite promising, Bosnian MFIs’ GLP and
outreach continued to drop until 2011.
1,500 500 Through the first three quarters of 2012,
USD, Millions

Thousands
both figures have remained flat.
1,200 400

900 300
Borrowings have steadily decreased for MFIs
in Bosnia & Herzegovina. Meanwhile, equity
GLP, Borrowing and Equity

Loans outstanding

600 200 grew in 2011 and 2012, as profitability
positively affected retained earnings.
300 100

0 0 Average loan balance per borrower also
continued to shrink by 8% in 2011. This
proves that the market is taking a
Loans outstanding GLP Borrowings Equity conservative approach to lending and using
security measures against further over-
Source: MIX Market, 2013. View Bosnia & Herzegovina profitability indebtedness.
and portfolio quality data here. View growth data here
18

Kyrgyz Republic: Stricter regulations to avoid
over-indebtedness



3. ECA funding




7. Conclusions

19

Kyrgyzstan NBFI market growth and portfolio
quality
300 500

Thousands
USD, Millions

250
Gross loan portfolio

400
The GLP and number of

Active borrowers
200
300 borrowers in Kyrgyzstan’s
150 NBFI market grew steadily in
100
200 recent years. Despite
100
positive trends in portfolio
50
quality, concerns grew
0 0 regarding multiple borrowing
2008 2009 2010 2011 Q3 2012 and potential over-
Number of active borrowers GLP indebtedness risks.

4% In the first 3 quarters of
2012, the MFI Bai Tushum,
3% who recently received a
license to become a bank,
2% experienced a decrease in
borrowers but an increase in
1% GLP They were able to do
.
this by targeting wealthier
0% clients.
2008 2009 2010 2011 3Q 2012

PAR Write-off ratio

Source: MIX Market, 2013. View market growth data here. View portfolio quality data here.
20

Kyrgyzstan: Stricter regulation from National
Bank on NBFIs
50%
Nominal portfolio yield

40%
Throughout the past year, NBFIs gained the
(medians)

30%
National Bank’s attention over public concerns
20% regarding high interest rates. The NBKR has
opted in favor of market-based tools to
10%
influence rates instead of setting interest-rate
0% ceilings. Nevertheless, the NBKR also increased
2005 2006 2007 2008 2009 2010 2011 loan provisioning standards and limited the
NBFIs Kyrgyzstan NBFIs ECA Banks ECA fees charged to borrowers for late payments.

40%

35%
Provision for loan
For NBFIs, total expenses as a percentage of
30% impairment/Assets total assets have slowly decreased since 2008,
25%
Financial mostly resulting from the financial expense-to-
Expense/Assets
20% Operating
assets ratio falling by nearly 1.5%. The driving
Expense/Assets forces behind this trend has been decreasing
15%
Financial funding costs, as Kyrgyzstan has attracted
10% Revenue/Assets
Total Expense/Assets
much of its funding from international
5%
investors in the past few years. As such,
0% funding costs have gone down.
2005 2006 2007 2008 2009 2010 2011

Source: MIX Market, 2013. View the 1st graph data here. View the 2nd graph data here
21

Azerbaijan: Responsible pricing versus
profitability dilemma



3. ECA funding




7. Conclusions

22

Azerbaijan NBFI stable growth continues

400 400

Thousands
USD, Millions

NBFIs in Azerbaijan consistently

Number of active borrowers
300 300
grew in the past few last years.
Gross loan portfolio

Portfolio quality significantly
200 200
improved since 2010, and the
write-off ratio remained very
100 100
low. In 2012, the sharp increase
both in active borrowers and GLP
0
2008 2009 2010 2011
0
confirms the untapped potential
of the market.
Number of active borrowers GLP

3%

AMFA has been actively working
on developing a code of conduct
2%
for market players to set
practical guidelines for
1% responsible sector behavior.

AMFA requested assistance from
0% MIX on analysis of pricing
2008 2009 2010 2011 Q3 2012 components.
PAR>30 Write-off ratio

Source: MIX Market, 2013. View market growth data here. View portfolio quality data here
23

Responsible pricing benchmark in Azerbaijan

Nominal Yield on GLP (weighted averages) Not all banks included in the analysis are major
50% players in the microfinance sector and
40% compete with other banks across numerous
30%
product lines. This competition has led banks
to drop their rates, and in turn their yields, to
20%
better compete with their peers. The nominal
10% yield reflects the entire product scope of banks
0% and does not distinguish the microfinance
2005 2006 2007 2008 2009 2010 portion. The yield decrease for banks does not
necessarily mean lower prices for microfinance
Azerbaijan Banks NBFIs
clients borrowing from banks.
40%

30%
NBFIs have not had the same pressure to reduce
20% rates and have kept margins steady as expenses
continue to increase. The expenses have been
10% increasing ever since NBFIs started paying
payroll taxes added by extra costs in 2011 for
0%
2005 2006 2007 2008 2009 2010
the use of a centralized credit registry. Margins
Banks - Financial Revenue/Assets Banks - Total expense/Assets have been steady because costs have also gone
NBFI - Financial Revenue/Assets NBFI - Total expense/Assets up. Usually, the costs faced by microfinance-
focused institutions can vary significantly from
Source: MIX Market, 2013. View the slide data here
the larger banks.
24

Conclusions

1. Positive trends in portfolio quality and profitability figures along with the
growth in borrowers and loan portfolio in ECA signal a regional recovery
from the crisis.

2. ECA improved in social performance reporting by representing 21% of
global reporting to MIX.

3. MFIs in the ECA region increased outreach in rural areas, as group lending
remains a priority methodology in Central Asia.

4. ECA cross-border funding has decreased by average 5% each year since
2009, but equity is growing for both NBFIs and NGOs.

5. The Azerbaijani microfinance sector continues to grow, as the Bosnian
market seems to start recovering from the crisis. Ongoing regulatory
changes in Kyrgyzstan are expected to bring changes to the sector’s
performance.
25

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26

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2012 Eastern Europe and Central Asia Regional Snapshot

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