Transforming State-Owned Financial Institutions: Alternatives to Full Privatization

Many countries have used state-owned financial institutions to promote financial access in rural areas. But many of these financial institutions have been inefficient, generating large contingent liabilities and requiring repeated government recapitalizations. Several countries have addressed this problem by transforming state-owned rural financial institutions into agencies, NBFIs and other models.

A recent example in Mexico has been the transformation of BanRural from a state-owned rural bank to an NBFI, Financiera Rural, a non-bank financial institution in charge of promoting the development of rural financial markets and lending to small rural producers. FR currently accounts for 15% of rural credit in Mexico, has non-performing loans of 3.3% (compared with 50% in BANRURAL), and a portfolio which is covered by about 250% with reserves. The Bank has helped to facilitate similar transformations in other countries: Mongolia's Agriculture Bank has been transformed into Khan Bank; Peru's Fondo MiVivienda (second tier residential mortgage finance institution) is in the midst of a transformation; and China's Rural Credit Cooperatives are in the process of restructuring. These experiences are useful to share from one country to another, and may inform future operations dealing with bank restructuring, access to finance, and rural finance.

In this context, the Financial Sector Network is arranging a half-day seminar on "Transforming State-Owned Financial Institutions: Alternatives to Full Privatization", that will take place on December 5th, 2005 from 9:00am-1:00pm Washington-time with videoconference connections to several country offices. For more information, please contact Mariluz Cortes, the task manager, at mcortes@worldbank.org, or Colleen Mascenik, the event coordinator, at cmascenik@worldbank.org.