Status of the Bank

1
Status of the Banks Rural Finance Loan
PortfolioSummary Statistics and Main Issues

• Jacob Yaron (RDV)
• June 2002

2
Bank RF Projects
993m (24)
715 m (20)
855 m (17)
693 m (18)
530 m (14)
336 m (8)
Avg. Ann. Commitments 688m
Total lending 4,122 m
3
Bank RF Lending in 149 Client Countries
Number of Countries
67
33
4
Major Reasons for Not Having a RF Project(in 100
countries)
5
Characteristics of Rural Finance

• Subsidized credit offered
• Poor Infrastructure
• Urban Bias Policies

• Covariance Risk
• Low pop. Density small average size loans/
  savings accounts
• Lack of traditional collateral
• Fragmented markets
• Seasonality and income shocks
• Poor complementary insurance and labor markets

6
New Emphasis
GOALS

• 1)income expansion 2)poverty reduction

TWO PRIMARY PERFORMANCE CRITERIA
OUTREACH SELF SUSTAINABILITY
through
7
Primary Assessment Criteria
8
Optimizing Self-Sustainability
High Self- Sustainability
Sustainable financial services that reach the
target clients
Sustainable financial services with low
outreach to the target clients
High Outreach
Low Outreach
Highly subsidized financial services that reach
the target clients
Highly subsidized financial services with low
outreach to target clients
Low Self- Sustainibility
Source Majahan, 1994.
9
The Remaining Issues

• Is the volume of RF lending important?
• Does the WB have a comparative advantage in
  implementing RF projects?
• What do we know about the financial performance
  of RFIs?

10
How important is the volume of lending if
borrowing countries have

• Free convertibility of the currency
• Sound monetary policies
• Adequate foreign exchange reserves

11
How to Achieve a Higher Value Addedin Bank RF
Lending

• Incorporating a holistic approach (creating an
  enabling environment by addressing macro and
  sectoral policies, the legal and regulatory
  framework, and institutional capacity building)
• Identify both macro and micro-level binding
  constraints to efficient functioning of rural
  financial markets
• Lend when sufficient absorptive capacity exists
  at the institutional and client levels
• Develop innovative solutions to increase
  financial intermediation for low income, rural
  clients (credit, savings, and insurance)

12
Supervision Staff Weeks and Project Success Rates
Avg. Ann. Supervision Staff Weeks/Project (FY94 -
FY99)
Other Rural excluding RF
Rural Finance
Other Bank
Percentage of Successful Projects (satisfactory
rating)
13
Inadequate Financial Reporting on PFI Performance

• Financial reporting is often deficient
• The summary of the PSR does not systematically
  provide meaningful and uniform information on
  financial performance of the projects PFI(s)

14
What Information Is Missing?

• Nominal and real interest rates on loans to the
  ultimate clients and deposit interest rates
• Spreads
• Subsidy dependence index
• Deposit-to-loan ratio
• Return on Equity (ROE) and Return on Assets (ROA)
• Loan collection performance and quality of the
  loan portfolio (information on NPLs and NPAs) and
  arrears age analysis
• Output performance indicators of Technical
  Assistance
• Assumption of foreign exchange risk and related
  subsidies, if any