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The World Bank Group

A Newsletter Published by the Financial & Private Sector Development Vice Presidency ACCESS TO FINANCIAL SERVICES

Transforming microfinance institutions: Providing full financial services to the Poor. This publication provides guidelines for regulators to license and regulate microfinance providers, and for transforming MFIs to meet the demands of two major new stakeholders -regulators and shareholders. As such, it focuses on developing the capacity of NGO MFIs to mobilize and intermediate voluntary savings. The World Bank and MicroFinance Network, by Joanna Ledgerwood and (more on Access) Victoria White. 2006.

AccessFinance

By Ole E. Andreassen and Massimo Cirasino

October 2006 | Issue No. 14

International Remittances: Issues for Action

Ole E. Andreassen is an Economist in the World Bank Payment Systems Development Group. Massimo Cirasino is the Co-Chairman of the Task Force on General Principles and International Remittance Services and Senior Financial Sector Specialist and Head of the World Bank Payment Systems Development Group. The flow of funds from migrant workers back to their families in their home country is an important source of income in many developing economies: for some individual recipient countries, remittances can be as high as a third of GDP. Many families in receiving countries depend on remittances to cover day-to-day living expenses, to 1 provide a cushion against emergencies, or as funds for making small investments. Over the last few years, this phenomenon has received growing attention, and international remittances have been put at the top of the agenda of the international debate on financial sector development. The World Bank has taken a leading role in the field, undertaking numerous initiatives, including research, policy work, standard setting, and dissemination and training. This article presents some of the most relevant issues in international remittances ­ issues which require immediate action to achieve central public policy objectives: that international remittance services should be safe and efficient. For this to happen we must develop access to payment services and ensure that the markets for remittance services are contestable, transparent, accessible and sound. Improving financial inclusion

CREDIT REPORTING

IFC to Support the Development of Credit Bureau Services in Pakistan. The International Finance Corporation has signed an agreement with Datacheck (Pvt.) Limited, Pakistan's leading private sector credit bureau to assist Datacheck in developing credit bureau services, including credit scoring, application processing, fraud prevention services, and asset databases. IFC News, July 13, 2006. (more on Credit)

PAYMENT SYSTEMS

1st Annual Conference on Payments Middle East. This two day conference will start with an analysis of the current payments systems in the core countries: Bahrain; Egypt; Iran; Iraq; Jordan; Kuwait; Lebanon; Oman; Qatar; Saudi Arabia; United Arab Emirates and Yemen. Topics to be covered will include: Modernizing current payments systems and infrastructure; implementing distinct clearing systems and the scale of the remittance opportunity in the region. Organized by the International Centre for Business Information (ICBI). December 5 - 6, 2006. (more on Payment)

Remittances can be seen as one financial service among many that have the potential to improve the quality of life for the poor. Just as it helps to receive transfers from a migrant relative in a safe, efficient, and low-cost way, it helps to have access to (more on page 2) savings, loans, insurance, and broader payment services.

Commercial Bank Downscaling ­ Lessons from Experience

By Aurora Ferrari and Guillemette Sidonie Jaffrin Aurora Ferrari is a Private Sector Development Specialist in the World Bank's South Asia region's Finance and Private Sector Unit and Guillemette Sidonie Jaffrin is a Financial Sector Specialist in the World Bank's Africa region Financial Sector Unit 1. Introduction Access to finance is often raised in World Bank Enterprise Surveys as one of the top three constraints. This constraint is particularly acute for small businesses. As a result, small businesses finance investments mostly through internal funds and commercial banks are used only marginally. Many banks managers argue that lending to this sector is not profitable enough: small businesses are too risky (because they have no reliable financial statements and traditional collateral) and too costly to serve (because of the small value per transaction). However, this note will discuss experiences of commercial banks that have overcome these obstacles and profitably increased their number of loans to small 1 businesses.

(more on page 4)

REMITTANCES

Second International Conference on Migrant Remittances: "Remittances and Access to Finance. The objective of this conference is to provide a global forum to share international experience in leveraging the growing volume of remittance flows to provide access to financial services to millions of underserved people and, contribute to poverty reduction and promote growth. Organized by The World Bank and the U.K. Department for International Development (DFID). London, United Kingdom. November 13 - 14, 2006.

(more on Remittances)

ACCESSFINANCE Core Team: Bikki Randhawa - Editor, Melina Cholmondeley, Melina Mirmulstein ACCESSFINANCE Editorial Committee: Massimo Cirasino, Samuel Munzele Maimbo, Korotoumou Ouattara To subscribe please visit us online at AccessFinance and send comments/suggestions to [email protected]

AccessFinance 2 International Remittances: Issues for Action ­ by Ole E. Andreassen and Massimo Cirasino (continued from page 1) Together with other financial services, remittances are a tool to reduce risks to the poor. What makes remittances special when compared to other financial services is twofold. First, remittances are often the only financial service people use, which makes it a natural entry point for many individuals into the financial arena. Second, remittances are dependent on the conditions prevailing in several jurisdictions and geographical locations, and often on an international infrastructure. This creates competitive dynamics that require a different role by both the public and the private sector when compared to other financial services. Because of these dynamics, remittance services can be used to create a more inclusive financial sector and expand financial services to the poor. In particular: Where there are remittance service providers, there is financial infrastructure. These providers vary greatly in sophistication but are likely to have at least some of the following potential. They will have structures to handle cash. They are used to accounting and handling financial computer systems. They know how to operate financial communications. They provide other services that can be integrated with a wider financial services offering. If one is looking for a point from which to increase the financial services to a small community, the remittance service provider (which may be no more than a one person operation), is a place to look twice, and national remittance disbursement networks can provide a building block in the backbone. Where there are remittance recipients, there is financial capacity. The users of remittances have already been introduced to the financial system. Very frequently, the only option for a remittance recipient is to retrieve cash and bring it home. If other options can be provided at the place of disbursement, the recipient is likely to at least consider them. Also, the place of disbursement is a natural focal point for building capacity about other financial services. Giving remittance users the option to save, build a credit history, buy insurance, and make electronic payment, can bring a higher level of welfare. In the coordinated market that is remittances, this capacity can be found and expanded on both sides: the remittance sender can learn about financial services (before migrating or while abroad) and help educate the recipient on the other side. Remittances can be used as an opportunity to enhance trust in financial institutions, at both ends of the market. The end users of remittance service will only use formal financial institutions if they trust such institutions, and if they see the benefits of using the formal sector. Often when end users choose informal providers, they do so because they lack trust in the formal system. Conversely, many banks may view migrants as low balance, high-risk customers, unlikely to use other services. In some jurisdictions, banks are reluctant to function as settlement agents for remittance service providers because they perceive such contracts as too risky. Bank and other financial institutions can only respond appropriately if they understand the cultural factors that make some migrants avoid the formal financial sector, and in some cases, partnerships between traditional and non-traditional institutions may help build trust. Financial institutions should have incentives to engage with the users of informal services, in order to build overall trust in the financial market. Alleviating risks If we look at remittances as an isolated service, there are two main strategies to improve that service: alleviating risks and decreasing prices. Substandard remittance services create risks to the individual in several ways. First, cash-based transfer mechanisms create physical risks. These risks appear not only in the infrastructure ­ getting the cash to the pick-up point ­ but also when the recipient retrieves cash, transports the cash home, and stores the cash to save or smooth consumption. Second, remittance service providers without proper risk management systems create a credit risk for the individual. Remittances transported in a taxi or by a courier may never arrive, and paper-based instruments, such as checks, mailed through third parties, pose reliability issues. Lack of proper accounting or receipts may lead to disputes of whether or how much remittances are due. Deferred access to remittances due to long transfer time may lead to suboptimal capital allocation. When the remittance environment in a country meets international standards, such as the General Principles for International Remittance Services, many of these individual risks are mitigated. Such an environment provides efficiency balanced with consumer protection, which is particularly important in industries where the end users have limited resources to defend their interests. In addition to the risks to the individual, international money transfers can pose a risk to the community. Where there is lack of oversight, a weak legal foundation, opaque market structures, and little risk management, there is a possibility that remittance services could be used to finance terrorism or launder money. Addressing this community risk creates yet another risk: the more requirements that are placed on the industry, the higher the cost to the end user, and the more likely is it that a non-compliant market will prosper. Therefore, the best way of addressing community risk is a well-balanced regulatory regime. Equally important to making sure poor people do not have to foot the bill for over-regulation, is enforcing the regulatory regime. Whether a country decides on licensing or registration or another solution, all market players must be compliant. An even playing field promotes competition on service and costs, and in markets where the non-compliant sector is allowed to thrive, competition among compliant firms will be stymied. Developing contestable markets The question of how to best foster competition in the remittance field is complex. One of the aspects that make remittances special in the access to finance realm, is that we are just starting to understand the dynamics of the industry and its customers. It appears that end users may be as concerned with trust in the remittance service provider as with pricing (which bolsters the case for applying international standards and trust-building efforts to the industry). Even if there is perfect competition on the sending side, there is no choice for a remittance sender whose family lives in a village where the only existing firm that disburses remittances terminates from only one platform. Effective competition in remittance services requires competition on both sides of the transfer. The economics of remittances differ from other retail payment platforms. Whereas payment platforms are typical two-sided markets, where cross-subsidizing is central, remittances are not: senders and recipients are in close contact and can coordinate their choice of platform. If a limited, closed platform provides better service at a lower total cost for the two end users, that platform will be chosen over a system where users on the two ends independently choose the service to use.

AccessFinance 3 In developing contestable markets, it is crucial to understand at which level in the payments infrastructure competition is beneficial, where markets work, and where certain market structures may keep costs high. For example, we don't have competing internets, we just have one (which lowers costs) ­ but we do have competing internet browser software and merchants selling over the internet (which, again, lowers costs). It is clear that exclusivity agreements on the service side ­ for example, allowing the postal system in one country to enter into exclusivity agreements with one remittance service provider ­ is a solution to be avoided. Where there is cooperation on infrastructure ­ local, regional, or global ­ the end users must be the ultimate beneficiaries. In implementing such cooperation, it is important that the integration is stepwise and solid enough to be operationally sound and provide viable business opportunities at every step. When common infrastructure is established, entry of new participants should be stimulated through promoting transparent, proportionate and equal access criteria. Competition on service lowers costs; still to be determined is to which extent cooperation on infrastructure can do the same. Lowering the cost of remittances has been a key focus in the development community over the last years (see Box 1). Initiatives to lower cost and develop contestable markets, as well as expand access, can be achieved through the private sector or through public-private partnerships. This, however, can only take place if the regulatory and oversight framework is appropriate. In the next section, we will look at the role of regulators in improving the remittance market. Improving regulation and oversight of the remittance market The regulatory framework for the provision of remittance services should be clear and proportionate. Authorities should always weigh the associated costs and benefits of current and new regulations in the context of the small-value nature of remittance transfers, since the end users will ultimately be paying for regulation. Innovation in the market will be hampered unless remittance service providers are treated equally in terms of the remittance services they provide. This principle applies to both sending and receiving countries. Regulations must be applied to the service (provision of remittance services) rather than the type of service provider (banks, credit unions, licensed exchange dealers). The regulatory regime should meet internationally agreed standards, such as those by the Financial Action Task Force and the General Principles for International Remittance Services. In implementing a regulatory and oversight regime, the cross-border nature of remittance transfer requires coordination across borders. The nature of remittance flows involve legal and regulatory framework in both sending and receiving countries for each transaction. This makes it important for authorities in one country to recognize that regulatory impact on the industry is compounded by regulatory regimes in other countries. As with domestic regulations, this cooperation should be based on internationally agreed standards. The public authorities should get actively involved in achieving the public policy objectives of safety and efficiency in remittance services. To do this, they must specify clearly their objectives, roles, policies and instruments in this field. Ultimately, it remains the responsibility of public authorities to make sure remittance services are processed through systems that comply with international standards, since the end users will often have little recourse to ensure compliance with the principles without active involvement from the authorities. The authorities that are involved in regulation and oversight of the remittances industry will vary from country to country, depending on the institutional framework of each jurisdiction. Established, well functioning frameworks do not need to be changed, as long as the appropriate public action is effectively performed. In those countries where the central bank payment system oversight function has a broad scope and covers retail payments, the central bank is well placed to take the lead. In many developing countries, the establishment of an appropriate oversight framework within the central bank is determining factor in order to meet the objectives on a continuous basis. In places where the remittance industry has developed self-regulation, the industry itself may be well positioned to develop regulation in line with international standards, for example by developing binding codes of conduct. It remains the responsibility of the public authorities, however, to ensure that the self-regulation is sufficient: public authorities need to ensure that self-regulatory groups are effective and have adequate representation of all market participants. Whatever the configuration of public authorities and private associations that may be involved in developing an appropriate framework, a coherent, safe, and reliable environment can only be ensured if there is sufficient cooperation between these actors. Enhancing Cooperation, Domestic and International Public policy objectives and principles in the realm of remittances would normally fall under the responsibility of different public authorities: payment system overseers, anti-trust authorities, consumer protection authorities or organizations, the Ministry of Finance, financial supervisors, anti-money laundering authorities, etc. Whatever the institutional framework and regardless of which authority is assigned a leading role, all authorities must cooperate effectively. Such co-operation can be organized in a structured form, where written procedures formally allocate responsibilities. International cooperation should take place on three levels: 1) Bilateral corridor cooperation: In order to ensure timely harmonization of regulations, countries that make up the ends of major remittance corridors should work together to develop common policies and regulation, adhering to global standards. Compatible and consistent policies and regulations create a better business environment and lower barriers to entry, which again increases competition. Public policy will be more effective in lowering remittance prices when coordinated between the sending and receiving countries of a corridor. 2) Regional cooperation: To the extent there is migration between countries in a region, substantial benefits may arise from extending bilateral cooperation to regional forums. 3) Global cooperation: On the level of international standard-setting, cooperation should be global in order to disseminate best practices and ensure compatibility and interoperability between remittance systems and frameworks as new migration patterns emerge. Next Steps In this article, we have discussed many areas where developmental action is needed to improve remittance services and expand access to finance. Who is best placed to initiate this action will depend on country and topic, and may include public authorities, the private sector, industry and migrant associations, donors, and international financial institutions.

AccessFinance 4 International financial institutions (IFIs, such as the World Bank, regional development banks and the International Monetary Fund) will need to support authorities and market participants in applying international principles and best practices. The actions of the different IFIs must be coordinated and effective. With regards to the CPSS-World Bank General Principles for International Remittance Services, the multilaterals involved in their preparation are currently developing detailed Guidelines for the application of the General Principles as well as a stocktaking methodology, which will be released by the end of 2006. Countries can use this methodology to evaluate their remittance systems against the General Principles. Such evaluations should lead to policy recommendations, which can be implemented by authorities, service operators, and other stakeholders. In order to take stock of the framework for, and performance of, remittance services both within and among countries, existing tools can be used, such as regional initiatives in payments systems, WHF, CISPI, API, FSAPs, etc. In order to apply the General Principles, partnerships are being established; one example is the Latin America and the Caribbean program developed by the World Bank, the Inter-American Development Bank, and the Centre for Latin American Monetary Studies (CEMLA). The World Bank is involved in assessments under this program as well as in other regional initiatives, and will be open to support the implementation of action points coming out of the assessments. Box: Reducing prices The cost structure of a remittance operation can be complex, and given the multitude of platforms and business models, there is no single cost model for a remittance operation (which again makes it impractical to estimate the no profit cost of a transfer from country A to country B). Since the private sector is the primary player in the field of remittances, increasing competition is the single best way of fostering innovative cost-reducing solutions. There are already good indications from the industry of what eventually can reduce prices to the remitters. Costs can be reduced through using less capital intensive business models (getting rid of physical footprint), integrating the remittance payment networks with other networks (such as cell phone networks), cooperating on the scale-driven elements of the infrastructure, using non-paper instruments, and ensuring that compliance with anti-terrorist and money laundering regulation take place at the appropriate level, can be done with off the shelf technology, and that responsibilities for such compliance is very well defined. Limited access to payment instruments and channels leads to hidden transaction costs. A recipient of remittances without access to a bank account must pick up the remittance, which means going to a location to receive the payment instrument. This might not be in the place where the remitter lives, which incurs transportation and opportunity costs. Perhaps the instrument has to be taken to another place to be converted into a meaningful payment instrument for the individual, such as cash. On the other hand, a recipient with a bank account and a debit card (or a cell phone used as a payment device) never has to pick up the remittance ­ the funds are instantly available. As with expanding instruments and channels, integrating remittances with other financial services can yield cost savings to the individual. One example is banks that offer no-fee remittances for their customers. This only provides a cost saving if the implicit pricing (e.g., account fees) is lower than the explicit pricing of a comparable service. An additional benefit to such cross-selling of services is that it may motivate the nonbanked to also use other banking services. Such integration, on both sides, is an illustration of how remittances can be used to expand access to finance in a broader sense.

1

. Source: World Bank and Inter-American Development Bank. Officially recorded flows were measured as being USD 232bn worldwide in 2005, of which USD 167bn was to developing countries. However, given measurement uncertainties, notably about unrecorded remittances, actual flows may be much higher ­ perhaps by 50% or more (see Global economic prospects for development, World Bank, 2006). (back to front page)

Commercial Bank Downscaling ­ Lessons from Experience by Aurora Ferrari and Guillemette Sidonie Jaffrin (continued from page 1) 2. Downscaling: origins, results and challenges Origins of "downscaling" and results achieved. The commercial bank downscaling approach was initiated by the Inter American Development Bank (IDB) in the early 1990s in Latin America. The IDB designed programs that provided credit lines to selected commercial banks for the purpose of on-lending directly to microenterprises, i.e. to go "down" market2. These programs also included technical assistance (TA) for each partner bank. The success of downscaling in Latin America prompted the European Bank for Reconstruction and Development, KFW, the European Commission and the US and Japanese governments to invest in similar operations in Central and Eastern Europe and the Commonwealth of Independent States, starting in Russia in 1994. Selected data on the results achieved are presented below.

Country

Project

Start Date

US$ amount of No. of loans loans outstanding outstanding

US$ average loan amount

Portofolio at No.of risk > 30 Banks days 1.82% 1.00% 0.06% 0.95% 1.69% 1.52% 1.19% 0.82% 0.86% 3 6 1 6 5 9 1 6 1

Georgia Kazakhstan Kazakhstan Kyrgyz Republic Poland Russia Russia Ukraine Ukraine

SELP KSBP Kazakhstan Loan Fund MSEFF EU/EBRD SME Finance Facility RSBF (inc KMB) (KMB Only) UMLP (inc ProCredit) (ProCreditOnly)

Oct-00 May-98 Dec-05 Apr-02 Apr-00 Aug-94 Nov-98 Sep-98 Feb-01

61,787,550 594,004,018 18,949,576 43,508,592 123,071,600 874,391,116 602,441,619 764,704,802 234,913,292

14,714 54,332 20,672 23,440 7,373 71,239 42,548 116,736 35,586

4,199 10,933 917 1,856 16,692 12,274 14,159 6,551 6,601

AccessFinance 5 Downscaling programs have been implemented also in large state owned banks to help transform loss making branches into profit centers. For example, the turnaround of the Agricultural Bank of Mongolia (now Khan Bank) was centered on the implementation of a successful downscaling program. Thanks to this program, Khan Bank was able to maintain its 402 branches and to become highly profitable (36% return 3 on equity as of 31 December 2005 ).

Khan Bank was first established in 1991 from the assets of the former State bank with the specific goal of serving the rural sector. After being placed under receivership in 2000 the bank was recapitalized and put under a restructuring plan. A large component of the latter was a downscaling program. The Bank was successfully privatized in 2003. From December 2001 to June 2006, the loan portfolio grew from USD 9 million to USD 149 million equivalent. As of 2006, 76% of the loan portfolio was in rural areas, business loans accounted for 45%, customer loans for 28% and agricultural loans for 26%, the Portfolio at Risk over 30 days was only 2.5%. During the initial "downscaling" phase, Khan Bank focused on simple and standardized products. Khan Bank piloted new products and procedures in selected urban branches and then rolled-them out to the existing branch network. This quick roll-out was facilitated by a gradual delegation of authority and training of trainers approach. Over time Khan Bank has increased its product range and now offers a wide range of loan, deposit and fee services. Loan products range from Express Micro Loans, SME loans, Crop and Herder Credits to Pension Advances, Consumer Loans and more recently larger Corporate Loans. A downscaling project was also recently launched in China with the assistance of the World Bank and KfW. The China Micro and Small Enterprise Finance Project started in December 2005 and, as of August 2006, two banks had joined the program. In the first nine months, USD 9.5 million equivalent have been disbursed to 1,507 small businesses while portfolio at risk over 30 days for the small business loan portfolio is less than 1%4. A regional downscaling project is being developed in Africa by the IFC (the Africa MSME Finance Program). Under this program, which has been launched in 2006, the IFC intends to work with 15 commercial banks across Africa by the end of 2006 to support them (through lines of credit and intensive technical assistance) to expand their lending to micro, small and medium enterprises. Challenges in downscaling. When commercial banks are asked why they do not lend to small businesses, they generally cite three main reasons: small businesses are higher risk; they lack reliable financial statements; and they lack collateral. However, when banks that have developed successful small business lending operations are asked the same question, they identify efficiency, developing customer orientation and managing cultural changes as the real challenges. It is indeed possible to develop lending methodologies that allow commercial banks to make loans (that will be repaid) to businesses that do not have financial statements, or traditional collateral (e.g. land titles). However, the difficulty lies in implementing those methodologies by managing cultural changes within the bank (i.e. shifting from a culture of serving corporate clients to small entrepreneurs), developing customer orientation (i.e. a focusing on meeting the needs of one's market segment) and at the same time increasing efficiency in the lending operations (i.e. loan officers productivity). Large volumes, efficiency and quality are key to profitable small business lending. Because of the high costs involved in making small loans, banks need to make many good loans. As in other lines of business with small margins, commercial banks need to increase revenue ­ i.e. they need to make many loans ­ and at the same time to decrease expenses ­i.e. they have to increase loan officer productivity and avoid bad loans. 3. The downscaling model: transforming the way banks operate Building a large, high quality portfolio of small loans, requires significant change in the way commercial banks traditionally operate. Implementing lending methodologies that are suitable to small business lending requires substantial changes in banks' organizational structure, human resource management, products and procedures. Technical Assistance plays a crucial role in this process: it foments best practices and allows partner banks to leap frog instead of painfully reinventing the wheel and making costly errors. In addition, Technical Assistance plays an important role in supporting the required internal reforms and in convincing top management to take difficult and sometimes controversial decisions (such as decentralization of decision making, new incentive scheme for loan officers, increase in marketing expenses, etc). The main changes introduced in downscaling programs in terms of organizational structure, human resource management, products and procedures are presented below. Organizational structure. Often banks participating in downscaling programs create a specialized small business unit. This permits a dedicated small business staff both at the head office and branch level. Specialization is needed to allow faster and more efficient implementation of new procedures. Moreover, having specialized loan officers increases lending efficiency, customer orientation and ensures faster expansion of small business operations. Human resources. Selection of the suitable small business loan officers is crucial for the downscaling bank. The selection process must therefore be very thorough. The bank can choose to hire "fresh" loan officers from outside or also open the recruitment to inside loan officers. However, small business lending requires loan officers to forget the "old ways" and to assume an entirely different approach to lending; not all loan officers are able to make this shift. Once loan officers are selected, the downscaling bank needs to develop a specialized training curriculum for small business lending, such as training to efficiently reconstruct the financial statements of potential clients. This training includes both class room modules and on the job coaching. Moreover downscaling programs introduce incentives for loan officers to make a large number of good loans, as this is key to achieve profitability. Hence the base salary of loan officers is often complemented by monthly bonuses5 that take into account both the productivity of the loan officer and the quality of his/her loan portfolio (monitoring Portfolio at Risk over 30 days).

AccessFinance 6 Products. When they start lending to small businesses, banks often offer the same products that they offer to their corporate client, but with smaller loan sizes. However, a downscaling bank needs to understand and segment the small business market and to offer targeted loan products to each segment. For example, micro businesses are often very sensitive to the time it takes to obtain a loan. Hence downscaling banks have developed a tailored product to the "micro segment" (loans between US$ 200 and US$ 2,000), which does not require registering collateral (this speeds up the approval process) and with a fast disbursement process (one day). Although the credit decision is based on the repayment capacity of the business, downscaling banks usually ask for collateral for larger loan size, but they usually accept a wide range of items (from cars to inventory to land or buildings), instead of relying solely on prime real estate formalized by a land title. To raise the productivity of loans officers, efficiency is key, which means cutting transactions costs, both for the bank and for the client. One way to cut such costs is to offer a limited number of standardized products. For example, downscaling banks offer mostly term loans, even for working capital financing. Credit lines are reserved for more sophisticated borrowers who have demonstrated their capacity to repay term loans on time and who use their bank account for their business transactions. Downscaling banks also apply microfinance "graduating" principles to small business lending. At the start, the client has a relatively small loan, with monthly repayment (both principal and interest) and short maturity. Once the first loan has been fully repaid, the client "graduates" to a larger loan with a longer maturity. Many clients at the lower end of the scale (between US$ 1,000 and US$ 10,000) have never borrowed from a bank before and this gradual approach allows the client to build a credit history and to grow with the bank. It is also important to price the products correctly. Making small loans is expensive and the price structure needs to reflect these costs. Procedures. As making small loans is expensive, banks need to design and implement credit procedures that reduce transactions costs, both for the bank and the client. The whole credit cycle needs to be re-analyzed and streamlined with the objective of cutting cost and time without jeopardizing credit quality. Collateral valuation and registration is often the source of high transaction costs for the client. Downscaling banks need to develop procedures that minimize such costs, such as in-house valuation (instead of relying on external valuators) or no registration of collateral for small loans. Delegating decision making to the branch level saves time and money. A good management information system (MIS) is crucial. It allows the loan process to be monitored, from application, through analysis, approval, disbursement until the loan is fully repaid. Late repayments can be identified early for prompt action. Loan officers' performance is also monitored through the MIS. 4. Lessons from downscaling experiences Although most of the downscaling programs have been implemented in Central and Eastern Europe and the Commonwealth of Independent States, a few have been successfully introduced in Latin America. Moreover, although in its early stage, there are also initial signs of success in China. Hence, while products and procedures need to be adapted to the local specificity, the tenets of downscaling programs have proven to be applicable across a broad spectrum of countries. The main lessons learnt from downscaling experiences are listed below. Long term Technical Assistance plays a crucial role in ensuring the success of a downscaling program. Technical assistance is needed during the preparation (market identification, development of loan products), the pilot test and the roll out of the downscaling program. Technical assistance plays a "hand holding" role and once a bank is about to make the "big jump" (i.e. start small business lending operations), it is comforting for the bank to know that if it faces difficulties with small business lending, it will not be alone. Good technical assistance is expensive. It is unrealistic to expect that a bank that has not yet enjoyed its benefits agree to pay such large sums for technical assistance. The technical assistance for the projects described in this article has been fully, or very heavily, subsidized by grants from KfW, the US or Japanese Government or the European Union. The IFC ­ under the Africa MSME program ­ is using part of its profits to finance the required technical assistance. Performance agreements are useful to maximize the benefits of the Technical Assistance. Tripartite agreements are often signed by the partner bank, the Technical Assistance provider and the funder of the program identifying minimum targets to be reached. In particular, these agreements specify the number and volume of loans disbursed and outstanding to be reached by a given date, as well as portfolio quality indicator (Portfolio at Risk > 30 days less than 3%). Such targets are monitored on a monthly basis and actions are taken if the targets are not 6 met . Careful selection of partner financial institutions is essential. Not every bank can become a successful small business lender. The partner bank needs to demonstrate good financial performance as well as a strong motivation to reach the small businesses market. Other factors, such as the proximity to the target group, are also important. For example, the appearance and location of its branches should be compatible to small business lending7. Buy-in from the top management is crucial. Downscaling requires significant changes in the way the bank operates. Top management will only be willing to make these changes if it is truly committed to reaching this new market, as demonstrated by experiences in Russia and Ukraine. In these two markets, banks were initially not convinced about the value of reaching the small business segments and the first results were therefore disappointing. Commercial banks became interested in reaching small businesses in Ukraine only when they saw the performance of ProCredit Bank8, a bank targeted at small businesses. The importance of an enabling legal environment. Finally, although downscaling programs have shown that it is possible to profitably lend to small business in a context of weak legal framework and financial infrastructure, the weakness of the latter can be a hindrance to the development of small business lending. Regulations on asset classification and loss provisioning (especially if additional provisioning is required for loans secured with movable collateral), loan documentation (especially if requiring audited financial statements), interest rates (i.e. interest rate ceiling), collateral (i.e., if the regulations do not authorize the constitution of collateral on all types of assets, especially movable), and foreclosure on collateral and debt collection procedures (i.e. complex procedures in a weak judicial environment) play an important role. Moreover, efficient credit bureau and business/pledge registry can greatly help downscaling banks by facilitating access to information on credit history and businesses.

AccessFinance 7 5. Downscaling in rural areas: the next frontier The next frontier of downscaling is rural finance. Increasing competition in the small business lending segment has driven interest rates down, especially in urban areas where competition is fiercer. The challenge is now to reach clients in rural areas and developing profitable products and lending methodology for small farmers. Attempts in this direction have been made in a few countries, such as Kyrgyzstan and Georgia. Key challenges include: keeping costs low, while the density of the clients decreases, appraising agricultural activities and developing products with more flexible repayment schedules (which fit agricultural cycles). The examples below describe interesting initiatives in agricultural financing.

The agroloan of the Kyrgyz Micro and Small Enterprise Finance Facility The Kyrgyz Micro and Small Enterprise Finance Facility started piloting an agricultural loan product in December 2004. As of the end of September 2006, the product has been launched in all the six partner banks. Agricultural loan portfolio amounted to USD 5.9 million or 11% of the outstanding loan portfolio under the program. Average agricultural loan size was USD 1,800 and PAR >30 days for the agricultural loan portfolio was 1.6%.The agricultural loan portfolio accounted from 9% to 16% of total net profit of the participating banks as of June 30, 2006. To serve this new market segment, loan officers with an educational background in agriculture had to be recruited and the traditional downscaling lending methodology had to be adapted. For example to cross-check the information received from clients and to understand whether or not clients observe the required agricultural practices, technological maps with information on seasonality and crop capacity have been developed. The main challenges to scaling up the volumes of agro loans are twofold: first most private farms' production capacity is limited, which constrains their loan repayment ability. Second, partner banks still have concern that agricultural lending is riskier than small business lending. The apple orchard loan of the Georgia Small Enterprise Lending Program United Georgian Bank (UGB), a partner bank of the Small Enterprise Lending Programme started piloting micro and small loans to farmers in 2004. After a two year pilot, UGB decided to roll out agrilending products and as of September 1, 2006 it had 454 agriloans outstanding amounting to USD 670,842. The PAR > 60 days was 1.65%. Raising staff productivity to the appropriate level has been the main challenge in agro-lending on account of the large distances between the branch and customers, poor infrastructure and low density of customer base. To meet this challenge a "cluster approach" has been developed, namely only villages with a critical mass of potential borrower for a specific crop loan product are served. For example UGB provides apple orchard loans to villages up to 15 kms from the Gori branch and that have at least 50 borrowers. Concentration on one main crop has two main advantages: simplification of risk assessment in credit committee, as only one main crop is looked at, and shorter loan officer training. Minimum critical mass of borrowers per village is crucial for loan officer productivity. As a result agri loans can be processed within one or two days and loan officer productivity for agro-loans is the same as for traditional urban micro loans, or 23 agro loans disbursed per month. On the other hand, the typical risk of cluster approach, risk concentration, is limited, as the exposure to a specific crop is quite small compared to the overall micro and small business portfolio. Sources Downscaling projects in CIS countries, revisited, Internationale Project Consult GmbH (IPC), May 2006 Delivering Finance to MSMEs in Bangladesh, Business and Finance Consulting (BFC), August 2006 Websites on downscaling programs: Russia Small Business Fund, Ukraine Micro Lending Programme, Uzbekistan Small Business Programme, Kazakhstan Small Business Programme

1. To avoid debates around the multiple definitions of micro, small and medium enterprises, this note will focus on loan sizes. A micro loan is therefore defined as a loan below US$ 10,000 and a small loan as a loan between US$ 10,000 and 250,000. 2. Other models have allowed commercial banks to enter the microfinance market, such as the creation of specialized financial institutions or of service companies. However, these models will not be discussed in this note. 3. From www.themix.org 4. Portfolio at risk (PAR) rates measure the outstanding balance of loans that are not being paid on time against the outstanding balance of total loans. PAR for small loan portfolio is usually measured at 30 or 60 days. 5. When local circumstances do not allow financial bonuses, non-financial bonuses can be considered (such as trips or awards). 6. In extremely rare cases, the technical assistance provider or the partner bank can be removed from the program. 7. Downscaling projects in CIS countries, revisited, Internationale Project Consult GmbH (IPC), May 2006 8. Downscaling was initiated in 1997 in the Ukraine, however the early results were disappointing. In 2001, ProCredit was created, it demonstrated to the banking sector that small business lending was possible and profitable. Five commercial banks (in addition to ProCredit Bank) are now part of the downscaling program. The total outstanding small business loan portfolio (including ProCredit Bank) stood at US$ 569 million in April 2006 (Presentation of Ukraine Micro Lending Program to the World Bank, May 2006).

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ACCESS TO FINANCIAL SERVICES

NEWS Bankers for poor win peace Nobel. Bangladeshi microcredit pioneer Muhammad Yunus and his Grameen Bank were awarded the Nobel Peace Prize for their work in advancing economic and social opportunities for the poor, particularly women. CNN.com, October 13, 2006. Insurance Regulatory Development Authority (IRDA) Wants Insurers to Shape Up on Microinsurance ­ Mumbai. These days, IRDA is busy working out a guidance paper on microinsurance. The regulator has indicated that insurance companies need to think beyond microfinance institutions (MFI) to distribute microinsurance. Times News Network, September 23, 2006. Co-Ops Could Be the Savior of South Africa's Divided Economy. Government has drafted an ambitious strategy to promote cooperative enterprises in all sectors of the South African economy. It sees co-operatives as a way of building collective buying power, reducing poverty, particularly in rural areas, and creating as many as a million jobs. Business Day, August 21, 2006. Strengthen Access to Finance for Small & Medium-size Enterprises while improving business environment for all firms. New World Bank research findings break away from the traditional view that subsidizing small and medium-size enterprises (SMEs) fosters growth and poverty alleviation. The World Bank, a Finance Research Feature Story published. August 2006. RECENT PUBLICATIONS A firm-level analysis of small and medium size enterprise financing in Poland. The authors test competing theories of capital structure choices using firm-level data on firm borrowings. The majority of firms in the dataset are privately owned, young, micro or small and medium enterprise (SME) firms concentrated in the service sector. The World Bank, by Leora Klapper, Virginia Sarria-Allende, Rida Zaidi. August 2006. African small and medium enterprises, networks, and manufacturing performance. This paper examines the role of private support institutions in determining small and medium enterprise (SME) growth and performance in Sub-Saharan Africa (SSA). It finds that SMEs in SSA get around market failures and lack of formal institutions by creating private governance systems in the form of long-term business relationships and tight, ethnically-based, business networks. The World Bank, by Manju Kedia Shah, Tyler Biggs. 2006. Beyond microfinance - Building inclusive rural financial markets in central Asia. The book presents findings from recent research into the state of rural financial systems in six Central Asian republics: Azerbaijan, Kazakhstan, Kyrgyz Republic, Mongolia, Tajikistan and Uzbekistan. The book examines and analyzes the current status of rural financial markets in these countries and attempts to answer a fundamental question: what can be done to develop robust inclusive rural financial markets? Asian Development Bank (ADB). Edited by Mario Lamberte, Robert C. Vogel, Roger Thomas Moyes and Nimal A. Fernando. 2006. Deposit collectors. Using a randomized control trial, the authors investigate determinants of participation in a deposit collection service and evaluate the impact of offering the service for microsavers of a rural bank in the Philippines. Advances in Economic Analysis & Policy, by Ashraf Nava, Karlan Dean and Yin Wesley. 2006. RECENT PUBLICATIONS (continued) Technical efficiency in the rural financial sector: Evidence from Mexico. This study sheds light on this largely undocumented sector by examining the technical efficiency of various institutional types. Data Envelopment Analysis is used to create a nonparametric frontier of technically efficient firms based on a sample of 350 semiformal financial institutions. Journal of Developing Areas, by Julia Paxton. Spring 2006. UPCOMING EVENTS Microfinance INDIA Conference 2006. The Third Microfinance India Conference aims to share information and promote discussion on two important aspects ­ expanding microfinance in urban areas and ensuring impact. The event will draw the interest of representatives from various sectors including policy makers, government representatives, investors and wholesalers, banking sector representatives, donor agencies, practitioners, researchers, consultants and academicians. New Delhi, India. October 30-31, 2006. An International Conference Towards Developing Pro-Poor Health Insurance in India. This conference aims to disseminate new information on the effectiveness of community health schemes in delivering health insurance for poor and rural population segments in India. Organized by the Federation of Indian Chambers of Commerce and Industry (FICCI). New Delhi, India. November 1-2, 2006. Mind the Gap: Bankable Approaches to increase Access to Finance. This conference will focus on practical examples of providing financial services to lower income clients. Representatives from several countries (Tanzania, Peru, Philippines, Cameroon) will share their experiences and lessons learned. Organized by the Netherlands Financial Sector Development Exchange (NFX). Amsterdam, Beurs van Berlage. November 2, 2006. Poverty Reduction in Conflict and Fragile States: Perspectives from a Household Level. This international conference hopes to advance understanding on the special challenges of poverty reduction in conflict and fragile states. Organized by USAID - U.S. Agency for International Development. Washington, DC. November 8-9, 2006. Conference on Microfinance and the Added Value of Multiculturality in Business Creation. This conference will be the opportunity to share experience gathered on enterprise creation for immigrants, relating to business support for micro and small enterprises, access to finance and policy measures. European Microfinance Network (EMN). Oslo, Norway. November 9, 2006. Global Microcredit Summit 2006. The summit will offer an opportunity for microcredit practitioners, advocates, donors, and others committed to the Summit's goals to assess progress, discuss challenges to achieving the new goals for 2015, and identify strategies for overcoming those challenges. 2,000 delegates from more than 100 countries will gather at the Global Microcredit Summit, to assess progress toward the Summit's goal of reaching 100 million poorest families, and to launch the second phase of the Campaign. Microcredit Summit Campaign. Halifax, Nova Scotia, Canada. November 12 - 15, 2006. Microinsurance Conference. This event is a follow-up of the Microinsurance Conference 2005 that took place in Munich, Germany in October, to present and discuss the main findings from the Good and Bad Case Studies project led by the Operations sub-group. Cohosted by Munich Re Foundation and the CGAP Working Group on Microinsurance with the support of Finmark Trust. Cape Town, South Africa. November 21-23, 2006.

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ACCESS TO FINANCIAL SERVICES (CONTINUED)

PAST EVENTS 21st WSBI World Congress. The theme for the 21st WSBI World Congress was "Savings Banks: the Retail Gateway to a Global Market - Driving Sustainable Development". Organized by the World Savings Banks Institute (WSBI). Kuala Lumpur, Malaysia. September 20 - 22, 2006. Microfinance: Building Inclusive Financial Sectors & Supportive Legal and Regulatory Frameworks (as a Tool to Achieve Poverty Reduction) - Asia-Pacific. This two-week seminar examined legal, regulatory and transactional aspects of small and micro-credit. Some of the issues discussed included: best practices with respect to legal; regulatory and transactional aspects of microfinance; commercialisation of microfinance as an industry; and issues specific to agricultural and rural microfinance and post-disaster / post-conflict microfinance. International Development Law Organization (IDLO). Sydney, Australia. September 11 - 12, 2006. NEWSLETTERS ADB Finance for the Poor. A quarterly newsletter of the Focal Point for Microfinance by the Asian Development Bank (ADB). EMN Newsletter. European Microfinance Network (EMN) produces a quarterly e-newsletter that contains the latest news on the sector and information on EMN activities and events, policy developments, member news and profiles, and feature articles on topics relevant to microfinance. FinMark News. A monthly newsletter published by FinMark Trust. FIC. A Monthly newsletter from Financial Institutions Consulting, Inc. Global News. A monthly newsletter issued by PlaNetFinance. InSight Bulletin. As short, frequent, one-topic bulletins, the ACCION InSight series highlights ACCION's policy viewpoints and ongoing research in the microfinance field. INSME news. IN Small and Medium Enterprises news is a monthly newsletter by the INSME Secretariat about its current activities and issues related to innovation and technology transfer for SMEs. Microfinance Capital Markets Update. Is produced and edited by CGAP and the Microfinance Information eXchange (the MIX), and it is dedicated to microfinance capital markets news. Microfinance Matters: Building Inclusive Financial Sectors. This newsletter shares effective practices and expertise on building inclusive financial sectors in the context of UNCDF's designation by the General Assembly as joint coordinator with UNDESA for the International Year of Microcredit 2005. Microcredit Summit Campaign Countdown 2005. A newsletter on microcredit best practices issued by the Microcredit Summit Campaign. MicroSave Briefing Notes. The Briefing Notes series is a compilation of short, focused, easy to read, summaries of key issues and ideas from MicroSave's core research and the Action Research Programme. Microinsurance. A quarterly Newsletter by a working group chaired by the International Labour Organization (ILO). MicroLINKS Connections. A monthly publication by USAID. This newsletter is up-to-date information on the microenterprise work USAID Missions and partners are doing across the world. NEWSLETTERS (continued) Finscope. A FinMark Trust initiative is the most comprehensive national household survey focused on the financial services needs and usage across the entire South and Southern African population. Global Development Research Center - Virtual Library on Microcredit. Articles and links to the principle organizations active in the field of microfinance. Good and Bad Practices in Microinsurance. This site hosts a series of case studies developed by the ILO's Social Finance Programme on behalf of the CGAP Working Group on Microinsurance. Investment Climate Assessments. Investment Climate Assessments are country reports that draw upon the results of enterprise surveys, Doing Business and other available data. International Year of Microcredit 2005. The Year of Microcredit 2005 calls for building inclusive financial sectors and strengthening the powerful, but often untapped, entrepreneurial spirit existing in communities around the world. Micro-Credit Ratings International Ltd (M-CRIL). M-CRIL produces ratings of microfinance institutions in Asia. MISFA Newsletter - Microfinance Focus (Issue 5), Microfinance Investment & Support Facility for Afghanistan (MISFA). April 2006. NEWSBRIEF. The Newsbrief is published monthly by CEREM, a microfinance research and documentation centre managed by Appui Au Developpement Autonome (ADA). Rural Finance Update. A monthly newsletter by The Rural Finance Learning Centre. This newsletter highlights new developments in the Learning Centre and any important activities from the field. The MicroBanking Bulletin. Benchmarking source for the microfinance industry used by investors, donors and other service providers to facilitate greater standardization and a better understanding of the development of the microfinance sector. LINKS CGAP - Building Financial Systems for the Poor. CGAP is a consortium of 28 public and private development agencies working together to expand access to financial services for the poor in developing countries. Development Gateway. This site includes resources on the provision of financial services to entrepreneurs and micro business in developing countries. DGRV - Deutscher Genossenschafts- und Raiffeisenverband e.V. (German Co-operative and Raiffeisen Confederation). This is the website of the national apex organization of the German co-operative sector, which has experience in building and supporting cooperative systems in many East European Countries and CIS, Latin America, Africa and Asia. European Microfinance Network (EMN). The EMN supports the development of microfinance organisations through the dissemination of good practices and by improving the regulatory frameworks for micro finance and self-employment and micro enterprises at the European Union and Member State levels. Finance Research: Access to Finance. This website is maintained by the World Bank's Development Research Group. FinMark Trust aims to promote and support policy and institutional development towards the objective of increasing access to financial services by the un- and under-banked of southern Africa (South Africa, Botswana, Lesotho, Swaziland and Namibia).

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ACCESS TO FINANCIAL SERVICES (CONTINUED)

LINKS (continued) Microfinance Gateway. Information for and about the microfinance industry, including research and publications, specialized resource centers, organization and consultant profiles, and the latest news, events, and job opportunities in microfinance. MicroSave and Market-led Microfinance. This website offers practical guidance in the form of research papers, briefing notes, training toolkits and other resources on market-led microfinance. PlanetFinance. The mission of Planet Finance is to support microfinance programs in countries with operations of Planet Finance. Rural Finance. Access to financial services in rural areas contributes to increasing economic development and poverty reduction. However, such access is generally scarce in rural areas of most developing countries. World Bank, ARD. Rural Finance Learning Centre. This is a website dedicated to providing access to the best materials for capacity building in the field of rural finance. The Microfinance Information eXchange (MIX). The MIX aims to promote information exchange in the microfinance industry. The MIX Market strives to facilitate exchange and investment flows, promote transparency and improve reporting standards in the microfinance industry. LINKS (continued) The Rating Fund ­ The Microfinance Rating and Assessment Fund. This website is maintained by The Inter-American Development Bank (IDB), The Consultative Group to Assist the Poor (CGAP) and The European Union. The SEEP Network. The Small Enterprise Education and Promotion Network provide access to recent documents, programs, working groups. World Bank ­ Inclusive Financial Systems. Latest reports, publications, events, analysis, policy notes and more related to this topic. World Council of Credit Unions (WOCCU). WOCCU is a representative organization and a platform for knowledge exchange and development for credit unions worldwide. World Savings Bank Institute. WSBI is one of the largest international banking associations and the only global representative of savings and retail banks. It works closely with international financial institutions and donor agencies and facilitates banking projects to develop world-wide financial sector. Women's World Banking. The WWB network aims to create the possibility for a low income woman to build her business and assets, improve her living conditions, keep her family well-fed and healthy, educate her children, develop respect at home and in her community, and secure a political voice.

CREDIT REPORTING

NEWS Climbing back up the credit ladder. Paying debts on time is a big boost - but make sure that it gets reported. Rebuilding bad credit is like climbing up a tall ladder: Take it one step at a time, and don't look down. If you don't have any credit, you might take out a card or small loan to show you can handle the payments. But there's a potential glitch: Not every lender reports your payments to the credit bureaus. Bankrate.com, September 18, 2006. Key Differences between Consumers With and Without Mortgages. Experian Consumer Direct has announced the results of a nationwide study showing the differences between consumers with and without mortgages and consumers with and without second mortgages (including home-equity loans or lines of credit). The study reveals that consumers with mortgages have an average credit score that is 55 points higher than consumers without a mortgage. Additionally, the study shows that consumers with second mortgages have an average credit score 81 points higher than consumers without a mortgage. PaymentsNews.com, August 21, 2006. RECENT PUBLICATIONS Credit Scoring Methods. The goal of this paper is to review creditscoring methods and elaborate on their efficiency based on the examples from the applied research. Emphasis is placed on credit scoring related to retail loans. Czech Journal of Economics and Finance, by Martin Vojtek and Evzen KoCenda. 2006. Economic Benefit of Powerful Credit Scoring. The authors study the economic benefits from using credit scoring models. This study contributes to the literature by relating the discriminatory power of a credit scoring model to the optimal credit decision. Journal of Banking and Finance, by Andreas Blochlinger and Markus Leippold. March 2006. RECENT PUBLICATIONS (continued) Loan Officer Turnover and Credit Availability for Small Firms. This paper presents empirical evidence on the role loan officers play in facilitating small firm access to commercial bank loans. If loan officers use soft information to make lending decisions that would not otherwise be made on the basis of hard information, then, frequent turnover in loan officers should be associated with an adverse effect on credit availability. Journal of Small Business Management, by Jonathan A. Scott. 2006. Statistical Properties of Country Credit Ratings. This paper models rating as a function of expected repayment capacity, derives empirical implications, and tests them using the most comprehensive consistent series of sovereign credit ratings. These are the Institutional Investor ratings which have been widely used in the international finance literature. The author reports several stylized facts: volatility clustering, asymmetric adjustments, and serial correlation in credit revisions, especially in Emerging countries. These features are consistent with rational behavior of credit rating teams and have important implications in assessing the long term risk of international investments. Emerging Markets Review, by Juan J. Cruces. March 2006. UPCOMING EVENTS Recent Developments in Credit Scoring. This symposium highlights three important developments that address concerns about credit scoring and credit risk by refining or augmenting current credit scoring techniques. VantageScore offers greater consistency in scoring methods among the three credit reporting agencies; the FICO expansion score uses nontraditional data to increase the number of individuals receiving scores; and the HealthScore incorporates health plan and medical information in order to provide the health-care industry and others with a more complete predictor of credit risk. Organized by the Federal Reserve Bank of Philadelphia. Philadelphia. October 24, 2006.

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CREDIT REPORTING (CONTINUED)

UPCOMING EVENTS (continued) Internal Credit Rating, Scoring and Basel Compliance. This course is designed to help participants understand the inner workings of stateof-the-art risk measurement and management methods. This will familiarise participants with the large variety of vendor software and allow them to understand and develop a system on their own. Euromoney Training UK. London, UK. November 20-23, 2006. Workshop: Western Hemisphere Credit & Loan Reporting Initiative. The objective of this annual workshop is to discuss specific issues about credit and loan reporting systems and to analyze the results of country missions to evaluate credit and loan reporting in Latin American countries. Organized by CEMLA, World Bank and FIRST. Mexico City. December 14-15. (This workshop will be in Spanish). PAST EVENTS 2006 5th World Consumer Credit Reporting Conference. This year's conference provided in-depth insight into Global Credit trends and featured credit reporting within South Africa. Topics included the integration of credit bureau data between the consumer and small business as well as a look at the new generation of Credit Bureau Scores. Sponsored by CreditInfo Group, CRIF, Microbilt, Fair Isaac, Experian, Transunion, Serasa and D&B. Cape Town, South Africa. October 8 - 10, 2006. PAST EVENTS (continued) Regional Conference on Credit Reporting in Africa. The conference brought the opportunity to discuss the basic concepts of credit reporting; legal and regulatory frameworks; aspects of financial information infrastructure; and the scope of credit information-sharing that is seen in various countries. Additionally it provided the opportunity to meet with global credit bureau industry leaders. The World Bank. Cape Town, South Africa. October 5-6, 2006. NEWSLETTERS ViewPoints. Bi-monthly publication by Fair Isaac Corporation. LINKS Doing Business ­ Benchmarking Business Regulations. The Doing Business Database provides objective measures of business regulations and their enforcement. The Doing Business indicators are comparable across 145 economies.

PAYMENT SYSTEMS

NEWS Plastic loses its appeal as the Bank of England reports biggest drop in credit card lending. Britain's love affair with the credit card appears to be waning after the Bank of England reported the biggest drop in credit card lending in August, the month the Bank raised interest rates. The Guardian, September 30, 2006. The People's Bank of China Issued the Guidelines on Improving Payment and Settlement Services in Rural Area. The Guidelines stress that it is of great significance to improve the payment and settlement services in rural area, since it contributes to satisfying the rural payment and settlement needs at multiple levels, accelerating the funds flow in rural area, enhancing the efficiency in the use of funds, and promoting rural economic and financial development. The People's Bank of China News, September 1, 2006. Japan: Plan Agreed To Spread Usage of IC Cash Cards. Private financial institutions have reached broad agreement on the introduction of cash cards that contain an embedded integrated circuit, which will enable them to be used at automated teller machines at different institutions, according to sources. The move is aimed at improving the convenience of IC cash cards, which are more secure than conventional cards as they are difficult to counterfeit. Payment News, August 13, 2006. RECENT PUBLICATIONS A case study of Electronic Bill Presentment and Payment (EBPP) integration using the COIN mediation technology. This paper discusses the nature of the problem in the Electronic Bill Presentment and Payment industry. In particular, the authors describe and analyze the difficulty of the integration of services using four different formats: IFX, OFX and SWIFT standards, and an example proprietary format. The authors then propose an improved way to accomplish this integration using the COntext INterchange (COIN) framework. Massachusetts Institute of Technology (MIT), Sloan School of Management, by Sajindra Jayasena, Stephane Bressan and Stuart. Madnick. 2006. RECENT PUBLICATIONS (continued) Micropayments: the final frontier for electronic consumer payments. This paper looks at some of the success stories (and failures), both in the U.S. and abroad, to identify possible conditions for success and to gauge the outlook for the future. It finds that industry structure, the coordination of standards, and customer preferences and experiences have all influenced the development of these products. Federal Reserve Bank of Philadelphia, by James C. McGrath, June 2006. Payments and Securities Clearance and Settlement Systems in Azerbaijan. This report provides a comprehensive description of Azerbaijan's payment and securities clearance and settlement systems. The report is part of the "Silver Book" public report series prepared in the context of the Commonwealth of Independent States Payments and Securities Settlement Initiative (CISPI) led by the World Bank. February 2006. Payment Instrument Choice: The Case of Prepaid Cards. The authors explore the costs and benefits of prepaid card applications versus other payment instruments, such as cash, checks, and debit cards, for certain payment segments, including gift, payroll, and employer-initiated and government benefit programs. Federal Reserve Bank of Chicago, by Sujit Chakravorti and Victor Lubasi. 2006. Retail Payment Systems: What Can We Learn from Two-Sided Markets? The purpose of this article is to underline that some private retail payment systems fit well with the theory of two-sided markets, while others do not. Economics and Social Sciences, by Marianne Verdier. January 2006. UPCOMING EVENTS IBC's 4th Annual Event - International Payments CEE. This conference has been tailored to provide a comprehensive review of the latest market developments and advice from cutting edge players on moving towards international standards. Budapest. November 2223, 2006.

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PAYMENT SYSTEMS (CONTINUED)

UPCOMING EVENTS (continued) The Institute of International Payments. The Institute of International Payments is designed to provide financial institutions and corporate professionals, who have a command of payments concepts and issues in a domestic environment, an opportunity to broaden their knowledge in a global context. The program encompasses the key principles, concepts, infrastructures, practices, issues, and developments in global payments. Organized by NACHA, Federal Reserve Bank of Atlanta, Atlanta. November 28 - 30, 2006. PAST EVENTS Foreword Financial's 4th Annual Bank Card Conference. In this 4th annual cards event, leaders of the industry's foremost card issuers shared their insight into consumer credit cards, debit cards, commercial cards, stored value cards and merchant acquisition. Organized by Foreword Financial. Florida. October 11-13, 2006. Sibos 2006 Sydney. This year's Sibos theme invited the global financial community to set the agenda for the future. The Sibos 2006 theme was "Raising ambitions". Organized by Sibos/SWIFT Community. Sydney, Australia. October 9-13, 2006. Global Payments Week 2006. The annual events of the Western Hemisphere Payments and Securities Settlement Forum, the Arab Payments and Securities Settlement Initiative, and the Commonwealth of Independent States Payments and Securities Settlement Initiative convened to enrich the exchange of ideas and points of view. Organized by The World Bank in collaboration with the Arab Monetary Fund, the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements, the Centre for Latin American Monetary Studies (CEMLA) and the International Monetary Fund. Sydney, Australia. October 3 ­ 6, 2006. NEWSLETTERS Dialogue, the Voice of the SWIFT Community. The dialogue that takes place each year at Sibos inspired this magazine. It is designed to keep SWIFT's conversation going throughout the year. Electronic Payments Journal. The Electronic Payments Journal is published by NACHA - The Electronic Payments Association. It provides ACH news and payments system information. ePaynews.com. This weekly newsletter summarizes the top payments news of the week, as covered on ePaynews.com International Banking Systems. Provides latest news and analysis across wholesale banking, retail banking, private banking and trade finance - under one roof. LINKS World Bank Payment Systems. Latest reports, publications, events, analysis, policy notes and more related to this topic. Western Hemisphere Payment & Securities Settlement Forum. The Western Hemisphere Payments and Securities Clearance and Settlement Initiative (WHI) has become a regional forum to discuss relevant issues in the field of payments and securities clearance and settlement. Bank for International Settlements. The Bank for International Settlements (BIS) is an international organization which fosters international monetary and financial cooperation and serves as a bank for central banks. CISPI. Cooperation in the Commonwealth of Independent States. Payment and Securities Settlement Initiative. Citadel Advantage provides back office system specialist services, specifically covering operations risk mitigation, payments, and liquidity & treasury systems. The company provides services relating to the design, functionality, risk mitigation and operation (including payment flow control and liquidity management) of Payment Systems and associated Back Office operations activities. Eurogiro Network. Eurogiro is a low value payment solution between banks and postal organizations. Payment News. This website presents the latest news on the Payment System industry. SWIFT. This website provides news and information for the Swift community. NEWSLETTERS (continued) Journal of Payments Strategy & Systems. Published quarterly, the Journal provides practical yet intellectually rigorous analysis of developments and trends in payments methods, markets and products, demonstrating how successful payments strategies have been designed and implemented. SPEED, a new quarterly journal from Central Banking Publications, focuses on policy developments affecting financial infrastructures at the national and international levels.

REMITTANCES

NEWS Migrant remittances from the United States to Latin America to reach $45 billion in 2006, says IDB. Latin American migrants working in the United States will send around $45 billion to their homelands this year, up from some $30 billion in 2004, according to a report released by the Inter-American Development Bank. IADB.org, October 18, 2006. New Conductors Speed Global Flows of Money - Manila. Cell phones Make Transfers Faster and Cheaper. Cash that relatives working abroad send home is not only vital support for millions of families but a cornerstone of national economies from Mexico to Lesotho. The World Bank estimates that global remittances last year topped a quarter of a trillion dollars, with $13 billion flowing into the Philippines alone. WashingtonPost.com, October 3, 2006. NEWS (continued) Overseas Cash Remittances Transform Living Standards in India. Remittances from Indians working abroad have transformed living standards in many parts of the country. With their extended families still in India, many Non-Resident Indians say they feel very connected to the homeland, and concern for the welfare of their loved ones drives them to remit money faithfully. Asia Pacific News, October 1, 2006. Money Transfer Market Growth - Russia. Statistics from the Bank of Russia show that Russians are not only receiving more money from relatives abroad but are also sending more money out of the country. The majority of the transfers are going to Uzbekistan, Ukraine, and Tajikistan, which together received more than $606 million sent from Russia. Kommersant International, September 25, 2006.

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AccessFinance 13

REMITTANCES (CONTINUED)

RECENT PUBLICATIONS Altruism and Workers' Remittances: Evidence from Selected Countries in the Middle East and Central Asia. This paper argues that "altruism," as a motive to send money home, would contribute to the stability of these flows. Using a simple framework that relates workers' remittances to agricultural GDP, which is used as an indicator of economic "hardship" in the home country, evidence suggests that altruism could have played an important role in the flow of remittances to Egypt, Jordan, Morocco, Pakistan, and Tunisia in recent years. International Monetary Fund, by Jacques Bouhga-Hagbe. 2006. How Cost Elastic Are Remittances? Estimates from Tongan Migrants in New Zealand. This paper provides the first estimates of the costelasticity of remittances, using data from a survey of Tongan migrants in New Zealand. The costs of remitting to Tonga are high by international standards and remittances are found to have a negative cost-elasticity with respect to the fixed fee component of money transfer costs. These findings suggest that Pacific island countries can expect a more than proportionate increase in remittances from a reduction in costs. Pacific Economic Bulletin, by John Gibson, David J. McKenzie and Halahingano Rohorua. 2006. UPCOMING EVENTS Engaging the African Diaspora and Financing African Development. The proposed symposium will recognize the growing and significant role that the Diaspora plays in the development of their countries of origin and or ancestral homes. In recognition of the important contribution that the Diaspora could make to Africa's development, including support for the implementation of the New Partnership for Africa's Development (NEPAD). the African Union (AU) has designated the Diaspora as a "sixth sub-region" of Africa. Cornell University. November 3-4, 2006. PAST EVENTS Global Payments Week 2006. The annual events of the Western Hemisphere Payments and Securities Settlement Forum, the Arab Payments and Securities Settlement Initiative, and the Commonwealth of Independent States Payments and Securities Settlement Initiative convened to enrich the exchange of ideas and points of view. Organized by The World Bank in collaboration with the Arab Monetary Fund, the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements, the Centre for Latin American Monetary Studies (CEMLA) and the International Monetary Fund. Sydney, Australia. October 3 ­ 6, 2006. NEWSLETTERS Migrant Remittances. Migrant Remittances is jointly supported by USAID's Microenterprise Development office and DFID. The National Money Transmitters Association, Inc (NMTA). The NMTA was born out of the need of money transmitters to have a voice in shaping and developing this industry. The NMTA channels the concerns of licensed money transmitters and other constituent sectors and provides a mechanism to address issues that impact our business with the strength and support of a national organization. LINKS World Bank ­ Remittances. Latest reports, publications, events, analysis, policy notes and more related to this topic. A Technical Guide to Remittances. The Credit Union Experience. Discusses the current operating environment for remittances, provides an overview of WOCCU's IRnet service and details how WOCCU has facilitated mass remittance distributions by partnering with money transfer operators. ePayCom. Interchange Network which looks at the added benefits, opportunities and requirements for introducing cards into the remittance product. The introduction of cards, in particular the prepaid card, into the remittance process is enabling banks to offer a better value proposition to their existing customer base and the ability to bring the un-banked migrant worker into the banked sector. Institute for the Study of International Migration. Research Consortium on Remittances in Conflict and Crises. Livelihoods Connect ­ Hot Topics: Remittances. This webpage maintained by DFID includes conferences, papers, newsletters and links. MicroLINKS. Remittances & Transfers. This site maintained by USAID includes documents related to remittances. Sending Money Home. This site shows a range of money transfer products and services. The UK Government has financed a survey to help the users compare these services and choose the right deal.

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