The Experiences of the Finalists 2013 and Winner 2012

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1 The Experiences of the Finalists 2013 and Winner 2012 Giordano Dell Amore Microfinance Good Practices Europe Award 2013

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3 The Experiences of the Finalists 2013 and Winner 2012 Giordano Dell Amore Microfinance Good Practices Europe Award 2013

4 Acronyms & Abbreviations Aisbl B&H CRM DMI EMN EU EUR FGDA International association without lucrative purpose Bosnia and Herzegovina Customer Relationship Management Deutsches Mikrofinanz Institut European Microfinance Network European Union euro Fondazione Giordano Dell Amore IT MFI NGO OSS PAR SME SMS USAID Information Technology Microfinance Institution Non-Governmental Organization Operational Self-Sufficiency Portfolio at Risk Small and Medium Enterprise Small and Medium Size United States Agency for International Development FSS Financial Self-Sufficiency USD United States Dollar The Experiences of the Finalists 2013 and Winner Published by Fondazione Giordano Dell Amore in the framework of the Project Microfinance Good Practices Europe Award Editor & Technical Consultant Project Coordinator Graphic Design Diego Dagradi Maria Cristina Negro Materials developed on the basis of information provided by the finalist institutions. Photographs related to the experiences supplied by the finalist institutions. Special thanks to the members of the Award Committee and Consulta Tecnica of Fondazione Giordano Dell Amore. Fondazione Giordano Dell Amore Via Andegari, Milan, Italy Phone Fondazione Giordano Dell Amore, 2013 European Microfinance Network. This publication is for personal informational purposes only. All rights reserved. No part of this publication may be used for commercial purposes, altered or published in any manner or form without prior permission from the publisher and EMN. This publication is supported by the European Union Programme for Employment and Social Solidarity - PROGRESS ( ). The views expressed herein are those of the authors and the Commission is not responsible for any use that may be made of the information contained herein.

5 Contents Acronyms & Abbreviations...4 Foreword, by Federico Manzoni and Jorge Ramirez...6 Introduction...8 Palmarès The Winner KosInvest...12 The Finalists Deutsches Mikrofinanz Institut (DMI)...16 Partner Microcredit Foundation...20 Savings House Moznosti...24

6 Giordano Dell Amore Microfinance Good Practices Europe Award 2013 Foreword Foreword The Giordano Dell Amore Microfinance Good Practices Europe Award, organized by the Giordano Dell Amore Foundation in collaboration with the European Microfinance Network, is in its fifth edition. During these years, 60 institutions involved in the microfinance sector have applied for the Award, demostrating the general interest in this important initiative carried out at the European level. This last edition has been characterized by key changes in the elegibility requirements, such as the admission of institutions indirectly involved and the transition from microfinance to financial inclusion. These changes have been realized to be in line with the general evolution of the sector and with the aim to promote good practices in the reduction of social and financial exclusion. This volume summarizes the experiences of the finalists, namely the three applicants judged to be the best, and it also contains the achievements obtained by the winner of the fourth edition, thanks to the prize received, with special emphasis on the impact of its activities and particularly on the beneficiaries of its work. The Giordano Dell Amore Foundation believes that this publication will be useful to all those involved in the sector by offering examples of good practices. We are glad to replicate this Award once again, as it helps the Foundation foster its broader mission of contributing significantly to the development and innovation of the microfinance sector through the dissemination of ideas, best practices and operational models. Within the Italian context, the Foundation still contributes to the progress of microfinance institutions in terms of outreach and quality of services through promoting and taking an active part in initiatives devoted to the reinforcement of the sector. The main lines of activity are: organisation of periodic workshops on specific microfinance issues for the definition of operational ideas and concrete project skills, matching support and project development for the identification of possi- ble partners, design and planning of microfinance activities, and project coordination in partnership with other actors. We would like to thank the European microfinance operators for their participation and the European Microfinance Network for having reaffirmed its commitment to the realisation of the Europe Award for the fifth consecutive year, and for having associated the Award with its 10 th Annual Conference. To conclude, we wish to extend our gratitude to all those people, numerous indeed, who believed in our activities and contributed with their reflections, ideas and advice in the achievement of this new project started by Giordano Dell Amore Foundation: firstly, Fondazione Cariplo, which makes this project possible with its contributions, and the members of the Award Committee and Consulta Tecnica who devoted their precious time to support our work. by Federico Manzoni, President FGDA 6

7 Foreword The European Microfinance Network aisbl (EMN aisbl) is keen to be associated once more with the fifth edition of the Giordano Dell Amore Microfinance Good Practices Europe Award sponsored by the Giordano Dell Amore Foundation. With 91 members in 21 countries, EMN aisbl is the leading network in the European Union supporting the development of microfinance in Europe as a tool to avoid social exclusion and enhance economic development. More than ever, with many European countries experiencing important economic and social challenges, microfinance needs to show itself as an instrument for growth, employment and social cohesion. Microfinance represents an opportunity for excluded people to obtain access to financial services for starting or developing their enterprises or becoming self-employed and this message needs to get not only to our potential clients but to the wider public. Award has paid particular attention to innovative ideas that can be transferable to the rest of the sector. I am pleased to see that 19 organizations (eight of which are members of our organization) from 13 European countries shared their experiences for the Good Practices Award. This Award would not be possible without the strong involvement and contribution of the Giordano Dell Amore Foundation. EMN aisbl would like to take this opportunity to thank the Foundation for its strong commitment to making this Award a success. The collaboration between EMN aisbl and Giordano Dell Amore Foundation represents what the network wants to promote among its members: a strong partnership where members are key players in promoting the network itself and the other members. Such a strong involvement by members has been key to the success of EMN aisbl in becoming a real membership based network, run by and for its members. As part of its strategic objectives, EMN aisbl believes that to publicize good practices and to create incentives to share their experiences with others is one of the key factors in making our voice louder and accelerating growth and professionalism in the sector. In 2009, the creation of the Giordano Dell Amore Microfinance Good Practices Europe Award with the Giordano Dell Amore Foundation, was a major step forward in that direction. This Award aims to encourage European microfinance practitioners to share good and transferable practices, to promote and spread those practices to other microfinance actors in Europe and finally to increase the understanding of the importance of microfinance by the wider public. by Jorge Ramirez, General Manager of EMN aisbl This fifth edition takes place at a time when the sector needs to propose and implement new ways of doing microfinance in order to become sustainable and reach the relevancy that it deserves in Europe. In that context, the

8 Giordano Dell Amore Microfinance Good Practices Europe Award 2013 Introduction Introduction The Giordano Dell Amore Microfinance Good Practices Europe Award, given by the Giordano Dell Amore Foundation in collaboration with the European Microfinance Network, has three main objectives: to increase the awareness of the European public about the importance of microfinance as a tool to foster the economic initiative of people excluded from the traditional financial system; to encourage the exchange of experiences and sharing of thoughts and in-depth analyses within the community of microfinance in order to raise the level of professionalism of the actors involved and to favour a growth path that considers innovation, sustainability and the social impact of microfinance interventions; to highlight and publicize the best experiences of microfinance that combine innovation and sustainability, while rewarding the ability to systematize the principal features of the intervention model so as to allow its replication in different contexts. The Europe Award is open to any European institution or organisation directly or indirectly involved, for at least 12 months prior to the date of application, in the financial inclusion of people excluded from mainstream financial services or with a limited access to them in European Union or EFTA countries. In accordance with the 2013 EMN Annual Conference focus, the 2013 Giordano Dell Amore Microfinance Good Practices Europe Award topic is Innovation. This aspect has been chosen based on its current importance and relevance for the development of the sector as innovation becomes increasingly necessary to identify new alternatives in terms of products, services, approaches, etc. to improve sustainability and impact. Specifically, applicants had to highlight four principal aspects of their initiatives: the innovative character of the experiences submitted, namely in which way the initiative presented represents a transformation of a traditional practice into an innovative product, service, approach or application of technologies and ideas; the strategies applied to achieve sustainability of the microfinance services offered; that is, whether the initiative presented is achieving some degree of financial sustainability or the institution is applying appropriate strategies that will help the initiative to attain sustainability; the actual or potential impact of the microfinance initiative that must be quantifiable, with a specific focus on poor and marginalized people; the replication/transferability of procedures, i.e. the way in which the initiative submitted could be replicated in different contexts by other providers to solve the same kind of problems. Nineteen proposals describing microfinance experiences in thirteen countries were submitted in consideration for the Award. The following table lists the candidate countries and organisations, while the graphic shows the evolution of the candidate profiles during the five years of the Award. Country Albania Austria Belgium Bosnia&Herzegovina Bulgaria France Organization VisionFund Albania ÖSB Consulting GmbH microstart SCRL-FS EKI Microcredit Foundation Microcredit Foundation LIDER Mikrokreditna fondacija PRIZMA Sarajevo Partner Microcredit Foundation Mikrofond AD FinanCités Parcours Confiance Bretagne Pays de Loire (PCBPL) 8

9 Introduction Country Organization Candidatures evolution Germany Italy Montenegro Deutsches Mikrofinanz Institut (DMI) AZ Leasing SpA Fondazione Cassa di Risparmio di Padova e Rovigo MFI Kontakt AD Republic of Macedonia Savings House Moznosti Romania Spain United Kingdmom SC RoCredit IFN SA ACAF Association for Self Financed Communities Fundación del Instituto de Crédito Oficial-ICO (in partnership with Fundación Nantik Lum) Fair Finance The majority of the proposals submitted concern a project implemented by the institution (7 applications) or a specific product/service offered by the institution (6 applications). Four applicants presented their institution as a whole and with their overall activities while two proposals outlined a specific approach to microfinance activities. After having examined, analysed and discussed each proposal, the Award Committee, composed by national and international experts in the microfinance sector, selected three finalist institutions. The initiatives presented were evaluated according to the criteria expressed in the Terms and Conditions: Evaluation of the institution. Evaluation of the initiative presented in terms of Congruence with the Award topic, Innovation, Sustainability, Impact or potential impact, Replication. Evaluation of the quality of the proposal. N. of candidates The three finalists are: N. of countries Deutsches Mikrofinanz Institut (DMI), Germany, with the proposal Early risk warning system for highgrowth MFIs, for its innovative system created and shared among the network s members in order to better monitor and control risks, specifically in the case of rapidly expanding MFIs. Partner Microcredit Foundation, Bosnia and Herzegovina, with the proposal Solar Energy as the future of Sustainable Development, for its innovative project to spread clean energy, increasing both the local production of solar panels and the use of solar systems for SMEs and households. Savings House Moznosti, Republic of Macedonia, with the proposal Delightful loan for non-documented micro business, for its innovative loan product designed specifically to offer financial services to micro businessmen and women who do not have any documentation for their business. The Committee believes that each of the three selected experiences offers an interesting approach and stimulating ideas that could be transferable to other situations. 9

10 Giordano Dell Amore Microfinance Good Practices Europe Award 2013 Palmarès Palmarès KosInvest, Kosovo The introduction of a new product sub-line brought productivity and loan affordability to the rural poor. Selected for its innovative product, very responsive to the needs of its rural clientele, that consists of a tripartite agreement (MFI, rural entrepreneur and supplier) for the purchase of livestock Microcredit Foundation Horizonti, Republic of Macedonia Partnership approach for providing sustainable housing microfinance to marginalized and vulnerable groups. Selected for its innovative approach based on a specialized partnership with Habitat Macedonia in order to provide sustainable housing microfinance to marginalized and vulnerable groups Dutch Microcredit Foundation-Qredits, The Netherlands A new sustainable approach to microfinance. Blend of traditional banking and sophisticated IT support. Selected for its innovative approach, oriented to sustainability, based mainly on the use of IT to automate processes, maximize efficiency and transparency and to target the beneficiaries ACAF-Association for Self Financed Communities, Spain Self financed communities (SFC): an innovative self-financial solution for low income people. Selected for its innovative approach using Self Financed Communities in Spain. In 2009 the Foundation also organized the Italy Award which, in the following editions, was merged with the Europe Award. The winner was: PerMicro SpA, Italy PerMicro. Selected for its focus on institutional sustainability and private funding aprroach. 10

11 The Winner 2012 We are happy to present an account of the activities, subsequent to disbursement of the prize, of last year s Award winner. We asked the winner to tell us about its recent experiences and the impact of last year s prize on its activities. The Winner of the Giordano Dell Amore Microfinance Good Practices Europe Award 2012 was KosInvest, Kosovo, that received the Award for its innovative product which is very responsive to the needs of its rural clientele, consisting of a tripartite agreement (MFI, rural entrepreneur and supplier) for the purchase of livestock. 11

12 Giordano Dell Amore Microfinance Good Practices Europe Award 2013 The Winner 2012 KosInvest Kosovo General information KosInvest started its operations in October 2001 by providing loans as the Micro Enterprise Development program of World Vision Kosovo. KosInvest became a separate entity from World Vision Kosovo in January 2007 with the mission of improving the livelihoods of economically active poor families through high quality financial and business development services. Right and below. Seller of agricultural machinery Projects and activities supported through the 2012 Award KosInvest launched a pilot project in May 2010, the Livestock Loan, to ensure that lowincome rural entrepreneurs have access to loans for productive and healthy animals, thus allowing them to achieve a higher income and increase their sustainability and accountability. In fact, a loan for a cow or a number of small animals was hardly accessible to many poor clients because of their limited repayment capacity. In addition, qualified clients had to make the purchase by themselves in local markets meaning questionable productivity and health of the animals. The Livestock Loan product was specifically designed to overcome these issues as it consists of a tripartite agreement (MFI, rural entrepreneur Client s success story Ganimete Bislimi is a 44 year old woman who lives in a rural area in the southern part of Kosovo with her husband and four children. Over the years, Ganimete has made a living through farming. Her husband has a chronic disease and he has not been able to work for a long time. Consequently, Ganimete is the main source of income for her family. Since taking over the family s income responsibility, she has seen her business grow. Recently, however, they had to sell a cow to pay for her husband s operation. Currently, she needs a loan to buy another cow and has found an opportunity with KosInvest. The new cow yields 20 liters of milk per day. Ganimete is also planning to sell calves to support her family. She has the capacity to repay installments of 90 euro. In the future, Ganimete plans to add more cows and increase her farm. She is aware that without KosInvest her goal will be difficult to achieve and is appreciative of KosInvest s support. Shyqeri Ramadani Loan Officer explains that this product have made the loan more affordable to our clients. KosInvest client: Ganimete Bislimi in her stable 12

13 KosInvest and supplier) for the purchase of livestock: the supplier has to guarantee the health of the animal and provides a limited warranty, the MFI releases the payment and the client must agree on the animal and can ascribe it as collateral. Upon receipt of the grant amounting to 50,000 euros, KosInvest s management decided to use most of the funds to expand the Livestock Loan product geographically and to replicate its approach for the agriculture machinery product. In this way, the Award funds allowed KosInvest to provide more livestock loans and new agriculture machinery loans to the poor population and cover administrative expenses. A small part of the Award funds were allocated to upgrade KosInvest s MIS and, specifically, to upgrade the Loan Tracking System, to better support the changes in the products and to realize all necessary changes to the Client Tracking System. The Award utilization is presented in the table below: Budget Item Amount (euro) Loan fund 40, Administrative costs 7, MIS upgrade 2, TOTAL 50, In the initial stage, the product targeted only low-income rural populations from the Vushtrri municipality. Because the success of the initiative was deemed obvious, KosInvest extended it geographically into two already operating areas of the institution: Prizren and Ferizaj. Moreover, since there was a demand for agriculture equipment, planting and harvesting needs (seeds, fertilizers, etc.) KosInvest expanded the Livestock Loan product mechanism for agricultural related equipment/machinery: a three party agreement signed by the client, the MFI and one of the qualified suppliers of machinery equipment helps the poor to easily purchase equipment from different suppliers that KosInvest has agreements with. The livestock and agriculture machinery loan products are very attractive for the rural poor population, enabling them to receive a loan using the livestock and agriculture machinery itself as collateral, thereby lowering the loan disbursement criteria for the specific product and hence making them more affordable to rural people. Due to significant changes in the staff, CEO, Operation Manager and a few other transformations, KosInvest was late with the implementation of the project. Consequently, the results of the project are still minor, but there is high interest among clients in all three areas for both livestock and agriculture machinery confirmed by the the high number of loan applications received each day which are going through loan application and committee approval process. 13

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15 The Finalists 2013 After having read, analysed and discussed each proposal, the Award Committee selected three finalists. The Committee believes that each of the three proposals offer an innovative approach and idea that could be transferable to similar situations. The three finalist institutions selected are: Deutsches Mikrofinanz Institut (DMI), Germany, with the proposal Early risk warning system for high-growth MFIs, for its innovative system created and shared among the network s members in order to better monitor and control risks, specifically in the case of rapidly expanding MFIs. Partner Microcredit Foundation, Bosnia and Herzegovina, with the proposal Solar Energy as the future of Sustainable Development, for its innovative project to spread clean energy, increasing both the local production of solar panels and the use of solar systems for SMEs and households. Savings House Moznosti, Republic of Macedonia, with the proposal Delightful loan for non-documented micro business, for its innovative loan product designed specifically to offer financial services to micro businessmen and women who do not have any documentation for their business. 15

16 Giordano Dell Amore Microfinance Good Practices Europe Award 2013 The Finalists Deutsches Mikrofinanz Institut (DMI) Germany Project Name Early risk warning system for high-growth MFIs. Initiative Presented for the Award When MFIs are fully occupied with managing their growth (coping with high case load, hiring new staff, etc.), they generally neglect their monitoring and risk management duties. In such cases a neutral supervisory body is needed that controls market risks. In Germany, DMI has taken over this function. At the end of 2011, problems and aberrations occurred within individual German MFIs due to their rapid growth (some MFIs grew more than 200% on a yearly basis). DMI wanted to draw lessons for the whole sector from this situation. The existing DMI benchmarking and risk reporting that had been scientifically developed in 2006 was already very detailed and had proven its worth in making apparent diverse inherent risks such as window-dressing. However it still had a weak point when it came to making transparent the risk concealed by growth. Therefore, in April 2012, with funding from the German Federal Ministry for Labour and Social Affairs, DMI ran a pilot project with the aim of developing and testing an early risk warning system to better control dynamically developing MFIs. Designed by a consultant in cooperation with two German MFI practitioners, this new system was subsequently built into the DMI monitoring and risk management system Inthepro. As of May 2012, it can be used by all DMI member MFIs. Success story: indaro Mikrofinanz GmbH & Co. KG a high growth MFI using the risk prevention system indaro is a microfinance institution established in 2010 in Stuttgart and accredited by DMI. It provides microloans up to 20,000 on a nation-wide level to small entrepreneurs and business start-ups to finance orders, investment and working capital, temporary liquidity constraints, and all other start-up or development purchases. By cooperating with consultants (indaro Advisors GmbH) indaro also provides support services to its clients for drafting business concepts, business planning as well as controlling services. The institution is currently one of the largest MFIs in Germany with over 2,500 microloans disbursed for a total volume of approximately 10 million euro. Between 2011 and 2012 indaro has grown by more than 100%. Despite indaro s quick growth it has managed to control risk. In order to carry out effective portfolio management, the institution has used DMI s risk prevention system since indaro regularly monitors its growth rate and calculates its delayed risk ratio (at 3 and 6 months) in order to more realistically assess its exposure to risk. Moreover clustered risk has been analysed thoroughly. Currently, indaro s portfolio s PAR 15 has constantly been below 9% and PAR 30 below 5%. 16

17 Deutsches Mikrofinanz Institut (DMI) Innovation The DMI high-growth early warning system enables rapidly expanding MFIs, as well as higher-level bodies, to closely monitor and control risk. Warning levels are defined and made visible via a traffic light function and concern 3 main areas: Monitoring directly growth-related risk: the growth rate measures the dynamics of growth indicating whether the loan volume exposed to risk grows faster than the total loan volume; in addition the delayed risk ratio shows the real risk a high-growth MFI faces. Managing cluster risk: monitor the portfolio risk regarding certain characteristics such as the cooperation/sales partners who recommended them, target groups / sectors as well as loan sizes. Calculating expected future loss: the system is derived from the classical banking sector: based on the past repayment behavior of existing clients, a prediction about future loan loss is made. A prognosis is thus made about an essential component of an MFI s sustainability. Sustainability The high-growth early risk warning system has become an essential part of the German microfinance sector: (i) it can be used by all DMI members via the DMI Inthepro MIS provided by DMI for free; (ii) it has been included into the DMI accreditation and reaccreditation procedure. From a strictly cost-perspective, the system is sustainable. The cost of development and testing amounted to a total sum of approximately 6,000 euro. This means the project was covered financially after one single loan was prevented from defaulting with its help (the average loan amount in Germany is 6,000 euro). Finally, the system is also highly beneficial from an MFI point of view. A study carried out by DMI in 2012 on processing costs showed that an MFI s total revenue for an average microloan of 6,000 euro amounts to a maximum of 1,000 euro. This means a German MFI needs to disburse six or seven loans in order to recover the revenue of only one defaulted 5,000 euro-loan. indaro Mikrofinanz GmbH & Co. KG, DMI s member Impact-Outreach The impact and potential impact of the early warning system for high growth MFIs is significant. First of all, it leads to a change of focus as the system sets the focus from the beginning on a controlled and well-balanced growth with a positive impact, on both the MFI and the microfinance clients. Secondly, the system has the potential of preventing the whole German microfinance market, which is still rapidly growing (nearly 240% from 2010 to 2011 and another 75% from 2011 to 2012), from collapsing or being buried by a riskavalanche. As of December 2012, the German sector has very low risk and default rates: 10.5% PAR15 and 4.2% write-off. Thirdly, the warning system contributes to maintaining the good image of microfinance, considering that if only one MFI should collapse, all others will suffer due to negative headlines and bad reputation. Finally, the potential impact of the system is significant for microfinance markets in other EU countries. Replication Due to its simple formula and relatively low cost, the early warning system can be easily adapted to other microfinance markets. It can be used by individual MFIs and programmed into their MIS system and/or operated by a national microfinance umbrella network or fund manager through a national IT platform. An essential pre-condition is the availability of reliable and complete data, which can be a challenging task, especially if there are several partners cooperating in the system such as in Germany. To sum up, there are three main tasks to replicate the system successfully: There must be a well-functioning user-network interface between several IT-systems. If there is an umbrella organisation then political consciousness is needed to give this organisation the potency to monitor and sanction their member MFIs if risk in their creditportfolio becomes too large. At the latest, if an MFI gets in trouble, a programme for crisis-advisory and training is recommended in order to offer quick help. 17

18 Giordano Dell Amore Microfinance Good Practices Europe Award 2013 The Finalists Institutional Profile History At the end of the 1990s, it became evident that a financing gap exists for business startups and business consolidation in Germany. Against this background, regional microfinance pilot projects emerged, supported by the German Federal Ministry for Labour and Social Affairs, several foundations and banks. The involved actors knew that in order to develop a sustainable microfinance solution for Germany, a common, nationwide structure would be needed. Thus, they joined together and founded Deutsches Mikrofinanz Institut e.v. (DMI) which was registered as an association in April 2004 in Berlin. Microfinance forum (Berlin 2012) Mission The central mission of DMI is to develop and ensure the responsible and high quality provision of microloans in Germany. In order to reach this goal DMI works in different areas; these areas include inter alia (re-)accrediting MFIs, supporting them through counseling and training as well as providing the management software Inthepro. Governance Structure DMI s governance structure is composed of a General Assembly; a Supervisory Board (8 people confirmed every 3 years) which determines the guidelines of the business policy and supervises and supports the management; the Assembly of Accredited MFIs which defines the needs and elects every two years the Committee of Accredited MFIs (5 MFI representatives). The Management team leads the dealings of the association. Organisational Structure To date DMI has 73 members. Out of these, 61 are accredited MFIs; the remaining members are business consulting organisations, research centres, public bodies as well as individuals. Target Clients Generally speaking DMI s accredited member MFIs target people who do not have access to bank finance for business purposes. However, some MFIs target specific groups such as migrants (mainly of Russian or Turkish origin), women or specific business sectors. Geographical Area of Operation DMI acts on a German-wide basis; its members come from all German regions. However the individual MFI s regional outreach varies: while some MFIs operate on a local or regional basis, others act on the whole German territory. Product and Services In line with its mission DMI provides the following services to its members: Accreditation of MFIs: DMI accredits and re-accredits MFIs on the basis of its accreditation scheme. Provision of risk management software: all DMI member MFIs have access to the DMI risk management and monitoring software Inthepro. Counseling and training: DMI advises and trains microfinance actors, including MFI management as well as other potential microfinance actors such as banks, municipalities, foundations, federal states or fund administrators. Research and Development: by means of know-how transfer with other European countries, DMI analyses internationally successful microcredit schemes, implements pilot projects, and develops methods and instruments for the German sector. Representation of interest: the association regularly carries out meetings for accredited MFIs, advises policy-makers and acts as negotiation partner for MFIs vis-à-vis GLS Bank and Microcredit Fund Germany. DMI JASMINE training Marketing and Sales, April 2013, Offenbach 18

19 Deutsches Mikrofinanz Institut (DMI) Financial Achievements (data refers to DMI members) Dec 10 Dec 11 Dec 12 Portfolio at Risk (1) 9% 9% 10.5% Write-off Ratio 2.7% 2% 4.2% Portfolio Yield n.a. 35.4% n.a. Debt to Equity Ratio n.a. Operating Expense Ratio n.a. 57% n.a. Cost per Borrower (2) Staff Productivity (3) Return on Equity (4) 226.5% 101.3% n.a. Return on Assets 54.5% 21.9% n.a. Operational Self-Sufficiency 41.1% 69.7% n.a. (1) PAR15 (2) Average amounts based on a study by DMI on processing cost of MFIs per loan product (3) Assessed value (4) ROE before donations Public relations: DMI acts as a contact partner for media, organises conferences, initiates working groups and regularly takes part in European, national and federal state level events. Adopted Approach At its September 2011 General Assembly, DMI members adopted a Code of Conduct based on the standards provided by the European Microfinance Network (EMN). The Code points out the main principles for its members actions such as client protection, transparency, adapted complaint mechanisms, ethical working methods, non-discrimination and data protection. Moreover, DMI is a member of the European pilot group for implementation of the European Code of Good Conduct for Microcredit Providers. BeuteFuchs, client of MFI KIZ, DMI s member Funding sources DMI finances itself by means of membership fees (about 25%) as well as fees for service delivery for MFIs (about 10%) or for third parties (about 65%). This is complemented by voluntary commitment, without which the association would not exist today. Outreach Achievements (data refers to DMI members) Dec 10 Dec 11 Dec 12 Active Borrowers 652 3,627 7,954 Women 34% 33% 33% Migrants 40% 41% 41% Youth (1) 39.6% 38.9% 39.1% Rural Clients n.a. n.a. n.a. Clients Below Poverty Line (2) 66% 66% 66% Active Savers n.a. n.a. n.a. Loan Portfolio 1,001, ,380, ,133, Average Loan Amount Disbursed 5, , , Number of accredited MFIs Number of Branches Number of Staff Number of Credit Officers Client Drop-out Ratio n.a. n.a. n.a. (1) Below 30 years old (2) Data based on a non-representative sample of 15 German MFIs 19

20 Giordano Dell Amore Microfinance Good Practices Europe Award 2013 The Finalists Partner Microcredit Foundation Bosnia and Herzegovina Project Name Solar Energy as the future of Sustainable Development. Initiative Presented for the Award The three-year project started in July 2011 and aims at increasing both the local production of solar panels and the use of solar systems. The total project value is around 1,250,000 USD, of which, in addition to USAID funds, 18.34% of the funds come from Partner. The increase in the local production will be achieved through enabling 20 small, local enterprises with existing production lines in developing capacities for sustainable production of solar panels through the provision of technical and business training as well as financial support (half loan-half grant scheme). In addition, during the project period, Partner s experts will be providing continuous technical expertise (in daily operations, contact with suppliers, etc.) and will be conducting quality assurance for each individual producer on annual basis. Also, Partner provides loans to SMEs and households who want to install solar thermal systems, made by BH manufacturers. For the project implementation, two of Partner s employees have been promoted into certified energy consultants and seven are already members of the Solar Energy Team. One important part of the project is an awareness campaign on the importance of using alternative energy sources for the general public. Success story: Res Domino Company, a beneficiary of the solar energy project One of the project beneficiaries is Res Domino Ltd., a company with young and qualified staff. The main activity is the installation of VELUX roof windows. The introduction of the production of solar systems represents an important step for developing new markets. Upon completion of business and technical education, Res Domino Company received a EUR 5,000 loan and a grant in the same amount, in total, EUR 10,000. In order to expand activities, they employed one person with disabilities, a beneficiary of a project from the subcontracting NGO. It is a great example of synergy and cooperation between the founder, USAID, the implementing MFI - Partner MCF and local NGO, subcontractor for technical training. The company s Director stated: We benefited a lot, because we were given the means and funds to start with the production. We also got a new employee, a disabled person, who is already educated in production of solar collectors. The Fund for Professional Rehabilitation is covering personal income for him for 12 months, but we hope that he will stay with us. We hope to hire another person with disabilities. I hope the other producers will do the same thing. 20

21 Partner Microcredit Foundation Innovation Considering that in B&H, there are virtually no solar collector producers, a negligible number of solar collectors in use and generally very low levels of awareness in the public on renewable sources of energy, this project represents a pioneering step. In fact, the project facilitates all factors: production (by 20 local SMSs), demand (through complex awareness campaign), market (disbursing loans for the purchase of solar systems) and savings in beneficiaries budgets for electrical energy. Based on the survey s findings, Partner developed two new loan products to achieve the project goals. For the solar collector producers, the solution is a whole package enabling them to start up solar panel production: loan, grant and technical assistance, enabling them to market their products, return the initial investment and consequently establish sustainable production for solar collectors. For the solar collector s buyers, Partner offers a loan with a below market interest rate, complemented with return on investment analysis, consultancy and various educational materials. Sustainability This project creates a value chain between producers and users of solar collectors by facilitating the establishment of production capacities and providing loans to individual SMEs that are interested. The added value is the identification of the targeted SMEs, education and the awareness campaign being carried out in coordination with local authorities, various NGOs and Developing Agencies. Moreover, since the main beneficiaries of the proposed project are SMEs that will be equipped and capable of producing solar collectors, and assuming that after three years they will have established the market for solar collectors, it is to be assumed that in the future they will continue production in even greater volumes. Finally, after the project period, Partner will continue disbursing the loan under the same conditions to potential clients and Partner s staff will continue providing technical assistance to all producers and clients. A project beneficiary, company HDI, delivering solar panels for installment to a client Impact-Outreach The immediate impact of the project is related to environment preservation: solar power is described as an emissions-free form of energy and greenhouse gas emissions from solar are negligible. In addition, solar photovoltaic systems do not require any water to generate electricity and, being placed on existing structures, they require negligible amounts of land space. In the research conducted by Partner before the project started, it was determined that the citizens of B&H typically use wood, and often coal and electricity to heat rooms, while electricity being the most commonly used to heat water. Regarding the project beneficiaries, the immediate outreach/results from the project are: 20 solar producers having established sustainable production of solar collectors; and, 200 households/smes with installed solar systems on their homes/business. Indirectly, there are two more interested parties benefitting from the project: the general public and Partner s staff engaged in the project. Replication The project can be easily replicated, especially in countries with environmentally sensitive governments in the form of concrete subsidies for users of solar energy or other renewable sources of energy. Regarding the internal preconditions, it is important to establish a project implementation team with a project manager and other staff selected from different departments, while including new staff as the project progresses. It is highly recommended to hire external organizations for business and technical education of the project s beneficiaries. An ideal organization would have extensive experience in order to better design the curriculum, adjusting it to the project s target population. Finally, selection of the SMEs should be based on companies with background in heating-ventilation-air conditioning and electro-mechanical experience. Production lines, tools, and the workers skillsets are of great importance when switching production to solar collectors. 21

22 Giordano Dell Amore Microfinance Good Practices Europe Award 2013 The Finalists Institutional Profile History In April 1997, Mercy Corps entered into an Agency Agreement with the Local Initiatives Department (LOIN). Mercy Corps established the Economic Development Department in Bosnia and Herzegovina, which was registered as a local microcredit organization on December 11 th, In 2006, Partner was transformed into a microcredit foundation. Within the local microfinance market, Partner is one of the largest microfinance institutions currently serving over 36,000 clients, mostly from rural areas. Mission Partner provides finance services to economically active population who has difficult or no access to commercial funding sources, for start up and development of business and improvement of living quality. Partner supports micro entrepreneurs, promotes participation of women in business and offers easier access to financial services in rural areas. Within the entire B&H, with door-to-door service, Partner provides good quality products and technical support, helps increase living standards, and increases employment by stimulating the transition to a market economy. Governance Structure Partner management bodies include: Board of Directors, Director and Audit Board. Adequate management is provided through a clear process oriented organizational structure with well-defined authorizations and responsibilities; efficient procedures for risk identification, measuring, monitoring and reporting; appropriate internal control mechanisms; and efficient systems for prevention of money laundering and funding of terrorism, meeting the requirements for transparent operations by all stakeholders. Organisational Structure Partner performs its business operations through three levels of organizational structure, all of which meet formal conditions for business operations: central office (located in Tuzla), regional centres and organizational units. Support for credit operations is located in Tuzla, servicing the regional centres, except for the reception and processing of loan requests and loan collection. Loan disbursement management regarding receipt and processing of requests and loans collection are being done through the 5 regional centres with 19 regional offices and 53 field offices. Target Clients Partner provides loans to economically active populations with difficult or no access to the banking sector, involved in agriculture, trade, services and production, with emphasis on rural clients, low income populations, particularly women and youths, and those clients who wish to improve their residential and living conditions. The target group suitability criteria are: the value of initial business capital may not exceed 10,225, the income per household member may not exceed 180 and the number of persons employed in the business may not exceed four persons, including the client. Geographical Area of Operation Partner MCF is a non-profit, multiethnic, inter-entity organization with 53 offices covering all of Bosnia and Herzegovina. Product and Services Partner provides mainly business loans for a maximum amount of 10,000 BAM (approx. 5,000), as per the ceiling fixed by the Law on micro credit organizations in the Federation of B&H. Beside the business loans, Partner has a limited number of loans for housing and non-earmarked loans for improvement of living conditions. Moreover, a part these regular 22

23 Partner Microcredit Foundation Financial Achievements Dec 10 Dec 11 Dec 12 Portfolio at Risk (1) 3.05% 1.55% 1.21% Write-off Ratio 7.03% 2.53% 1.05% Portfolio Yield 18.61% 18.28% 19.24% Debt to Equity Ratio Left. A project beneficiary, during the technical education Below. Partner s management and USAID representatives Operating Expense Ratio 10.43% 14.63% 14.71% Cost per Borrower Staff Productivity Return on Equity 0.17% 2.28% 5.85% Return on Assets 0.05% 0.82% 2.32% Operational Self-Sufficiency % % % (1) PAR30 loans, Partner has a few loans completely client oriented such as: Loans for soft fruit production, Energy Efficiency Loan and different commodity loans for business tools and equipment based on cooperative agreements with local suppliers. Partner also provides added value to its clients through education (business and financial) and counseling services. Adopted Approach Partner s overall approach has always been client oriented with investing in market research and constant adjustment of product. Partner provides micro loans by using the individual methodology and focuses on loans for business purposes. Out of the total number of disbursed loans, on December 31 st, 2012, 84,84% were disbursed to rural clients. Funding sources The structure of founding sources at December 31 st, 2012 is as followed (amount in euro): Commercial Loans... 18,442,751 Subsidized Loans... 13,302,891 Grant Capital... 4,422,429 Retained Earnings... 18,529,550 Total... 54,697,621 Outreach Achievements Dec 10 Dec 11 Dec 12 Active Borrowers 39,627 34,728 36,144 Women 42.04% 42.18% 42.15% Migrants 15.68% 14.11% 12.29% Youth 18.01% 19.63% 21.81% Rural Clients 77.60% 81.14% 84.09% Clients Below Poverty Line (1) 56.73% 55.80% 52.15% Active Savers n.a. n.a. n.a. Loan Portfolio 48,394, ,554, ,433, Average Loan Amount Disbursed 1, , , Solar system donated to the City Stadium Tuzla Number of Branches Number of Staff Number of Credit Officers Client Drop-out Ratio (1) The national Poverty Line is 387 BAM per household member, but according to Partner s procedures our initial clients must have income per household member less than 350 BAM (178 EUR) and that is why presently 92.43% of clients are under the national poverty line. 23

24 Giordano Dell Amore Microfinance Good Practices Europe Award 2013 The Finalists Savings House Moznosti Republic of Macedonia Project Name Delightful loan for non-documented micro business. Initiative Presented for the Award In the past few years, Macedonia has been actively trying to formalize and regulate micro businesses that are operating on the black market. In this process, some micro businesses have found themselves lacking the resources or the viability to adhere to regulations, continuing to exist on the margins of the economy. These non-documented micro businesses are not the typically desired bank clients and, due to their high level of riskiness, banks refuse to finance them. As a result, they are left with no access to finance. With the aim to provide socially marginalized groups with financial support for their businesses, Moznosti created a Lokum 2 loan especially targeted towards micro-businessmen and women who do not posses any documentation for their business. Loan officers visit the place where the client does his or her activities, which is usually a small shop, and make photographs to document the business activity, based on which the credit committee approves the loan later on. The product is only available in four of the thirteen branches, in the Western part of the country where these non-documented businesses are a frequent occurrence. The Albanian minority is the primary beneficiary of this product. Success story: Huseini Kemal, a beneficiary of Delightful loan for non-documented micro business Huseini Kemal owns a cafeteria in the village of Tenovo, near the town of Tetovo, which offers a wide range of drinks and food. His wife and two sons work full time and help him run the business. In 2008, he decided to open a cafeteria in his house to support his family. He purchased the basic equipment and opened. In the meantime he heard about Moznosti through word of mouth and applied for a business loan. He was positively surprised to be approved for a loan without having registered a legal entity. Since then, he has repaid three loans, been approved for expansion of the cafeteria, purchase of large inventory (tables and chairs) and purchase of a vehicle for delivery of products and personal needs. As a result, the small cafeteria has developed into a large catering space; the cafeteria has modern equipment and inventory and is now a place with a pleasant ambience where local people meet. A positive trend can be noticed in the turnover and stock as well. Today, Kemal is using his 4 th loan for the purchase of a grill. He is especially grateful to Moznosti for providing him with finances when he most needed them and when no other institution would provide any credit. 24