Chifeng MFI

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	25695
Company name	Inner Mongolia Runhua Micro Credit Company
Country	China
Sector	Finance & Insurance
Environmental category	FI
Department	Global Financial Markets Group
Status	Pending Disbursement

Date SPI disclosed	March 14, 2007
Projected board date	April 19, 2007
Previous Events	Signed: November 16, 2007

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The project is to establish a greenfield private commercial microfinance institution in Chifeng City of Inner Mongolia, China (Chifeng MFI). The objective of the project is to support the creation and expansion of a microfinance institution in a market (China) that currently lacks commercial and sustainable provider of microfinance services. In doing so, the project will extend financial services and broaden access to finance among the country’s under-banked and low-income populations.

Project sponsor and major shareholders of project company

The shareholding structure of Chifeng MFI is expected to consist of Inner Mongolia Zhongxing Coal Mining Group - Zhongxing Group (51%), ACCION International (19%), IFC (15%), and one or two other international development agencies (taking up the remainder).

Zhongxing Group is one of the largest private enterprises in Inner Mongolia. The group’s major business is in the mining and processing of coal, iron ore and salt, as well as construction of highways and management of the development and operation of mineral water. Currently Zhongxing Group is diversifying into financial services, and views the Chifeng MFI as an important strategic initiative in this direction.

ACCION International is a world pioneer in microfinance, and has played a key role in the launch, expansion, and success of more than 30 of the world’s leading microfinance institutions. ACCION’s partner MFIs today are providing loans as low as $100 to poor entrepreneurs in 22 countries in Latin America, the Caribbean, Asia, and sub-Saharan Africa, and in more than 35 U.S. cities and towns. Together with its partner MFIs, ACCION has disbursed $7.6 billion in micro loans to more than 4.7 million borrowers since 1992, with a historical repayment rate of 97%. In 2006, ACCION network has put credit in the hands of more than 2.0 million people. ACCION will be the strategic foreign partner for the project and is putting together a team of experts to help manage Chifeng MFI for the first few years.

Total project cost and amount and nature of IFC's investment

The total project cost is estimated at RMB50 million ($6.5 million) which is the expected capitalization of Chifeng MFI. The proposed IFC investment is up to $1 million for a 15% equity stake in the company.

Location of project and description of site

The project will be located in Chifeng City of Inner Mongolia, which is a less developed autonomous region in northern China bordering Mongolia. Chifeng is located in the southeastern part of Inner Mongolia with a population of 4.5 million, most of whom reside in rural areas. Chifeng MFI is expected to start operations in selected parts of Chifeng, and gradually expand throughout the city.

Anticipated development impact of the project

This project is expected to generate significant development impact, as it will provide financial services to the micro entrepreneurs and businesses in the less developed rural areas of China. This is fully consistent with the development strategy of the Chinese Government, whose priority is to narrow the widening gap in economic development between urban and rural areas, as well as between coastal and interior regions. Through introduction of international best practices in microfinance, this project will assist the Chinese Government in its effort to promote commercially viable and sustainable microfinance institutions in China.

IFC's expected development contribution

In addition to providing equity capital, IFC’s major contributions to Chifeng MFI are expected to be in:

- introducing reputable international strategic investors to participate in the day to day management in order to share international best practices;
- playing an honest neutral broker role to facilitate cooperation between domestic and international partners;
- providing technical assistance through PEP China; and
- working with the Chinese Government to help improve the policy and operating environment so as to promote microfinance development in China.

Environmental and social issues - Category FI

This project involves IFC support for the business of microfinance and has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure. Considering the nature of activities supported, the project will be required to:

- Develop a procedure relevant to its business process, prior to disbursement, that is satisfactory to IFC, and that ensures that all its investments are screened and processed to avoid supporting activities on the IFC Microfinance exclusion list;
- Identify qualified persons to manage and implement the procedure;
- Demonstrate commitment and resources to implementing the procedure, and take action to remedy any gaps in implementation on an ongoing basis;
- Submit a periodic report to IFC as per a format to be provided by IFC.

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