National Bank of Georgia, KfW and EFSE hold joint conference on responsible finance

Conference stresses the need for responsible business practices in the financial sector

Frankfurt am Main, November 11, 2010 – The National Bank of Georgia, KfW Entwicklungsbank (The German Development Bank) and the European Fund for Southeast Europe (EFSE) jointly organised a conference today in Tbilisi, Georgia, reviewing their experiences and approaches to dealing with concerns over responsible finance. In a panel discussion, senior Georgian policy makers, including Giorgi Kadagidze, Governor of the National Bank of Georgia, KfW and EFSE representatives, as well as other finance practitioners and financial sector experts stressed the need to adapt responsible business practices in the financial sectors of Southeast Europe and Georgia.

The recent negative developments in the global financial markets have put many users of financial services at risk of over-indebtedness. As a result, it has become a major concern for the traditional banking sector and the microfinance industry to ensure responsible growth and transparency, identify risks associated with foreign currency and enable client protection and financial literacy.

The responsible finance conference in Tbilisi was an effort by EFSE, KfW and the National Bank of Georgia to raise awareness of these issues in Georgia and to promote responsible business practices in the local financial sector. EFSE and KfW, in cooperation with local central banks, held similar conferences in Serbia (October 2007), Kosovo (March 2009), Bosnia and Herzegovina (December 2009) and Albania (March 2010).

In his opening address, Kadagidze pointed out that information disclosure and financial literacy were both essential in ensuring the efficient allocation of risk and capital. “That is why we value what EFSE and KfW are doing to promote responsible finance in Georgia.” On the role of a central bank in promoting responsible finance practices, he said: “It is important to find the right balance between encouraging financial innovation, while simultaneously making financial products and their associated risks transparent to the consumers. Central banks have to support financial institutions in implementing business practices that ensure they know their clients and sell rather than miss-sell financial products. Moreover, effective dispute resolution mechanisms are required so that misconducts can be adequately settled.”

One of the speakers was Michael Mörschel, Division Chief Financial and Private Sector Development Eastern Europe, Caucasus and Central Asia at KfW, who emphasised that KfW considered responsible finance as a prerequisite of sound business practice. “Lax credit approval by banks and bad payment behaviour of clients has led to a severe deterioration of portfolio quality in a number of Eastern European countries. This phenomenon cannot be explained by the economic crisis alone, but has its root causes earlier on. We are pleased to see that Georgia is not among the countries most hit by delinquency problems,” said Mörschel. “That is why financial institutions in Georgia are in a good position to select clients even more rigorously, to further increase transparency of loan conditions and to improve their clients' financial literacy.”

Elvira Lefting, Chief Investment Officer for EFSE and Managing Director of Finance in Motion GmbH, the Fund Advisor of EFSE, highlighted that the long-term sustainability of financial institutions and the strengths of their financial performance depended on how responsibly they dealt with their clients. “As in any other business, well-advised and well-served clients form a strong basis for growth – both for banks and microfinance institutions. If responsible finance is an integral part of the corporate identity of a financial institution, then clients and the public will reward it. But it is just as important that funders play an active role in this and look beyond growth ratios,” said Lefting. “Responsible finance has been the driving force behind EFSE’s growth. This will be no different in EFSE’s new partner country Georgia, where we intend to cooperate with all relevant stakeholders to promote responsible business practices in the local financial sector.”

The panel discussion included presentations on: the role of a central bank in promoting responsible finance; relevance of credit bureaus for credit risk management and consumer protection; financing in a macroeconomic perspective: balancing risks and GDP growth objectives; foreign exchange lending: how to mitigate risks for financial institutions and clients and finally, EFSE’s view on responsible finance.

The event was also used to introduce a new client educational booklet jointly produced by ProCredit Bank Georgia and EFSE. The booklet aims to raise awareness and teach current and potential users of financial services in Georgia how to responsibly use the services offered by banks and microfinance institutions.

Photos and presentations held at the function can be requested by contacting press@efse.lu.

About the European Fund for Southeast Europe (EFSE)
The development finance fund European Fund for Southeast Europe (EFSE) is aimed at fostering economic development and prosperity in Southeast Europe, including: Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, FYR Macedonia, Georgia, Kosovo, Moldova, Montenegro, Romania, Serbia and Ukraine. It offers long-term funding instruments to local financial institutions for on-lending business loans to micro and small enterprises (MSEs) as well as housing loans to low-income private households. The investment activities of EFSE are supported by the EFSE Development Facility, which provides funding for technical assistance, consulting and training to partner lending institutions as well as awareness raising and market enabling activities. Overall, since its inception in December 2005, EFSE has offered EUR 822 million in financing to commercial banks, microfinance institutions and non-financial institutions, facilitating a total number of more than 238,000 MSE and housing loans. Initiated by KfW (The German Development Bank), the EFSE is a Public-Private Partnership that combines funds from various private investors, European governments an international financial institutions, including: European Commission, Federal German Ministry for Economic Development and Cooperation (BMZ), the governments of Austria, Switzerland, Denmark and Albania, KfW, IFC, FMO Netherlands Development Finance Company, European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB), Oesterreichische Entwicklungsbank (OeEB), Deutsche Bank and Sal. Oppenheim. EFSE is privately managed with Oppenheim Asset Management Services S.à r.l., Luxembourg, as the fund manager and Finance in Motion GmbH, Frankfurt/Main, Germany, as the fund advisor.

For further information about EFSE, please visit: www.efse.lu

Media contact

European Fund for Southeast Europe Mr. Samir Djikić Tel: +49 (0)69 / 977 876 50-26 E-mail: press@efse.lu