Cablegate: Application for Opic Finance: Capa Finance Romania

VZCZCXYZ0004
PP RUEHWEB

DE RUEHBM #0752 2671401
ZNR UUUUU ZZH
P 231401Z SEP 08
FM AMEMBASSY BUCHAREST
TO SECSTATE WASHDC PRIORITY 8732

UNCLAS BUCHAREST 000752

STATE FOR EUR/CE: ASCHEIBE AND EUR/ACE
STATE PLEASE PASS TO OPIC: WJONES

SIPDIS

E.O. 12958: N/A
TAGS: EINV EAID ECON RO
SUBJECT: APPLICATION FOR OPIC FINANCE: CAPA FINANCE ROMANIA

REF: STATE 95763

1. In response to reftel request for comments on a proposed USD 25
million OPIC loan to CAPA Finance, post has no derogatory
information with regard to the intended loan recipient. Post is
similarly unaware of any information linking the shareholders of
CAPA Finance to terrorism or corruption.

2. However, post wishes to note for OPIC's information that the
USAID Mission in Romania officially closed this summer. In
connection with USAID's departure, the Romanian American Enterprise
Fund (RAEF) is scheduled shortly to end its active investment phase
in Romania. The assets from the liquidation of its investments will
be used to establish a new legacy institution, known as the
Romanian-American Foundation (RAF), which will support private
sector development in Romania with a focus on education, primarily
through providing guarantees for student loans. Post cannot advise
OPIC on the specific implications, if any, of this major change in
RAEF's status and activities for RAEF sponsorship of CAPA Finance to
receive OPIC financing as described in reftel. However, post
strongly advises that OPIC consult with USAID in Washington with
regard to RAEF before proceeding.

3. Concerning CAPA Finance, the institution occupies a local niche
market which is under increasing pressure from the commercial
banking system. Foreign-owned commercial banks, which control 88%
of the overall market, have until recently been less interested in
the smaller market for lending to Romanian small- and medium-sized
enterprises (SMEs). Now, hungry for new market share and
increasingly able to access new sources of EU and EBRD capital,
these banks are beginning to expand slowly into SME lending. The
sector is under additional pressure due to the implementation of new
"EU passport" rules, which have made it easier for banks from
outside of Romania to offer services on the local market. This
development presents a medium- to long-term risk to the survival of
smaller independent players such as CAPA Finance, unless they are
able to link up with a major bank or to differentiate themselves
from their larger competitors by carving out a specific market or
sector niche.

4. The EBRD has estimated Romania's micro-finance market to be
worth more than euro 500 million, with commercial banks currently
meeting about 55% of demand. Only 15% of the market has so far
benefited from financing through non-banking financial institutions,
and CAPA Finance's activity is an important component in expanding
this segment. With only 36.6% of GDP in financial intermediation in
2007, significant credit growth potential exists in Romania,
especially lending in rural areas.

Taubman

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