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| Harbin Bank VTB Network |
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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 | 27574 |
| Company name | Bayan Rongxing Village and Township Bank |
| Country | China |
| Sector | Finance & Insurance |
| Environmental category | FI |
| Department | Global Financial Markets Group |
| Status | Pending Disbursement |
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| Date SPI disclosed | May 5, 2009 |
| Projected board date | June 5, 2009 |
| Previous Events | Signed: June 30, 2009
Approved: June 24, 2009 |
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| Overview |
Sponsor/Cost/Location |
Development Impact |
Contacts |
Attachments |
| Project description |
China’s policy objectives in the context of the global financial crisis are focused on its transformation from an export-driven economy to one led by domestic consumption, while achieving environmental and social sustainability. In order to increase domestic demand, China needs to significantly reduce the gap between living standards in urban and frontier/rural areas. Microfinance is one of the tools to narrow that gap and to provide, amongst other benefits, employment opportunities to factory works who may have lost their jobs in export-oriented companies located in the coastal area and who are migrating back to China’s rural areas.
The proposed project consists of equity investments of up to US$10 million in a network of 5 - 10 greenfield Village and Township Banks (“VTB”) in China which are sponsored by Harbin Bank (the”Bank”). The Bank as the leading sponsor will contribute most capital and resources to the network of VTBs. It will take an equity stake of more than 51% in each VTB and nominate the key management team. IFC will take a 10 - 20% equity stake in these VTBs and will provide technical assistance.
A VTB is effectively a deposit-taking microfinance bank, a model initiated by CBRC (the Chinese banking regulator) in 2006. As the VTB concept is still in the pilot stage, CBRC gives a limited number of licenses to sponsoring banks which are required to take the lead in setting up VTBs in a designated county or township, and the operational scope of a VTB is clearly limited to one county or township. The sponsoring banks could be local banks or qualified foreign banking institutions with an eligibility test as to consolidated balance sheet size reaching US$1.0 billion. The sponsoring bank must take no less than 20% equity in a VTB and any non-banking shareholder may hold equity of up to 10%. |
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| Project sponsor and major shareholders of project company |
Established in February 1997, the Bank used to be a city commercial bank based in Harbin City, the provincial capital of Heilongjiang Province. It was authorized by CBRC to expand its operations beyond Harbin City and has subsequently opened branches in Dalian, Liaoning Province and Tianjin City. Moreover, the Bank had traditionally been focusing on large corporate clients, however, has changed its strategic approach and is now increasingly serving small and medium enterprises, rural clients and micro-entrepreneurs. It is in this context that the Bank has embraced the VTB concept and will use VTBs as one element of its strategic reorientation. The new business strategy has shown to be successful as demonstrated in the Bank’s improving financial performance.
ACCION International is the technical partner and know-how provider to the Bank’s network of VTBs. The technical support would include credit process engineering, product development, IT system construction, staff training and secondment of resident advisors, etc.
It is envisaged that there might be some minority shareholders in the VTBs. They will be local enterprises or wealthy individuals; however, their stakes in each VTB will be insignificant. |
| Total project cost and amount and nature of IFC's investment |
| The total project cost is estimated at $50 million, and IFC’s proposed investment is up to $10 million in equity participations of the to-be established VTBs. |
| Location of project and description of site |
The VTBs will be primarily located in Northeast China, Northern China and Northwest China. Those areas have a low banking penetration and limited access to finance.
The location of first VTB is Bayan County, Heilongjiang Province. This VTB was established in December 2008.
The locations of the second and third VTB are identified, but subject to CBRC’s approval. |
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| Anticipated development impact of the project |
| As has been demonstrated over the past two decades, well-managed microfinance institutions can make major contributions to poverty reduction, improvement of standards of living and employment creation in developing countries and poorer areas. The proposed project will enable the establishment of commercially viable VTBs that will provide sustained access to credit and other financial services for poor and rural populations, as well as microenterprises. The project will generate a range of social and economic benefits, including economic growth and employment creation in the counties and townships where the VTBs will be established, as well as financial deepening with services and products tailored to low-income and rural populations. The establishment of these VTBs will be very timely as it will contribute to the strengthening of rural economies, create new opportunities for workers returning to their villages after having lost their factory jobs, and help reduce the urban-rural income gap. Furthermore, the VTBs will contribute to the fostering of entrepreneurial spirit in areas far away from China’s economic hotspots. |
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| IFC's expected development contribution |
IFC's role in the proposed project is to catalyze the development of commercial microfinance. The catalyst role, lying in the following aspects, makes IFC’s value-added unique from what could be delivered by other investors:
- IFC is the largest international investor in microfinance in terms of outreach working with 90 microfinance institutions in 52 countries. IFC’s participation in the proposed project will underpin the local partner’s resolution and confidence in developing microfinance in China;
- IFC has been actively involved in the formulation of macro policies for China’s microfinance industry. IFC’s direct investment in VTBs will enable IFC to advise CBRC on shaping the regulatory policies for VTBs and to continue the dialogue with other government bodies to improve the macro policies for the microfinance sector so as to unlock market potential; and
- IFC has global relationships with major international microfinance organizations including ACCION. IFC will facilitate the knowledge transfer from the foreign technical partner to local microfinance entities and ensure that the VTBs adopt international best practices in corporate governance, in operational transparency, and in other areas that are critical for the development of model institutions. |
| Environmental and social issues - Category FI |
The project involves IFC support for the microfinance sector, and has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure. Considering the nature of activities supported, each of these VTBs 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 microfinance exclusion list:
- Identify qualified persons to manage and implement the procedure;
- Demonstrate commitment and resources to implementing the procedure; and
- Submit a periodic report to IFC as per a format to be provided by IFC |
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| For inquiries about the project, contact: |
Ms. Sun Feixia, Director of Board Office
Harbin Bank
160 Shangzhi Street, Daoli District,
Harbin, 150010, Heilongjiang
Telephone: (0451)86779899
Fax: (0451)86779000 |
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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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