FINANCE FINANCE EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Financial Solutions to Support the Social and Solidarity Economy and the Role of Development Banks Eva Gutierrez Faizaan Kisat © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Photo credits: >>> Contents Acronymns and Abbreviations 4 Executive Summary 5 1. Introduction 7 2. Financial Interventions Supporting the Solidarity Economy 9 Products State-Owned Banks 9 NABARD 9 Bank Rakyat Indonesia 11 Technology-Enabled Products for the Solidarity Economy 14 BNDES Card (Cartão BNDES) 15 Indonesia Mall 16 Mercado Libre 16 Jumia 16 Flipkart 17 Ant Group 17 Twiga Foods 17 Findings from Impact Studies of Financial Solutions Developed for the 18 SSE Conclusions and Recommendations 20 Appendix A. Lending Products 21 References 23 >>> Acronyms & Abbreviations BNDES Banco Nacional de Desenvolvimento Econômico e Social BRI Bank Rakyat Indonesia BUMDes village-owned enterprise (Indonesia) CGAP Consultative Group to Assist the Poor fintech financial technology FPOs farmer producers’ organizations GDP gross domestic product ILO International Labour Organization JLGs joint liability groups KUR Kredit Usaha Rakyat (People’s Business Loan) MSME micro, small, and medium enterprise NABARD National Bank for Agriculture and Rural Development (India) NGO nongovernmental organization NPL nonperforming loan PODF Producer Organization Development Fund PoS point-of-sale PNM Perpustakaan Negara Malaysia PRODUCE Producers Organization Development and Upliftment Corpus RCT randomized control trial SDG Sustainable Development Goal SHG-BLP Self-Help Group – Bank Linkage Programme SME small and medium enterprise SSE social and solidarity economy UNTFSSE United Nations Task Force on Social Solidarity Economy >>> Executive Summary Generating quality jobs is a major concern of policy makers around the world who want to ensure sustainable growth and social cohesion. This concern has led to greater interest in supporting the social and solidarity economy (SSE). The SSE focuses on supporting productive structures managed by the producers themselves and brings together multiple actors to improve economic and social welfare. These actors include small producers, producers’ cooperatives, and nongovernmental organizations, among others. SSE structures can operate in all economic sectors, but they typically operate in labor-intensive sectors. The SSE sector has been very dynamic in recent years, growing faster than the rest of the economy in many countries and providing flexible forms of employment that give workers more power to decide how to organize their jobs. This paper reviews financial solutions, also referred to as products, that were developed by private and public financial institutions to support the SSE. The purpose of this review is to draw lessons and insights for development banks that are also considering developing these products to support the SSE. As development banks increasingly align their activities with the United Nations’ Sustainable Development Goals (SDGs), there is greater interest in products that support the SSE. Development banks often play an important role in supporting the social and solidarity economy with financial solutions, including working in partnership with other actors as part of an ecosystem. Development banks typically partner with other actors that provide business development services to producers’ structures in order to improve their economic viability; for example, the banks sometimes operate funds provided by partners. Financial solutions typically include three features: (a) support for the transformation of producers’ groups into savings and microcredit groups, thus increasing the funds and the financial ecosystem available to these producers; (b) lending money to these groups (directly or through financial intermediaries); and (c) providing guarantees to the producers’ structures. The experience of EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 5 India’s National Bank for Agriculture and Rural Development (NABARD) illustrates how a development bank operating through financial intermediaries can support the SSE. In addition, the KUR Micro case study underlines the importance of having well-aligned messages from politicians; appropriate incentives for borrowers and lenders; and expertise in credit origination, monitoring, and digital capabilities when operating as a first-tier lender. The impact of these and other financial solutions developed to support the SSE should be rigorously evaluated. In recent years, digital platforms have been increasingly used to facilitate access to the market for small producers, and development banks can either create these platforms or partner with them to channel funding. The platforms, in addition to providing funding and market access, provide benefits from the digitalization of sales because transactional information from the platform can be used to develop alternative credit-scoring models that enhance the financial access of producers. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 6 1. >>> Introduction The social and solidarity economy (SSE) supports productive structures that focus on social welfare as opposed to profit maximization. The productive structures are managed by the producers themselves rather than by a third-party intermediary. The social and solidarity economy framework brings together multiple actors—such as producer cooperatives, nongovernmental organizations (NGOs), associations, and foundations—for the purpose of improving economic and social welfare. The following excerpts represent some well- known definitions of the social economy, solidarity economy, or SSE adopted by prominent international organizations. • • International Labour Organization (ILO). “The social economy is a concept designating enterprises and organizations, in particular cooperatives, mutual benefit societies, associations, foundations and social enterprises, which have the specific feature of producing goods, services and knowledge while pursuing both economic and social aims and fostering solidarity.” (ILO 2009) United Nations Task Force on Social and Solidarity Economy (UNTFSSE). “Social and Solidarity Economy refers to the production and exchange of goods and services by a broad range of organizations and enterprises that pursue explicit social and/or environmental objectives. They are guided by the principles and practices of cooperation, solidarity, ethics and democratic self-management. One of the main reasons of the emergence of SSE is that the needs of large groups of people, in developed as well as in developing countries, are neither met effectively by conventional markets nor by the State. SSE is fundamentally about crafting a form of economy that is centred on social protection and equality. Part of a rapidly growing worldwide movement, SSE organizations and enterprises attempt to reassert social control over the economy by prioritizing social objectives above profit maximization, recognizing the role of collective action and active citizenship for both economic and political empowerment of disadvantaged or fragile groups in society, and reintroducing notions of ethics, sharing, equity and democracy in economic activities.” (UNTFSSE 2016) EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 7 • Intercontinental Network for Promotion of Social Solidarity preserve income and employment (Birchall and Ketilson 2009). Economy (RIPESS). “The SSE is an alternative to Between 2009 and 2013, as the Italian economy faltered, the capitalism and other authoritarian, state-dominated number of employees in conventional enterprises decreased economic systems. In SSE ordinary people play an by 500,000 units while the cooperative sector added 102,000 active role in shaping all of the dimensions of human life: jobs, representing a 10 percent increase (Borzaga, Salvatori, economic, social, cultural, political, and environmental. and Bodini 2017). SSE exists in all sectors of the economy – production, finance, distribution, exchange, consumption and The SSE plays an important role in many countries. governance. It also aims to transform the social and Comprehensive data on the size of the SSE across countries economic system that includes public, private and third are not available for two reasons: (a) there are no standard sectors. SSE is not only about the poor, but strives to definitions for data collected by enterprise type and (b) there overcome inequalities, which includes all classes of are gaps in the data that are collected. Despite these obstacles, society. SSE has the ability to take the best practices that the United Nations Inter-Agency Task Force on the Social and exist in our present system (such as efficiency, use of Solidarity Economy (UNTFSSE 2016) has reported some technology and knowledge) and transform them to serve examples of the size of the SSE. Worldwide, cooperatives the welfare of the community based on different values provide 100 million jobs (20 percent more than multinational and goals.” (RIPESS 2015) enterprises). In the European Union, cooperatives accounted for 4 percent of gross domestic product (GDP) in 2010, and SSE structures encourage employment, often targeting membership included 50 percent of citizens, generating 6.5 vulnerable populations, and have an important percent of paid employment. countercyclical role in preserving and creating employment during crises. Although SSE structures can This paper reviews financial solutions developed by operate in all economic sectors, they typically focus on labor- private and public financial institutions to support the intensive sectors because of their governance and other SSE.1 The purpose of the review is to draw lessons and characteristics. In the case of social enterprises, the objective insights for development banks that are considering is often to create employment for vulnerable populations. developing new products for the SSE. The United Nations’ Population and social trends will increase the demand for Sustainable Development Goals (SDGs) have become a social, personal, and general-interest services, which cannot benchmark for public policy at a variety of levels, and many be automatized; nor can they be delivered efficiently by development banks are aligning their strategies to attain standard enterprises because their economies of scale are these goals.2 The SSE can support the achievement of limited. SSE structures can meet this demand for services several SDGs, including SDG 8 (growth and decent work), by offering workers flexible employment opportunities within SDG 12 (sustainable consumption and production patterns), entrepreneurial organizations that can provide structure and SDG 5 (gender equity) (Villalba-Eguiluz, Egia-Olaizola, and security as well as participation in the decision-making and de Mendigueren 2020). Section 2 of this paper reviews process. As noted by Borzaga, Salvatori, and Bodini (2017), the financial solutions to support the SSE, section 3 reviews “The SSE can provide workers in the informal economy impact studies of these solutions, and section 4 provides with different forms of association (including through the conclusions and recommendations. cooperative form) that can help them set up new enterprises, enhance their market power and facilitate access to various types of services, ranging from finance to business support services.” The anticyclical nature of cooperatives and other SSE organizations is well-documented; throughout their history, cooperatives have emerged during periods of economic hardship as one of the most effective ways to 1. The terms solutions, products, and interventions are used interchangeably throughout this paper. 2. During the first Finance in Common Summit in November 2020, public development banks from around the world committed to aligning their activities with the SDGs (see https://financeincommon.org/financing-the-2030-agenda-an-sdg-alignment-framework-for-public-development-banks) EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 8 2. >>> Financial interventions supporting the Solidarity Economy Products State-Owned Banks Several state-owned banks offer microcredit to foster the creation of associations or cooperatives of producers in order to develop viable productive projects that could be funded by a financial institution through customized financial solutions; these state- owned banks typically offer microcredit in partnership with other public institutions and NGOs. The most notable solutions implemented by development banks create an entire ecosystem in the rural marketplace, encompassing not only access to financial services but also the promotion of supplier-borrower linkages and the digitization of financial service delivery. The type of financial support ranges widely and can include the following: (a) loan rediscount facilities, credit cooperatives, and lenders catering to the SSE; (b) conventional microcredit products at subsidized interest rates; (c) backing for the development of savings and lending groups at the rural level; (d) grants and technical support for farmer cooperative groups; and (e) fee- sharing schemes with existing clients to promote broader financial access. The National Bank for Agriculture and Rural Development (NABARD) in India and Bank Rakyat Indonesia (BRI) in Indonesia are two well-known state-owned banks that have created customized products to support the solidarity economy in their respective countries. NABARD NABARD is an Indian development bank serving as an apex financing agency for institutions that fund developmental activities in rural areas. NABARD’s mission is to “promote sustainable and equitable agriculture and rural development through participative financial and non-financial interventions, innovations, technology and institutional development for securing prosperity.”3 NABARD performs an extensive range of noncredit and credit-related functions. 3. NABARD Citizen’s Charter. See https://www.nabard.org/ftrcontent.aspx?id=492#:~:text=MISSION,and%20institutionalde- velopment%20for%20securing%20prosperity. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 9 On the noncredit front, the bank supports the financial inclusion promoted women-only SHGs in 150 districts identified as efforts of regional and cooperative banks in India. Through its being backward or affected by left-wing extremism (NABARD financial inclusion fund, NABARD supports financial literacy 2020a). The initiative provided INR1.39 billion ($18 million) in programs and the deployment of banking service kiosks and grant assistance and created about 211,000 savings-linked point-of-sale (PoS) terminals in underbanked parts of India. SHGs. Since 2015, NABARD has rolled out project EShakti, The bank also assists in building the capacity of regional which creates a secured digital database of SHGs and their lenders to strengthen access to financing in rural areas. In members, and to digitize and standardize recordkeeping by terms of credit-related activities, NABARD extends refinance SHGs. The database reduces lending-related transaction support to rural financial institutions for both long- and short- costs by allowing banks to digitally review SHG performance term loans, and it lends directly to state governments to support data. As of March 31, 2022, NABARD had brought 1.27 million the development of rural infrastructure. NABARD funds its SHGs onto EShakti’s online portal, 0.72 million of which are operations with resources from government funds, mandatory credit-linked to banks. investments by banks that fail to meet targets for lending to priority sectors, , and the market (including from other banks). Following are some of NABARD’s most successful products JOINT LIABILITY GROUPS that support the solidarity economy: NABARD provides full refinance support to banks that lend to joint liability groups (JLGs). JLGs are small groups SELF HELP GROUP – BANK LINKAGE consisting of 4 to 10 members that follow the joint liability credit PROGRAMME model, wherein each group member assumes the credit risk of the other members. JLGs rely on within-group monitoring The Self Help Group – Bank Linkage Programme (SHG- to enforce repayment, and its members are often part of the BLP) pioneered by NABARD links small, mostly female, same productive structure. This lending model is similar to informal savings groups to formal lending institutions that of Compartamos Banco, which provides group credit (NABARD 2018). An SHG consists of 10 to 20 individuals within to women and merchants in Mexico, with a minimum group a village who have the same savings goals and socioeconomic size of 5 and 10 borrowers, respectively.4 However, NABARD characteristics. The savings contributed by each member is a second-tier lender to JLGs as it is to SHGs. It does not are lent to other members in the SHG according to their assume the credit risk of a group but instead provides 100 needs. This financial structure is similar to that of a tanda, percent refinance support to lending banks at an annual rate a widespread savings and credit tool in Mexico. Under the of 8.35 to 8.45 percent, the same rate that it charges SHGs. SHG-BLP, NABARD provides 100 percent refinance to banks In FY 2021/22, 5.4 million JLGs received a loan, the average that provide external financing to an SHG. Refinance lending size of which was INR 208,000 (US$2,600) (NABARD 2020b). occurs at an annual interest rate of 8.35 to 8.45 percent, about In addition, NABARD provides grants to JLGs to build capacity 150 basis points (b.p.) below average bank lending rates in . As of March 31, 2020, NABARD disbursed INR1.98 billion India (Reserve Bank of India 2021). Lending banks have the ($26 million) to promote about 109,400 JLGs across India. discretion to determine the interest rate charged to SHGs. The SHG-BLP initiative has about 3,000 partners, and to date, it has enabled about 100 million households to gain access to P RO M OT I O N O F FA R M E R P RO D U C E R S ’ financing by linking over 11.8 million SHGs to savings and O R G A N I Z AT I O N S over 6.7 million SHGs to credit, making it one of the largest microfinance initiatives in the developing world. NABARD provides extensive grant support to promote farmer producers’ organizations (FPOs), legal entities NABARD has launched several initiatives to expand and formed by primary producers in India. NABARD contends digitize SHGs. During the 2019/20 fiscal year, NABARD that the collectivization of agricultural production is a key tool 4. Additional terms available at https://www.compartamos.com.mx/compartamos/credito/credito-grupal. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 10 for increasing farmers’ bargaining power, market linkages, Bank Rakyat Indonesia and market access. In order to promote the formation and development of FPOs, NABARD provides financial Bank Rakyat Indonesia (BRI), one of the largest banks in assistance to these organizations through one of two funds.5 Indonesia, provides a variety of financial products and Launched in 2011, the Producer Organization Development services to micro, retail, and corporate customers. BRI Fund (PODF) provides need-based financial support to FPOs operates as a limited liability company, and the government to facilitate credit access, capacity building, and market of Indonesia owns 70 percent of its shares. It is a universal linkages. NABARD also uses the PDOF to incubate new bank that serves consumers, corporations, and state-owned businesses and to advance information and communication enterprises. The bank focuses particularly on micro, small, technology methods in FPO management. New FPOs and medium enterprises (MSMEs), providing several types of receive Re 500,000 (US$6,630) for business development lending and savings products to these entities. In recent years, purposes. As of March 31, 2022, the total available PODF BRI has emphasized the digitization of many of its services and funds stood at Re 3.32 billion (US$42 million), and 4,196 has developed a digital loan underwriting system (BRISPOT) FPOs were registered to receive support (NABARD 2020a). and a mobile banking application (BRImo). The bank also aims NABARD launched its Producers Organization Development to create a digital ecosystem to offer services beyond its core and Upliftment Corpus (PRODUCE) Fund in the 2014/15 business. For example, it has announced partnerships with financial year to promote new FPOs that primarily consist financial technology (fintech) companies and has launched an of small-scale and marginal farmers. As of March 31, online marketplace to meet this goal. Although BRI offers a 2020, 2,093 FPOs were registered under this fund, 527 of vast array of products, the most applicable to the SSE are which were credit linked, and 1,315 had direct access to described in the following sections. agricultural markets. NABARD and its subsidiary NABKISAN also provide loans PEOPLE’S BUSINESS LOAN (KREDIT and credit guarantees to FPOs. NABKISAN Finance Ltd. U S A H A R A K YAT S U P E R M I C R O ) provides uncollateralized credit to FPOs, leveraging the partial credit guarantees provided to FPOs by different development Kredit Usaha Rakyat (KUR) Super Micro provides new organizations, such as Tata Trust. During the 2019/20 financial microentrepreneurs with access to credit for the first year, NABARD piloted an arrangement that also provided time at subsidized rates without collateral or onerous guarantees to the FPOs financed by its subsidiary. documentation requirements. Launched by the government of Indonesia in 2020 to support the economy during the COVID-19 pandemic, KUR Super Micro targets ultra-micro O T H E R I N I T I AT I V E S customers, employees who were laid off, and homemakers with productive businesses. Eligible borrowers must never NABARD also undertakes many livelihood initiatives for have accessed another government-backed loan (that is, a women. These include the Livelihood and Enterprise KUR loan). Loan size is capped at Rp 10 million (US$709) per Development Programm (LEDP) and Micro-Enterprise borrower, and the maximum term is three years for a working Development Programme (MEDP). In FY 2021/22, 357 LEDPs capital loan and five years for an investment loan. Grace used Re 13.80 billion (US$0.17 billion) to create sustainable periods can be offered. The government provides a generous livelihoods for 46,823 members by upgrading their skills and interest subsidy to participating financial institutions (such extending support for providing bank credit. as BRI) that issue the KUR Super Micro loan. This subsidy includes a credit guarantee fee that issuing banks can pay to credit guarantee companies if they want, although issuers are entirely responsible for funding the loan capital. Annual interest 5. NABARD, “About Us,” https://www.nabard.org/content.aspx?id=470. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 11 rates are held at 6 percent. The loans require no additional business groups and cooperatives to process their members’ collateral. Documentation requirements are minimal; only a loan applications. certificate issued by the village elders stating the business type and period of operation is required. Businesses do not BRI’s KUR Super Micro portfolio is still young, but so far, have to be established for some minimum amount of time it appears to be quite sound. This achievement can be to apply for a loan, but if they have operated for fewer than explained by three factors: (a) high-level policy messages six months, they must be part of a business group or training emphasizing the need to repay, (b) low rates, and (c) program, or the applicant must have a family member with a adequate incentives for borrowers and lenders. The viable business. nonperforming loan (NPL) ratio for loans distributed in 2021 stood at 0.83 percent, an extremely low figure given the risk of KUR Super Micro is part of a set of government-subsidized the borrowers. Contrary to the experience in other countries in loan programs that target feasible but nonbankable firms. which emergency credit programs are perceived as subsidies, The first KUR program was launched in 2015 and has grown there is great emphasis in Indonesia on the loan nature of the rapidly since then, from 1 million loans to 7.4 million loans as program and the obligation to repay. This message has been of 2021; loan amounts have increased 16 times. In 2022, it communicated by all policy makers, including the president is envisioned that KUR Super Micro will account for about 6 of Indonesia. The low interest rate facilitates repayment. percent of all KUR credit, whereas KUR Micro and KUR Small Furthermore, BRI follows a rigorous credit origination account for 60 and 30 percent of total KUR credit, respectively. process, assessing repayment capacity through interviews BRI originates about 70 percent of all KUR loans, building on with borrowers to build an expenditure and income profile. its extensive network and brand recognition. KUR Super Micro Repayments are capped at 70 percent of disposable income. is part of a series of graduated loan products that ultra-micro BRI’s workforce knows the regions and potential customers customers may access incrementally to receive commercial well, and employee bonuses provide incentives to maintain financing, as shown in figure 1, panels a and b. After accessing portfolio quality. Borrowers who repay a loan can graduate to KUR Super Micro loans, customers can grow their business larger loans and access other government programs. capacity and upgrade to a KUR Micro loan. They can then further expand their businesses by borrowing larger amounts through a KUR Small loan and eventually become self- sufficient enough to access credit through commercial—that is, nonsubsidized—channels. However, there is limited evidence that borrowers who receive KUR loans can successfully “graduate out” and receive nonsubsidized loans.6 Annual fiscal expenditures on KUR total approximately Rp 13 trillion (US$900 million), representing 0.1 percent of Indonesia’s GDP and 85 percent of the government’s budget for business support programs. Since they were launched in 2020, KUR Super Micro loans have been successfully distributed to more than 1 million borrowers. By the end of 2021, total outstanding KUR Super Micro loans stood at RP 10.2 trillion (US$712 million), funding more than a million borrowers. BRI has a 27,000-person sales force dedicated to the program, and the sales staff members can process loan applications on their smartphones. In addition, BRI has off-taker cooperation agreements with 6. Borrowers may receive KUR Micro loans multiple times with a lifetime maximum loan amount of Rp 200 million. There is no lifetime limit for firms in the production sector. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 12 >>> Figure 1:. KUR Super Micro’s Position in the Client Financing Ladder Commercial Line Feasible, Bankable Feasible, but Unbankable Unfeasible, A Unbankable B Fully Commercial Loan C Subsidized Loan D Rolling Soft Loan Direct Cash Assistance People’s Business Commercial Credit Partnership Loan Credit (KUR) Microbusiness Productive Assistance (BPUM) Commercial Financing Small KUR Micro Upgrade and may KUR access commercial Super Micro financing provided by KUR Financing with a ceiling the financial institutions. over Rp 100 million - Rp Pre-employment 500 million per KUR Financing with a ceiling Card Program Recipient of Rp 10 million - Rp Financing with a ceiling 100 million per KUR of Rp 0-Rp 10 million Recipient Principal collateral per KUR Recipient consists of the funded Principal collateral business/object & Pre-Employment ard Principal collateral additional collateral is consists of the funded Program graduates are consists of the funded in accordance with the business/object & directed to access Super business/object & policy/assessment of additional collateral is Micro KUR financing. additional collateral is KUR Distributor not required. not required. Source: Bank Rakyat Indonesia 2022. Note: p. a. = per annum. KUR Super Micro is a key component of the Ultra Micro and PNM. The newly formed entity aims to provide wider Ecosystem, envisioned and recently launched by BRI. On financial access for ultra-micro customers in two ways. First, June 14, 2021, BRI announced its intention to establish what it has created consolidated banking outlets (called Senyum it termed the Ultra Micro Ecosystem, a partnership with two Outlets) through which customers can access the entire range other state-owned enterprises, Pegadaian and Perpustakaan of products offered by BRI, Pegadaian, and PNM. Second, it Negara Malaysia (PNM). Specifically, BRI conducted a rights allows customers to bundle complementary financial products issue valued at Rp 95.9 trillion (US$6.7 billion) to establish that were previously offered separately by the three entities the Ultra Micro Holding Company involving itself, Pegadaian, (BRI 2021b). EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 13 Although the distribution and performance of KUR Super of December 31, 2020, 504,233 agents operated across Micro have been impressive, the impact of these loans on Indonesia and generated Rp 1.16 trillion (US$82 million) in a firm’s productivity and financial deepening remains an fee-based income. (BRI 2021a). open question. The popularity of KUR Super Micro suggests that consumers are benefiting from access to inexpensive financing and are using the product to address their working VILLAGE-OWNED ENTERPRISES capital and investment needs. However, most studies that (BUMDES) AND BRILIAN VILLAGE have evaluated the broader KUR product have relied on PROGRAM borrower surveys or interviews with KUR stakeholders. As such, they have been unable to ascertain the causal impact of BRI supports Indonesia’s village economy by providing KUR access on financial metrics of MSME performance, such training, financial literacy, and capacity-building services as revenues, employees, and capital expenditures. to village-owned enterprises, or BUMDes. A BUMDes is a business entity owned and operated by village members that manages village assets and businesses. Since 2017, BRI has WAREHOUSE RECEIPT LOAN collaborated with a rural ministry to provide services to BUMDes, such as financial literacy education, entrepreneurship training, BRI provides warehouse financing to farmers and farmer and guidance related to establishing BUMDes. In addition, cooperatives through the Warehouse Receipt Loan. Unlike as of year-end 2020, BRI had transformed 11,209 BUMDes KUR Micro and KUR Super Micro, the Warehouse Receipt members into BRILink agents, thereby enabling a BUMDes Loan is a form of secured lending. The loan size is capped at to earn additional revenues (BRI 2021a). To further support 70 percent of the warehouse receipt value—that is, the value BUMDes, BRI started its BRILian Village Program in 2020; of agricultural goods stored in a warehouse that is used as under the program, 10 villages determined to have the most collateral for the financing. The effective annual interest rate innovative approach to combating COVID-19 were selected on the loan is 6 percent, and the maximum loan term is six for additional mentoring. years. Through the loan, BRI promotes the collectivization of farming activities. Individual farmers can apply for the loan only after joining with others and submitting a cooperative Technology-Enabled Products for the legal entity approval letter and a list of farmers who are active members of the cooperative. Existing cooperatives and farmer Solidarity Economy groups are also eligible for credit. A recent, more innovative approach to supporting the solidarity economy exploits technology to develop and BRILINK leverage e-commerce platforms that connect businesses to businesses or businesses to consumers. Many of these The BRILink branchless banking service supports both platforms also perform analytics on supplier and customer employment and financial inclusion in Indonesia. BRILink payment data to provide financial services either directly or in is an innovative program through which BRI’s customers partnership with other lenders. Although the range of products become agents of the bank and provide banking services such is diverse in both scope and geography, most offerings share as transfers, deposits, bill payments, and cash withdrawals to four key features: other customers (BRI 2021a). BRILink agents earn income • Payment data are sourced and incorporated from from these services through a fee-income-sharing scheme e-commerce platforms. with BRI. The product speaks to the solidarity economy • Artificial intelligence and machine learning techniques because it creates income for the agents while improving are trained on payment data to assess a borrower’s financial inclusion for customers who are not agents. As creditworthiness. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 14 • E-commerce platforms partner with participating banks of the loan terms, BNDES has included a financing simulator and nonbank financial institutions to disburse credit; (Simulador) on its website, which allows borrowers to view some platforms do not use their own capital for lending repayment schedules associated with any financed amount.9 purposes. • Loan products are used to finance short-term working Suppliers and distributors request accreditation online capital needs rather than long-term capital expenditures. through the BNDES Card platform. BNDES analyzes requests from suppliers and distributors and decides whether In light of the growing popularity of e-commerce platforms to include them in the catalogue of products and distributors. during the COVID-19 pandemic, most market participants There are about 300,000 items available for purchase, announced significant expansions of these technology- including machinery and equipment, inputs, training, freight, enabled products in 2021. Some leading examples of such and installation services. Prices for products and services products that are in the marketplace are described in the are available online, or MSME’s can request them from the following sections. supplier. MSMEs can also make purchases directly in the platform by registering the information of the transaction there or indirectly on the supplier page by using the BNDES Card. BNDES Card (Cartão BNDES) Distributors must have (a) an e-commerce field or more than 100 physical stores, (b) gross revenues above R$300 million, and (c) a portfolio of more than 1,500 items that match the The Brazilian Development Bank (Banco Nacional de products authorized by BNDES. Suppliers can be companies Desenvolvimento Econômico e Social; BNDES) issues its of any size. credit card to MSMEs and individual microentrepreneurs to finance investment expenditures in the online BNDES BNDES has also issued the BNDES Agro Card (Cartão marketplace. The BNDES Card exploits technology to BNDES Agro) to meet the financing needs of individual reduce the administrative costs involved in credit origination rural producers. The eligibility requirements and loan terms and monitoring for MSMEs while mitigating risk by ensuring for the BNDES Agro Card are similar to those for the BNDES that credit is used for productive purposes. MSMEs with Card. Only one partner bank (Sicoob) now issues the BNDES annual gross sales up to R$300 million (US$61 million) and Agro Card. Borrowers must open an account at the issuing individual microentrepreneurs are eligible for the card. These bank, which is used to collect repayments. entities must also be formally registered enterprises, have headquarters in Brazil, and satisfy local regulatory and tax The BNDES Card program offers credit and fosters requirements. The card is issued by 1 of 10 partner banks.7 competition to reduce the price of inputs while providing The issuing banks make the approval decision, determine the suppliers and distributors with access to customers who credit limit, and deliver the card to an applicant. They are also have financing. The program is attractive to borrowers, ultimately responsible for bearing the borrower’s credit risk, suppliers, and financial intermediaries. Borrowers may obtain although BNDES provides refinance support for any financing an attractive rate on a revolving credit of up to R$ 2 million made available through the card. Prospective borrowers apply (about US$500,000) and access to 73,000 licensed suppliers. for the card through an online portal managed by BNDES. Once Moreover, the publication of prices in the BNDES catalogue issued, the card can be used to make input purchases only from increases competition, another advantage for customers. For suppliers and distributors on the BNDES Card website.8 The suppliers, the platform provides access to 655,000 customers credit limit per issuing bank is R$2 million (US$404,000), and with preapproved credit, eliminating credit risk. For financial borrowers make installment payments over 3 to 48 months. A intermediaries, the platform offers client and transactional prefixed monthly interest rate, published transparently on the information for developing and providing additional financial BNDES Card website, applies to all credit cards regardless services even though the margin on the BNDES Card may be of the issuing bank. As of June 23, 2021, the monthly interest relatively small. rate stood at 1.07 percent. To keep borrowers fully informed 7. As of this writing, three of these banks do not allow borrowers to request a BNDES Card on the BNDES portal. 8. See https://www.cartaobndes.gov.br/cartaobndes/. 9. See https://www.cartaobndes.gov.br/cartaobndes/PaginasCartao/Simulador_PopUp.asp?Acao=S1. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 15 An impact assessment conducted by BNDES (2019) credit to its sellers through its Mercado Crédito business. showed that the expansion of its card from 2005 to 2012 Launched in 2016, Mercado Crédito operates in Argentina, led to increases in local labor market employment without Brazil, and Mexico.11 The business uses a proprietary credit corresponding increases in local GDP. Between 2005 and risk model trained on unique seller data to disburse working 2012, the BNDES card created a large expansion in financing. capital loans to merchants on the Mercado Libre Marketplace. By 2012, about 200,000 establishments had used the card The credit model leverages machine learning and artificial and received approximately R$ 9 billion (US$1.8 billion) in intelligence algorithms that the company initially used to financing. To evaluate the impact of this expansion on economic prevent fraud. Merchants can borrow a percentage of their activity at the level of the local labor market, or microregion, monthly sales volume at a fixed interest rate. Loans are researchers used an instrumental variables approach. In short term, ranging from 3 to 24 months. Since the borrowing the first stage, they instrumented the value financed by the merchants’ payments flow through Mercado Pago, Mercado BNDES Card with a plausibly exogenous measure of regional Libre’s digital payments platform, the company can directly credit supply based on the availability of the BNDES Card at collect loan repayments from the merchants’ existing sales the sector level. In the second stage, researchers analyzed the activity. This combination of access to unique seller data relationship between local labor market economic variables and the direct collection of principal and interest payments and the predicted measure of BDNES Card financing obtained significantly reduces the credit risks for Mercado Libre even from the first stage. The results showed that a 1 percent when the underlying loan is unsecured. In 2017, Mercado increase in credit card financing led to a 0.1 percent rise in Crédito expanded its business to offer consumer credit to total microregion employment. However, the analysis revealed buyers, leveraging consumer payment data from the Mercado no meaningful increases in the level of local GDP per capita or Libre marketplace. Through these products, Mercado Libre GDP per formal worker. has been able to boost financial access for merchants and sellers who are generally excluded from formal credit markets. As of December 31, 2020, total loans disbursed through Indonesia Mall Mercado Crédito stood at $402 million. The Indonesia Mall links MSMEs to the e-commerce marketplace. Launched in 2018, the Indonesia Mall is Jumia a platform that enables MSMEs to sell and market their products on several well-known e-commerce marketplaces Jumia, a pan-African e-commerce platform, partners in Indonesia.10 The platform’s e-commerce partners include with lenders to provide financing to its sellers through Tokopedia, Shopee, Bukalapak, Blanja.com, Blibli.com, and its Jumia Lending product. Jumia’s platform includes an Qoo10 (Asian Banking and Finance, n.d.). BRI provides online marketplace, a logistics service that facilitates package a comprehensive range of services to Indonesia Mall’s delivery, and the JumiaPay digital payments product.12 registered sellers, including end-to-end shipping and logistics Through the Jumia Lending product, sellers on the Jumia support, marketing assistance, business consulting, access to platform can access unsecured credit by borrowing from third- BRI accounts, and venture capital financing. According to BRI, party financial institutions such as microcredit lenders and more than 2,000 MSMEs joined the platform in 2019 and, on banks. Jumia facilitates the lending process by originating the average, they reported a 40 percent increase in revenues loan application on the sellers’ behalf. Prospective borrowers apply for a loan directly on Jumia’s website. The company also provides its bank partners with data on its sellers’ Mercado Libre creditworthiness based on seller activity on the platform. The Jumia Lending product is available in the Arab Republic of Egypt, Ghana, Ivory Coast, Kenya, Morocco, and Nigeria. Mercado Libre, the largest e-commerce and payments Jumia plans to expand its services to other African countries in platform in Latin America, extends working capital lines of 10. See https://bri.co.id/en/web/indonesiamall/. 11. For the Mercado Libre Form 10-K 2020, see https://investor.mercadolibre.com/sec-filings/sec-filing/10-k/0001562762-21-000079. 12. For the Jumia Technologies AG Form 20-F 2020, see https://d18rn0p25nwr6d.cloudfront.net/CIK-0001756708/4875d9cc-e21d-4a0b-b5a7-5d134c3cd13d.pdf. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 16 the medium term. Jumia’s sellers are usually small businesses application in three minutes, get approved in one second, all with no access to formal credit. They must meet certain with no human intervention (IFC 2020). MYbank accesses the minimum criteria to receive financing. For example, to qualify borrowers’ repayment data from Alibaba’s financial services for a loan in Nigeria, sellers must (a) be on the Jumia platform businesses, including Alipay. It then uses AI, computing, for at least six months, (b) earn six-month average monthly and risk management technologies to analyze more than revenues in excess of N100,000 (US$244), and (c) have a six- 3,000 variables to determine a borrower’s creditworthiness month average number of items sold of greater than 25 items. almost instantaneously. The number of SMEs served by Loan tenure ranges from one to six months, and loan amounts MYbank stood at 35 million at the end of 2020, representing range from N300,000 to N2 million (US$730 to US$49,000).13 a 70 percent year-on-year increase since 2015. Despite this The monthly interest rate is 3 percent to 4 percent. expansion, the bank’s NPL ratio has remained relatively low at 1.52 percent. Although the bank does not publish loan terms, it reported that, since its inception, it has lent to more than 8.2 Flipkart million women-led SMEs; the average loan size is $5,700 (Ant Group 2020). In April 2020, MYbank announced a significant expansion program through which it aims to at least double the Flipkart, a leading e-commerce marketplace in India with number of rural counties it serves by 2025 (Ant Group 2021). 100 million registered users, operates a seller financing program called Flipkart Growth Capital. The financing program offers both secured and unsecured loans and caters to MSME sellers on the Flipkart platform. Similar to Jumia’s Twiga Foods approach, Flipkart links sellers in need of financing to multiple third-party lenders (Flipkart 2021). Sellers can borrow from Twiga Foods, a business-to-business technology any lender. When sellers apply to the program, Flipkart platform that links farmers and food manufacturers to automatically redirects them from its website to the lender’s vendors, tested a blockchain-enabled lending platform portal, reducing the application processing time. Loans are for 220 food kiosks in Kenya. In partnership with IBM, disbursed within 24 hours. Sanctioned loan amounts range Twiga piloted a lending product in 2018 that provided working from less than Re 500,000 (US$6,700) to up to Re 50 million capital loans to its clients who are food vendors (IBM 2018). (US$672,000). Annual interest rates are at least 9 percent, To assess the creditworthiness of borrowers, IBM analyzed and loan tenure is up to 12 months (Flipkart 2019). In May purchase records from mobile data and used machine 2021, Flipkart announced an expansion of the Growth Capital learning techniques to develop credit scores. Once the scores Program, as part of which the company introduced an “Early were obtained, Twiga and IBM used blockchain technology to Settlement” option for its sellers. This option makes it easier manage the lending process from end to end. The pilot lasted for sellers to manage their cash flow by allowing them to for eight weeks and disbursed about 220 loans at an average receive order-related payments in advance. size of K Sh 3,020 (US$30). The two companies reported that access to working capital financing increased retailers’ profits by 6 percent, on average. Although the product has yet to be Ant Group scaled up, it demonstrates the potential for technology to drive financial inclusion through the use of novel techniques such as machine learning and blockchain that, when combined, can Ant Group, an affiliate of Alibaba, provides loans to significantly reduce transaction costs and create transparency small and medium enterprises (SMEs) and individual in the lending process. entrepreneurs through MYbank, a fully digital bank in China. Started in 2015, MYbank primarily serves rural areas and SMEs. The bank follows what it terms a “3-1-0” lending model: potential borrowers complete an online loan 13. For statistics for Jumia Lending in Nigeria, see https://vendorhub.jumia.com.ng/jumia-lending-black-friday-loans/. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 17 Findings from Impact Studies of Business loans to microentrepreneurs produce modest but potentially heterogeneous results. In a review of six Financial Solutions Developed for the randomized controlled trials (RCTs) of microcredit, Banerjee, SSE Karlan, and Zinman (2015) concluded that access to microcredit produces modest to negligible extensive margin effects; that Although limited empirical evidence is available on the is, access has little impact on business ownership, starts, and impact of the specific financial solutions discussed in closures. The review also found no evidence of an increase section 2, there is plenty of directional evidence on the in consumption among treated households. However, results broader effects of financial inclusion. A report published by on the intensive margin are much more promising. In a recent the Consultative Group to Assist the Poor (CGAP) highlights meta-analysis, Meager (2019) showed that microcredit has a the following relevant insights regarding the impact of financial negligible impact on households with no previous business services on low-income individuals (El-Zoghbi, Holle, and experience. However, profits and revenues were higher for Soursourian 2019). households that operated a business before receiving a loan. Access to financial services promotes consumption Assessments of microloan programs at the local level smoothing, resilience to shocks, and riskier but found more positive effects, perhaps capturing spillover potentially more productive investments. In developing effects associated with access to credit. Breza and Kinnan countries, access to financial services in the form of savings, (2021) analyzed the impact of an emergency ordinance in credit, and insurance may promote consumption smoothing Andhra Pradesh, India, that halted all microlending in the state for many poor households that are vulnerable to economic The researchers found that this exogenous shock to credit shocks. Furthermore, financial services may encourage risk- supply reduced wages, earnings, and consumption in districts averse households to make productive investments that may most exposed to the shock. It is noteworthy, however, that the carry more risk but ultimately yield larger profits. Empirical study considered only districts outside of Andhra Pradesh, evidence from various developing economies suggests that where no lending restrictions were imposed, showing that a both hypotheses may be valid. Having access to mobile reduction in access to credit can produce important general money—specifically, M-PESA in Kenya—allowed families equilibrium effects. Similarly, a study in Kenya that provided to receive more remittances from a more diverse range of timely loans to farmers made it easier for them to exploit senders in response to a shock (Jack & Suri, 2014). A recent price arbitrage opportunities—that is, the loans allowed meta-analysis of the experimental literature on savings found them to buy grain at lower prices and to sell at higher prices that interventions that promote savings boost household (Burke, Bergquist, and Miguel 2017). The intervention not consumption and food security (Steinert et al. 2018). For only increased the treated farmers’ revenues and return on instance, households with access to savings through a low-fee investment but also yielded large general equilibrium effects. bank account in Nepal were better able to deal with adverse In fact, nonborrowers reaped the majority of welfare gains in health shocks (Prina 2015). On the credit front, after obtaining areas with a higher density of treated farmers. access to a digital credit product called M-Shwari in Kenya, households were significantly less likely to report having to Randomized experiments in which key features of a reduce expenses after a shock (Bharadwaj, Jack, and Suri traditional microfinance contract were varied found that 2019). Access to insurance also appears to reduce liquidity (a) regular repayments reduce business profitability and risks for households, thus freeing up funds for riskier and default, (b) group liability does not reduce default, and more profitable investments. Farmers in Ethiopia who were (c) more regular in-person meetings improve repayment. given access to insurance products made more productive An experiment in India provided randomly selected borrowers investments in their farms (Berhane et al. 2015), and farmers with a two-month grace period before any repayment was due in Mali who were given access to insurance products made in contrast to a standard contract in which repayment began larger investments in their farms (Elabed and Carter 2014). in the first few weeks after disbursement. This modification increased household income, business investment, and new EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 18 business creation (Field et al. 2013). However, it also created The digitization of credit increases convenience but an increase in loan defaults, which was driven by borrowers raises concerns about consumer protections that require engaging in riskier (though more profitable) business a strong oversight framework. The advantage of digital practices. In one randomized trial in the Philippines removed financial services such as automatic teller machines, debit group liability from existing groups and additionally assigned cards, mobile money, and digital credit is that they lower newly formed groups to either individual or group liability. In transaction costs for customers, thereby leading to increased both experiments, the groups still met in person (Giné and financial activity. Digital credit can, however, create significant Karlan 2014). Moving to individual liability in either treatment consumer protection issues. In many contexts, consumers arm did not affect loan default, but it did increase the number can access a digital loan almost instantaneously by using of new clients for the groups converted to individual liability. their cell phones. Although this reduction in transaction costs This result suggests that social capital generated through has many positive implications, it also raises the very real group meetings may encourage timely repayment even in the possibility that relatively uninformed consumers will sign up absence of “social collateral”—that is, an explicit obligation for credit products whose terms they do not fully understand. to assume the liability of defaulting group members. An In the absence of a robust regulatory environment, these additional experiment in India corroborates this hypothesis; consumers may be misled into borrowing excessively or at newly formed borrowers were assigned to groups that met on high interest rates (Kaffenberger and Totolo 2018). a weekly or a monthly basis (Feigenberg, Field, and Pande 2013). The former schedule increased the long-term social Digitization boosts the savings and benefits of credit interaction among borrowers, strengthened their willingness access for women because it improves privacy and to pool their risk, and lowered loan default. their sense of ownership over their individual finances. Because of their relative lack of bargaining power at the Female borrowers often are pressured to use microloan inter- and intra-household levels, women do not control their resources for other household needs, limiting the benefits finances in many developing countries, so they value their of microcredit. A study on business loans in Uganda found privacy in managing their financial resources. Digital financial that providing microcredit and business-skills training did not services improve privacy by giving women better control over improve financial outcomes for female-owned businesses, their finances. In Tanzania, Bastian and coauthors (2018) but it did lead to large increases in profits and sales for male- found that digital accounts increased women’s savings and owned enterprises that were offered loans (Fiala 2018). In their access to credit. Riley (2020) found that using mobile money previously described review of six microcredit RCTs, Banerjee, instead of traditional cash disbursement to provide microloans Karlan, and Zinman (2015) also considered the impact of led to business profits that were 15 percent higher for female credit access on female decision power and independence at borrowers in Uganda. The results were strongest for women the intra-household level and found that it had a null effect on who felt pressure to share their funds with family members. these empowerment indicators in three of the four studies that considered these outcomes. More recent research highlights Despite its benefits, digitization can weaken social the importance of women’s bargaining position in driving these networks and harm uninformed consumers. A study in results. A study in Ghana, India, and Sri Lanka showed that India showed that the introduction of microfinance led to a the null profit response for female-operated enterprises arises shrinkage in social networks because borrowers relied less because women’s financial resources are usually diverted to on existing social structures to fulfill their financing needs their husband’s enterprises (Bernhardt, Field, Pande and Rigol (Banerjee, et al., 2021). This effect was felt by both borrowers 2019). When outcomes were evaluated at the household rather and nonborrowers in treated villages, suggesting that than the individual level, the study found that income gains at providing credit can impose a negative externality by reducing the household level were equivalent regardless of the gender the size of informal network structures used for borrowing. of the person who received a grant or a loan. These results The expansion of more digital forms of credit can be expected suggest that the impact of access to microfinance on women to yield similar results. interacts in important ways with gender gaps that influence women’s position in the household and in society at large. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 19 Conclusions and Recommendations As demonstrated by the BRI experience in Indonesia, a sound portfolio depends on combining strong credit origination and The social and solidarity economy focuses on supporting monitoring practices with a supportive political environment productive structures managed by the producers that reinforces the fact that the loans are not subsidies and themselves and brings together multiple actors to that they must be repaid. improve economic and social welfare. These structures include microenterprises, agricultural producers, producers’ Development banks can nonetheless effectively support groups and associations, and cooperatives, among others. An the SSE in the absence of strong risk management and a ecosystem of organizations, including NGOs, associations, supportive political environment by encouraging saving and and foundations, helps to organize and grow such structures. lending through other intermediaries, including fintechs. NABARD offers a good example of how to support the SSE Development banks have created savings and lending economy through savings products and by acting as an apex solutions in order to support SSE projects, and they financial institution. The BNDES Card is a development bank often partner with other actors that support the economic solution that combines lending through financial intermediaries viability of the projects. Savings and lending solutions with a digital platform that not only provides access to markets typically include (a) support for the transformation of producers’ but also digitizes payments generating useful information for groups into savings and microcredit groups, thus increasing developing new products. BRI also has developed a digital the funds and expanding the financial ecosystem available to platform that offers logistics support. Institutions with more these producers, and (b) lending (directly or through financial incipient technological capabilities could partner with existing intermediaries) and providing guarantees to the producers’ platforms to provide credit through them by financing the platform structures. The most notable initiatives implemented by and even entering into risk-sharing agreements with them. development banks in this context create an entire ecosystem in the rural marketplace, encompassing not only access to Financial solutions developed to support the SSE should financial services but also the promotion of supplier-borrower be rigorously evaluated. Microcredit interventions linkages and the digitization of financial service delivery. have been evaluated more than other solutions, and the findings have generally been positive, albeit Digital platforms have been increasingly used to heterogenous, depending on the intervention’s design facilitate access to the market for small producers, and features. Programs and products developed to support the development banks can either create these platforms SSE should be evaluated rigorously, through, for example, or partner with them to channel funding. In addition to RCTs, randomized trials, or quasi-experimental studies, all of providing funding and market access, the platforms offer which measure the effects of an intervention by comparing additional benefits from the digitalization of sales because outcomes for intervention participants with outcomes for transactional information from the platform can be used to nonparticipants who have the same characteristics as develop alternative credit-scoring models that subsequently participants. An impact evaluation is particularly important enhance the financial access of producers. for subsidized programs because it would help to (a) assess their value for money and (b) determine the optimal duration Supporting productive SSE projects by providing credit of the intervention. Microcredit is the intervention that has involves lending to lower-income sectors that are been studied most rigorously. Overall, evidence at the riskier and politically sensitive. When lending directly, borrower level suggests that microcredit has more positive development banks need a strong risk management effects when credits are directed to existing firms as opposed capabilities and a political environment that is conducive to new firms. At the local level, microcredit seems to have to sustainably financial lending. Productive SSE structures positive effects on income, suggesting that access to credit include microenterprises, small rural producers, and small may have positive spillover effects. Women benefit less from producers’ cooperatives, all of which can involve substantial microcredit disbursed directly in cash because of the family credit risks. Political considerations can augment these risks if pressure to use the money for purposes other than investment borrowers perceive support as subsidies as opposed to credit. purposes. Frequent payments and regular meetings improve the likelihood of loan repayment. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 20 >>> Appendix A: Lending Products >>> Table 1: Lending Products Summary— Development Banks NABARD BRI Bank-Wide Statistics Total Assets 70,580 107,182 Loans Outstanding 63,873 66,528 Non-Performing Loans Ratio (%) n.r. 3.0% Warehouse KUR Super SHG-BLP JLG KUR Micro Reeipt Loan Micro Aggregate Statistics Loans Outstanding (USD Million) 14,336 20,541 n.r. n.r. 614 Number of Customers - Outstanding 5,677,071 9,255,899 n.r. n.r. 985,189 Loans Disbursed (USD Million) 10,302 11,024 8,289 n.r. 614 Number of Customers - Disbursed 3,146,002 4,179,499 4,351,148 n.r. 985,189 Loan Terms 1.5-5+ 1.5-5+ Tenor (Years) 3-5 years <6 years 3-5 years years years Interest Rate - Annual (%) 8.35-8.45% 8.35-8.45% 6% 6% 6% Central Bank Policy Rate (%) 4% 3.5% Average Loan Size (USD) - Disbursed 3,274 2,638 1,905 n.r. 623 Loan Size as Fraction of GDP per Capita 1.7 1.3 0.5 n.r. 0.2 Loan Terms Secured/Unsecured Unsecured Unsecured Unsecured Secured Unsecured Type of Liability (Individual/Joint) Joint Joint Individual Joint Individual Primary/Secondary Credit Provider Secondary Secondary Primary Primary Primary Source: NABARD statistics for the financial year ending March 31, 2020. BRI statistics for the year ending December 31, 2020. Exchange rates used to convert to US dollars are as of the respective fiscal year end dates. Exchange rate data sourced from the IMF and Bank Indonesia. Central bank policy rates are as of May 31, 2021, and are sourced from the Bank for International Settlements (BIS). Note: n.r. = not reported. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 21 >>> Table 2: Lending Products Summary—Technology-Enabled Platforms BNDES Mercado Ant Twiga Jumia Flipkart Card Credito Group Foods Nigeria, Kenya, Argentina, Ivory Coast, Brazil Brazil, India China Kenya Egypt, Mexico Morocco and Ghana Aggregate Statistics Loans Outstanding (USD Million) n.r. 402 n.r. n.r. n.r. n.r. Number of Customers - Outstanding n.r. n.r. n.r. n.r. 35.07 220 Loan Terms 3 months - 3-24 Tenor 1-6 months 12 months n.r. 2 months 3 years months Various, Interest Rate (%) 1.07% depending 3%-4% >9% n.r. 1%-2% on merchant Interest Rate Type Monthly n.r. Monthly Annual n.r. Monthly 732 - 6,723 Loan Size (USD) < 403,934 n.r. 5,700 30 48,819 -672,281 Loan Size as Fraction of GDP per < 56.8 n.r. 0.4 - 26.7 3.4 - 336.0 0.5 0.014 Capita Loan Terms Secured & Secured/Unsecured Unsecured Unsecured Unsecured Unsecured n.r. Unsecured Direct Lender (Y/N)? N Y N N Y Y Source: Exchange rates used to convert to US dollars are as of June 23, 2021. Exchange rate data sourced from the IMF (if available) and country central banks. Note: n.r. = not reported. EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT <<< 22 References Ant Group. 2020. “Demystifying the SME Loans Operator, Ant Group’s MYbank.” News release, July 1, 2020. https://medium. com/alipay-and-the-world/demystifying-the-sme-loans-operator-ant-groups-mybank-9c556c375a6. Ant Group. 2021. “MYbank Aims to Bring Inclusive Financial Services to 2,000 Rural Counties by 2025.” News release, April 30, 2021. https://www.antgroup.com/en/news-media/press-releases/2021-04-30-04-54. 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