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| Shenzhen VTB |
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| Summary of Proposed Investment |
| This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. |
| Project number | 29386 |
| Company name | Shenzhen VTB |
| Country |
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| Sector | Microfinance and Small Business - Non Commercial Banking |
| Environmental category | FI |
| Department | Reg Ind, Financial Markets, ASIA |
| Status | Active |
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| Date SPI disclosed | February 9, 2010 |
| Projected board date | March 11, 2010 |
| Previous Events | Invested: November 3, 2011
Signed: April 28, 2010
Approved: April 26, 2010 |
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| Overview |
Sponsor/Cost/Location |
Development Impact |
Contacts |
Attachments |
| Project description |
| The regulatory framework for microfinance in China is still evolving. China Banking Regulatory Commission (“CBRC”) has developed the Village Township Bank (“VTB”) concept, which supports the establishment of microfinance institutions (“MFIs”) with a full banking license, including deposit taking authority, primarily in rural areas and usually limited to a single county. IFC has invested in two VTBs, both in the frontier regions. Today, there are around 100 VTBs in China. CBRC wants now to move the VTB concept one step further by creating around 1,300 new VTBs in the next three years. In this context, six VTB licenses are to be granted in Shenzhen, the first Special Economic Zone established in the early 80s to pilot new economic structures. The granting of the licenses is an explicit effort by CBRC and the Shenzhen government to create momentum for micro, small and medium enterprise (“MSME”) lending which, despite policy efforts and attempts by state-owned banks in this sector, still seriously lags. Today, Shenzhen generates a GDP of approximately US$114 billion or 2.6% of China’s overall GDP and 45% of Guangdong Province’s trade. The basis of this economic powerhouse is MSMEs, which contribute more than 65% of Shenzhen’s economic output and 87% of its employment. Yet, only 36% of MSMEs in Shenzhen have access to bank finance, which equates to an estimated unmet demand of several hundred billion RMB. Moreover, Shenzhen’s labor force is made up of migrant workers from all over China, especially from frontier regions and rural areas. A new VTB in Shenzhen specialized in serving MSMEs in effect will support the job creation for migrant workers from poorer regions of the country, as well as enable remittance flows and skill transfer to benefit their less developed home counties and provinces. |
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| Project sponsor and major shareholders of project company |
The new VTB will have international and local investors. The anticipated shareholding structure will be as follows:
China Development Bank (“CDB”): 35%
KfW: 19.9%
IFC: 10%
Zhong An Credit: 10%
Other international and local investors: 25.1%
CDB is China’s largest policy bank which is actively engaged in the development of the country’s infrastructure, as well as in promoting China’s microfinance sector. KfW is the German development bank.
Zhong An Credit (“ZAC”) is an existing IFC client and has been operating as a MFI for over 4 years. It currently operates a network of some 40 outlets in eight provinces. It has developed innovative structures in cooperation with CDB, China Construction Bank and Bank of China, to book loans generated by it on the banks’ large balance sheets. ZAC has established a strong reputation in the market with recognition and support from regulators. |
| Total project cost and amount and nature of IFC's investment |
| Total paid in capital for the newly established VTB will be RMB 200 million (~US$ 30 million), of which IFC will invest RMB 20 million (~US$ 3 million) to hold 10% of common shares in the new VTB. |
| Location of project and description of site |
| The new VTB will be set up in one of the lesser developed of Shenzhen’s six districts but will be able to operate throughout the entire municipality of Shenzhen. |
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| Anticipated development impact of the project |
The new VTB will build on previous investments IFC has made in ZAC to help ZAC become a leading participant in China’s microfinance sector. The new VTB will complement ZAC’s existing operations and may seek to become a regional or nationwide MSME bank when regulations allow for it. This is important for the microfinance sector in China, where MFIs of nationwide scope have yet to emerge, and since the regulators are looking to VTBs to address many of the challenges currently faced by credit-only MFIs (“ MCCs”).
Moreover the new VTB will provide much needed access to finance for MSMEs at a time when China intends to broaden its economic base, encourage domestic demand, and promote the growth of small and medium scale private enterprises. Funding to MSMEs has proven to create employment and widen entrepreneurship. |
| IFC's expected development contribution |
| IFC as a shareholder of the new VTB will bring credibility to the new VTB and enhance the public’s confidence, a key aspect for a deposit-taking entity. IFC’s participation has been encouraged by CBRC Shenzhen and by CDB, to support ZAC in this project. IFC’s global partners have expressed keen interest to co-invest with IFC, mainly due to introduction by and confidence in IFC. IFC’s support to the new VTB demonstrates IFC’s commitment to an existing client in achieving its long-term strategy. |
| Environmental and social issues - Category FI |
| This project has been classified as Category FI (Financial Institutions) according to IFC’s E&S Review Procedure. During appraisal, IFC will analyze the FI’s portfolio activities utilizing IFC financing and determine Applicable Performance Requirements, if any, that would include a combination of: The IFC MFI Exclusion List; and applicable National Laws and regulations. Given the predominantly MFI nature of the FI, E&S risks are perceived to be limited. IFC will also appraise the FI’s labor practices according to the IFC’s Performance Standards 2: Labor and Working Conditions and review, if required, the capacity of the FI to manage E&S risks and to establish and maintain a Social & Environmental Management System (“SEMS”). If required, IFC will suggest Supplemental Actions to address any gaps in the SEMS. The client is required to submit annual environmental performance reports to IFC. |
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| For inquiries about the project, contact: |
Shelley Chen
Zhong An Credit
9/F, Times Technology Building
7028 Shennan Boulevard,
Shenzhen China
Tel.: +86 755 8357 9789
Fax: +86 755 8357 9787
Email: cedarderda@163.com |
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| For inquiries and comments about IFC, contact: |
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster |
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