BANQUE DU CAIRE OF EGYPT: A STATE-OWNED RETAIL BANK CASE STUDY USAID AMAP FINANCIAL SERVICES KNOWLEDGE GENERATION— STATE-OWNED RETAIL BANKS IN RURAL AND MICROFINANCE MARKETS microREPORT #59 FEBRUARY 2006 This publication was produced for review by the United States Agency for International Development. It was prepared by DAI. BANQUE DU CAIRE OF EGYPT: STATE-OWNED RETAIL BANK CASE STUDY USAID AMAP FINANCIAL SERVICES KNOWLEDGE GENERATION— STATE-OWNED RETAIL BANKS IN RURAL AND MICROFINANCE MARKETS microREPORT #59 The authors’ views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. TABLE OF CONTENTS EXECUTIVE SUMMARY IX I. INTRODUCTION AND OVERVIEW 1 II. ENVIRONMENT/CONTEXT 3 OVERVIEW OF EGYPT....................................................................................................3 Geography and Demographics ..................................................................................3 Recent History and the Political Environment ..........................................................4 Economy....................................................................................................................4 FINANCIAL SECTOR .......................................................................................................5 Legal and Regulatory Framework .............................................................................6 MICROFINANCE SECTOR ..............................................................................................6 Demand—Microenterprises.......................................................................................7 Supply—Microfinance Providers ..............................................................................7 Supporting Institutions ..............................................................................................8 III. INSTITUTION 11 OVERVIEW OF BANQUE DU CAIRE ..........................................................................11 History .....................................................................................................................11 Governance & Management Structure ....................................................................11 BdC Performance ....................................................................................................12 MICROFINANCE STRATEGY.......................................................................................13 MICROFINANCE ORGANIZATIONAL STRUCTURE................................................16 Microfinance Department........................................................................................16 Points of Service......................................................................................................17 Decentralization.......................................................................................................19 MICROFINANCE OPERATIONS...................................................................................19 Products and services...............................................................................................19 Policies and Procedures...........................................................................................22 Marketing, Product Development, and Planning.....................................................24 Controls and Audit...................................................................................................24 Human Resources....................................................................................................27 Fostering Cultural Change.......................................................................................29 MICROFINANCE PERFORMANCE ..............................................................................30 Growth and Outreach...............................................................................................30 Financial Performance.............................................................................................32 Portfolio Quality......................................................................................................38 Efficiency ................................................................................................................42 THE MERGER WITH BANQUE MISR..........................................................................43 Microfinance at Banque Misr ..................................................................................43 Implications of Merger ............................................................................................43 TABLE OF CONTENTS iii 4. LESSONS AND CONCLUSIONS 47 KEY QUESTIONS............................................................................................................47 What Market Factors Justify SORB Downscaling? ................................................47 What Level of Government Commitment Is Required?..........................................49 What Characteristics And Internal Capacities Should A SORB Demonstrate To Have A Successful Microfinance Focus?...........................................................50 How Important Is Long-Term Technical Assistance?.............................................52 ANNEX A: REFERENCES 53 ANNEX B: RESOURCE PERSONS 57 ANNEX C: ADJUSTMENT CALCUATIONS 59 ANNEX D: EGYPTIAN BANKING AND MICROFINANCE SECTOR 63 iv BANQUE DU CAIRE OF EGYPT: A STATE-OWNED RETAIL BANK CASE STUDY LIST OF TABLES AND FIGURES Table 1 Summary Statistics—BdC Microfinance ............................................................................x 2 Strategic Framework for SORBs.........................................................................................1 3 Egyptian Economic Indicators ............................................................................................5 4 Commercial Banks Involved with Microfinance ................................................................7 5 Performance of USAID/Egypt Partners ..............................................................................8 6 BdC Financial Performance Indicators .............................................................................13 7 Evolution of Microfinance at BdC ....................................................................................14 8 Growth Rates.....................................................................................................................17 9 Loan Product Description..................................................................................................20 10 Loan Sizes.........................................................................................................................21 11 Control Functions..............................................................................................................24 12 Microcredit Incentive System ...........................................................................................29 13 Loan Size and Growth.......................................................................................................31 14 Comparative Outstanding Loan Sizes...............................................................................32 15 BdC Microfinance Profit and Loss Statement...................................................................33 16 Comparison of Microfinance and Consolidated Bank Performance .................................34 17 Adjusted Profit and Loss Statement ..................................................................................36 18 Comparison of Key Profitability Ratios............................................................................38 19 Portfolio at Risk > 30 Days Comparison for 2004............................................................39 20 Non-Performing Loans > 30 days .....................................................................................40 21 Portfolio Report.................................................................................................................41 22 Portfolio Aging report .......................................................................................................41 23 Operating Expense Ratio in 2004......................................................................................42 24 Efficiency Ratios for BDC Microfinance..........................................................................42 ACRONYMS AND ABBREVIATIONS v Figure 1 Map of Egypt.......................................................................................................................3 2 Banque du Caire Organizational Structure........................................................................12 3 Microfinance Department Structure in 2005.....................................................................17 4 Branch Structure—Microfinance......................................................................................18 5 Microfinance Systems at Branch Level.............................................................................26 6 Client and Portfolio Growth ..............................................................................................31 7 Historical Portfolio at Risk................................................................................................39 vi BANQUE DU CAIRE OF EGYPT: A STATE-OWNED RETAIL BANK CASE STUDY ACRONYMS AND ABBREVIATIONS ABA Alexandria Business Association ACSI Amhara Credit and Savings Institution AMAP Accelerated Microenterprise