NDB GILLES Genre Grandpierre Presentation Proparco English NDB December 2005

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NDB GILLES Genre Grandpierre Presentation Proparco English NDB December 2005 Powered By Docstoc
					       How to support NDBs
  in attracting long-term capital:
Lessons from experience in Africa

                                      Gilles Genre-Grandpierre
       New-York, 1 December 2005               Proparco
                                   Head, Banking & Capital Markets
                                   e-mail: genregrandpierreg@afd.fr
Proparco is a French Development Finance
Institution (DFI), member of the European
Development Finance Institutions (EDFI) network
Agence Française de Développement is its
majority (68%) shareholder
Other shareholders include major private French
and international banks and companies, which
makes it unique among DFIs
Operations in 60 countries in Africa, the Middle-
East, Asia and the Carribean
Proparco combines long-term developmental
objectives with private sector profitability requirements
It offers the full spectrum of financial services and
products, similar to investment and merchant banks
Proparco’s shareholding structure allows it to operate
on longer maturities with riskier products in difficult
environments (additionality principle)
50% of the EUR800 million portfolio invested in Africa,
half of which in the banking and financial sector
To determine appropriate support to NDBs in order to
mobilize private capital:
   We carried out internal research on Proparco’s NDB
   portfolio - equity and credit - since 1998 (average # of NDBs
   in portfolio: 10)
   Objective of research: What are the criteria that
   distinguish successful NDBs from others in attracting
   private capital?
   Internal criteria investigated, as well as external ones
   (sophistication of local banking & financial markets)
   Successful NDBs in mobilizing private capital defined as
   being financially sustainable and additional in filling market
   gaps (instrument, maturity, objective, etc.)
Portfolio of NDBs in the following countries:


         West Africa

                       Gabon                     Uganda

                           South Africa     Swaziland
First conclusions:
   Successful NDBs operate in «conflicting» environments,
   whether internal (mixed shareholding structure, such as DFCU in
   Uganda), or external (competitive environment, such as DBSA
   and IDC in South Africa)
   NDBs operating in «conflicting» environments are more
   efficient at attracting private capital. Good governance and
   sound risk management are a consequence of external pressure,
   rather than a cause of sustainability
   External environment is key in determining appropriate
   support to NDBs to mobilize private capital: 3 groups of
   countries defined
The 3 groups of countries

         Sophistication of banking                  Importance of economic
         & financial market (depth)                 cycles and systemic risk,
                                                  number of uncertainty factors

                                       Group III
                                  (emerging markets)

                                       Group II
                              (some LICs and most MICs)

                                 Group I (mostly LICs)
     -                                                                            -
The 3 groups of countries
Group I: Economic sphere is the problem, no long
 maturities, no hierarchy of risks on long-term, no long-
 term private capital
Group II: economic growth, beginning of financial
 development and hierarchy of risks, longer maturities,
 some private long-term capital on big projects
Group III: emerging markets, cyclical economies, more
 depth of financial markets and hierarchy of risks, long
 maturities, presence of long-term private capital
Key findings for successful NDBs:
   Are able to manage internal or external conflicts
   Fill only an incremental - but determining - gap in the market:
   They lead the pack in incremental risk-taking (eg, DBSA’s
   securitization of municipal finance portfolio in South Africa)
   Avoid market distortions and crowding-out effects on private
   sector players
   Remove abnormal risks between perceived and real risks:
   Successful NDBs are not a substitute for the market, they just
   help the market go the extra mile
                                        Zone of legitimacy
                                            for NDBs

Cost of funds

       «Perceived» risk curve

                                The extra mile for NDBs
                                to attract private capital

                                                         «Normal» yield curve

                    3           5             15             30
Appropriate levels of support for NDBs to be
successful in attracting private capital:
  The existing banking and financial sophistication of a
  market is key in determining relevant market gaps and
  appropriate levels of support: The «next step» principle
                                                  NEXT STEP
                                    DBSA’s securitization of municipal finance portfolio
               Risk sharing           IDC’s provision of equity on BEE new ventures
              and mitigation
                                         Long-term funding of NDBs and private banks
         Maturity and instruments           New shareholding of DFCU in Uganda

                                                Long-term funding of BOAD in West Africa

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