Strategy and Privatisation of an MCO in mountainous

Strategy and Privatisation of an MCO in mountainous Albania March 1, 2005 07/10/2020 Rabo International Advisory Services (RIAS) BV

Albanian macro economics and banking sector Macro economics (end 2003) Expected developments banking sector • Population: 3, 2 million (50% rural) • increasing demand for loans (job creation) • Number of households ; 730. 000 of which • inflow of funds: increased demand for • • • 0413 oct 04 • 400. 000 rural areas GDP: USD 7, 4 billion (10% remittances) Savings/deposits: USD 2, 9 billion (41% GDP) + an amount in cash Loans commercial banks USD 440 million (6% GDP) Grow rate of GDP: 5% • • 2 bank and savings accounts increased competition between banks strengthening financial and business sector

SWOT-analysis of the MCO Strengths Weaknesses 3 only in mountain area 3 limited product range 3 no own funding base 3 exposed to policy risks 3 banking procedures 3 client base not embedded in institution 3 regional network 3 market position in mountain area 3 portfolio quality 3 current capitalisation 3 favourable funding 3 quality of management/staff Opportunities Threats 0413 oct 04 3 no bank has all-finance rural focus 3 cross-selling to reduce cost 3 obtain bank license 3 Government interventions 3 overbanked donor-driven market 3 lack of donor interest in bank transformation 3 funding of required technical support 3

Lessons learned • Sector based retail financial services limited sustainability Rural banking • Full banking licenses flexibility and growth • Loan recovery is more important than low transaction cost • Using local savings for local credit, together with a sense of ownership is of great importance Role of the state • Proximity to clients, peer pressure, local knowledge and a large degree of self-governance effective financial delivery system • Attaining critical mass providing all-finance banking services • Government is not effective in direct credit delivery Governance • Successful rural based banks are de-linked from direct government 0413 oct 04 involvment 4

Strategic options for rural full service bank 0413 oct 04 Bought by or Merger with: profit is driver Not realistic Privatisation: sale to foreign shareholders, profit is driver Unlikely, exit option Privatisation: Initial Public Offering, profit is driver Mission at stake Privatisation: MAFF’s client base, client is driver Most realistic if direct shareholding 5

Direct shareholding The Albanian owned bank Clients have shares at stake Capital increase Client intimacy is main governing factor but additional BYLAWS 0413 oct 04 – members have no rights to reserves of the bank – members have no influence on daily banking – board members criteria, supervised Central Bank 6

Proposed Mission statement 0413 oct 04 To provide access to a full range of services to the rural and peri-urban population in Albania in a sustainable and viable way 7

Proposed ambition • Operate with a banking license and as a full private entity in 1. 5 years • To be a fully private rural bank with co-operative characteristics in 3 years • New branches reaching break-even within 2 years • Having a loan portfolio of at least USD 100 mln within 5 years 0413 oct 04 • Having a geographically diversified loan portfolio over all rural activities 8

Governance structure election information exchange => Members = > Branch based /local Advisory Committee General Assembly Board of Directors 0413 oct 04 Executive Management Team 9

Division of roles • Members have proportional voting rights and elect local advisory committee no access to reserves nor influence on daily banking decisions. • Local advisory committee gives advise and feedback to Board of Directors through General Assembly. No power in daily operations and decisions. • General Assembly elects nominated Board members • Board of Directors governs and acts as decision making body nominated from capital investors, government and foundation requirements based on banking laws • Management team proposes plans and implements these in daily banking • Branches sell products and nourish customer intimacy 0413 oct 04 no separate legal entity 10 10

Operational structure Board of Directors Management Central Internal Audit Legal Department Credit Inspection Human Resources Planning and control Sales Windows/ Branches Treasury Department Branches 0413 oct 04 Agencies 11 Branches Support (incl. IT) Branches