Afghanistan Rural Finance Conference - December 13 - 14, 2004

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Trends and Lessons from Global experience

Renate Kloeppinger-Todd

Rural Finance Advisor

The World Bank

Afghanistan Rural Finance Conference December 13-14, 2004

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Presentation Outline

Regions and countries with relevant experiences

Relevant conditions

Solutions implemented

Lessons learnt

Recommendations

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Regions and countries with relevant experiences

Caucasus Azerbaijan, Georgia, and Armenia

Eastern Europe and Central Asia Lithuania, Bosnia, Kyrgyzstan,

Tajikistan,

Africa Mauritania,

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Relevant Conditions

Civil unrest or war

Absence of / Complete breakdown of banking system

Absence of or poor property rights

Little enforcement of laws and regulations

Loss of most external markets

Poorly maintained infrastructure

Little knowledge of market economy

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Solutions Implemented 1

Financial cooperative / credit union system developed.

Kyrgyzstan, Moldova, Georgia, Azerbaijan, Albania

Specialized institution founded

Kyrgyzstan, Lithuania, Mauritania

Linking commercial banks to village level financial associations

Moldova

Setting up MFIs that also work in rural areas

Georgia, Kyrgyzstan

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Solutions Implemented 2

Leasing Kazakhstan, Uzbekistan, Romania,

Pakistan, Uganda, Madagascar

Restructuring of State-Owned Agricultural Banks Mongolia, Tanzania

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Lessons Learnt 1

Creating Specialized Institutions from scratch Creation of legislative framework

Significant amounts for technical assistance and capacity building

Strong, dedicated and knowledgeable management team and advisory board

Long-term vision

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Lessons Learnt 2

Financial Cooperatives / Credit Union Systems Appropriate legislative framework

Clear supervision responsibilities

Systems approach (networks of village-based CUs and second tier institution)

Significant amounts for TA and capacity building

Savings first approach until repayment is proven – then possibly credit lines for refinancing

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Lessons Learnt 3

Linking Commercial Banks to Village – Level Associations Motivated and capable commercial

banks

Capacity building for banks and the new associations

Training of accountants and book-keepers on the village level

Capacity building of borrowers

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Lessons Learnt 4

Setting up MFIs that also work in rural areas Difficult to achieve significant outreach

due to capacity constraints for small institutions

MFIs need to have a solid base before venturing away from their core business

Internal portfolio diversification between urban and rural areas reduces risks

Very close portfolio monitoring is required

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Lessons Learnt 5

Restructuring of State-owned Agricultural Banks Strong Government commitment to ring-

fence the institution and to refrain from influencing decision making

Strong external management with decision-making powers

Significant funds for management, TA and capacity building

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Recommendations 1 Creating an Enabling Environment

Appropriate legislative framework needs to come first for any chosen institutional forms

Supervision of FIs is needed, either directly by the Central Bank or by delegated authority

Property rights and land use rights in place

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Recommendations 2

Guiding principals Savings first approach where feasible

Strict insistence on loan repayments

Development of monitoring systems and follow-up capacity

Support in the form of TA, capacity building and training is MUCH more important than credit lines

No pushing out of money without considering the sustainability of the institutional arrangement

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Recommendations 3

Product Offerings Develop loan products appropriate for

specific purposes (short-term, group loans, longer-term flexible agricultural loans)

Simple and easily accessible savings products

Possibly insurance products

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Recommendations 4

Developing Service Providers Extension services

Farmers’ associations for joint purchasing and marketing

BDS with special focus on rural issues

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Recommendations 5

Creating Effective Demand Matching grants for asset creation

Offer of savings facilities to create equity

Support all along the supply chain (product development, packaging, marketing, etc.)

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Recommendations 5

THANK YOU