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FSVC Quarterly Newsletter – May 2019

El Salvador: Strengthening Anti-Money Laundering Compliance

Ricardo Leiva and Michael Messier at Fedecredito

FSVC volunteer experts Ricardo Leiva (far left) and Michael Messier (second from left) during a meeting with Fedecredito; San Salvador, December 2018.

Two FSVC volunteer experts recently conducted a path-breaking FSVCproject in Central America. The project focused on an assessment of the anti-money laundering (AML) systems of Fedecredito, a key financial institution in El Salvador. Established in 1943, Fedecredito is a regulated cooperative financial institution owned by 48 credit unions, 7 workers’ banks and 1 insurance company, and operates across El Salvador. Fedecredito, through its members, provides a range of services to small- and medium-sized enterprises (SMEs) and consumers, including international remittances, which pose a high risk for money laundering.

Over the course of five days, the FSVC volunteer experts assessed current AML policies and procedures at Fedecredito through in-depth consultations with the heads of compliance, operations, audit and risk management at its headquarters. They also met with three Fedecredito members to gain a better understanding of their activities and evaluate their level of compliance. The FSVC volunteer experts then trained over 165 representatives from Fedecredito, including directors, managers and compliance officers, in international best practices in AML compliance. Topics included Know Your Customer (KYC) policies and procedures, an overview of the U.S. Foreign Account Tax Compliance Act (FATCA) and suspicious transaction reporting.

Through this project, Fedecredito received detailed recommendations on how to strengthen its AML operations, policies and procedures to ensure they meet international standards.

Angola: Assessing the Banking Sector

Angola Meeting

From left: Andy Spindler, Mourad Baly, U.S. Ambassador to Angola Nina Fite, Lauren Pickett, John Douglas, John Walker; Luanda, February 2019.

At the request of the National Bank of Angola (BNA), FSVC conducted a review of the overall state of the Angolan banking sector and made recommendations on ways to strengthen it. Angola is the third largest sub-Saharan African economy, and its banking sector today is a unique product of Angola’s colonial history, its 27-year civil war and the 38-year administration of Angola’s previous President. With its new reform-minded Presidential administration, Angola has a unique opportunity to put its banking sector on a new sound foundation.

The FSVC assessment team included John L. Douglas (FSVCBoard Member and Senior Executive Vice President and Chief Oversight and Advocacy Officer, TIAA), John L. Walker (FSVCBoard Member and retired Partner, Simpson Thacher & Bartlett LLP), Lauren L. Pickett (Director, Anti-Money Laundering and U.S. Sanctions Group, SIA Partners), J. Andrew Spindler (President & CEO, FSVC) and Mourad Baly (Country Director, FSVC).

Over the course of five days, the FSVC team met with senior-level representatives from the BNA, Angolan banks, Chevron, Angolan Banking Association, U.S.-Angola Chamber of Commerce, International Monetary Fund and U.S. Embassy in Angola, among other institutions.

Discussions focused on several key issues, including: 1) the high levels of Angolan government bonds held by banks, and of non-performing loans to private borrowers; 2) the role of the BNA in conducting bank supervision and steps to strengthen its capacity; 3) the status of AML laws and regulations in Angola, and their enforcement; 4) the connectedness of the Angolan banking sector to the international financial system; and 5) how the Angolan banking sector can support economic growth, job creation and financial inclusion.

Following the assessment mission, FSVC provided the BNA specific recommendations on measures to strengthen banking supervision and encourage lending activities that promote job creation, economic growth and the diversification of the Angolan economy. Through the Angolan Banking Association, FSVCis also providing Angolan banks targeted guidance on how to strengthen their AML compliance programs as well as credit-origination capacity, among other topics.

Somalia: Strengthening Anti-Money Laundering Processes

Mohamed Adam training local MTBs

FSVC mentor Mohamed Adam training local MTBs; Kismayo, Somalia, January 2019.

FSVC recently helped train representatives from money transfer businesses (MTBs) in Kismayo, Somalia, in best practices in anti-money laundering/combating the financing of terrorism (AML/CFT) compliance. AML/CFT is particularly important in Somalia as remittances amount to more than $1.6 billion annually. The majority of these remittances are transacted through MTBs.

To ensure local ownership, the Central Bank of Somalia led the training, with support from FSVC’s mentors. The first three days focused on managers and compliance officers of MTBs, and stressed the importance of AML/CFT compliance and how to report suspicious transactions to Somalia’s Financial Intelligence Unit. The training then focused on helping MTB tellers gain a better understanding of how to apply in practice policies and procedures related to Know Your Customer and Customer Due Diligence.

Through this training, FSVCis helping to promote the safety and stability of Somalia’s financial sector, which will help allay the concerns of international regulatory bodies and facilitate the safe flow of remittances to the people of Somalia.

Marshall Islands: Reinforcing Bank Supervision

Linda Reedyand Milimo Moyo at RMI Banking Commission

FSVC volunteer expertsLinda Reedy (far right) and Milimo Moyo (second from right) during consultations with the RMI Banking Commission; Majuro, February 2019.

FSVC conducted consultations with the Banking Commission of the Republic of the Marshall Islands (RMI) to develop examination manuals on safety and soundness, and AML/CFT. The FSVC volunteer experts reviewed the RMI’s Banking Act, AML regulations, examination manuals and prior examination findings, to identify gaps with international standards. They then helped draft new examination manuals using international best practices, and trained Banking Commission staff on how to use the new manuals to effectively supervise banks.

The updated examination manuals cover capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk (CAMELS), as well as risk management, operational controls, compliance and asset quality (the ROCA rating framework) to examine foreign banking operations and complete AML/CFT examinations. The project has left the RMI Banking Commission better equipped to conduct examinations of financial institutions, which will help maintain international confidence in the RMI financial sector.

Algeria: Supporting the Growth of Startups

Caitlin Hoover and Peter Risman at Brilog

FSVC volunteer experts Caitlin Hoover and Peter Risman (left) with managers of the startup Brilog; Algiers, February 2019.

The Algerian entrepreneurial ecosystem has witnessed rapid growth since the early 2000s. Startups represent a vital component of the economy, but also face challenges in scaling up their businesses. One recurring challenge among Algerian startups is the lack of understanding of international best practices in digital marketing.

To address this challenge, two FSVC volunteer experts, in partnership with the Algerian Startup Initiative, recently trained startups in how to build actionable digital marketing strategies that align with a company’s business goals. The FSVC volunteer experts presented best practices in how to maximize social media channels, mobile marketing, online analytics and search engine optimization. Participating startups learned how to build creative digital marketing campaigns to grow their online presence and acquire more customers.

The project has helped Algerian startups enhance their digital tools and online outreach capacity, which will help them expand their customer base and grow their sales. A robust and dynamic startup landscape is critical to job creation and economic growth in Algeria.

Albania: Assessing the Feasibility of Instant Payments

Domenico Scaffidi at the Bank of Albania

FSVC expert Domenico Scaffidi (right) with representatives of the Bank of Albania; Tirana, April 2019.

FSVC has built a strong relationship with the Bank of Albania (BoA) over the years, and has provided technical assistance to the BoA in a number of key areas, including most recently “instant payments”.

Instant payments can help increase financial inclusion by making payments faster and more cost effective. Innovative payment infrastructures have been critical in increasing financial inclusion in other countries, bringing previously unbanked individuals into the formal financial sector, and instant payments could help do the same in Albania. The introduction of instant payments is therefore a key objective of Albania’s National Retail Payments Strategy. To help the BoA meet this objective, FSVC assisted the management and staff of the BoA’s Payment Systems, Accounting and Finance Departments in assessing the feasibility of implementing an instant payments solution in Albania. The FSVC project helped the BoA understand the strategic as well as technical implications of this decision.

Tunisia: Increasing Investment in Small Businesses

FSVC volunteer expert Christopher Davis and FSVC Program Coordinator Ichraf Lajmi

FSVC volunteer expert Christopher Davis and FSVC Program Coordinator Ichraf Lajmi during a workshop session; Tunis, January 2019.

SMEs in Tunisia are the engine of job creation and economic growth. Viable SMEs, however, currently face great difficulties in securing access to finance to grow their businesses. They often do not have traditional forms of collateral for bank loans and are not the preferred clients of private equity and venture capital (PE/VC) firms.

To address this challenge, FSVC organized a workshop to present a cutting-edge new alternative: revenue capital (RC). RC has the potential to bridge the gap between healthy SMEs in need of investment and PE/VC firms. RC has been successfully deployed in other countries, most notably South Africa, and offers a commercially-viable risk-financing structure that usually takes the form of a low-interest rate loan.

The FSVC volunteer experts presented the financial, legal and fiscal framework of RC in the Tunisian regulatory context. They also provided examples of successful RC structures internationally, and met with the Ministry of Finance, the Tunisian Financial Market Council, the VCAssociation and SME representatives to address each stakeholder’s specific challenges and concerns.

As a result of this project, the Tunisian investment community is better equipped to develop an RC structure. RC will help unlock funds for Tunisian SMEs with high potential for expansion, and help reduce entry barriers and exit constraints for SMEs.

Bangladesh: Increasing Input of Civil Society in the Budget Process

FSVC in Bangladesh

(Back row, from left to right) FSVC volunteer experts Guy Grenier and David Kallick, and FSVC Director Edward Sia, along with local participants; Dhaka, April 2019.

The Government of Bangladesh (GoB) has been seeking to increase public participation in the national budget process in recent years. To do so, the GoB published a Budget Booklet in 2015, a summary of the National Budget, to make it more accessible and reader-friendly to citizens. The GoB, however, subsequently stopped publishing the Budget Booklet due to limited public interest. The Booklet was too technical and lengthy to be useful to the public.

To help the GoB address this issue and increase public engagement in the budget, FSVC organized a series of consultations with the GoB and CSOs to develop a Citizens Budget (CB). A CB is a simplified, non-technical representation of the National Budget.

FSVC first moderated a roundtable with CSOs to obtain their input on what the format and content of the CB should be. FSVC then shared this input with staff at the Bangladeshi Ministries of Finance and Planning, and obtained their feedback on the template suggested for the CB.

As a result of this project, the GoB will now be able to develop and publish a more accessible CB with which to engage CSOs and the general public in the budget process. That outcome will help increase government accountability and fiscal transparency in Bangladesh.