sme access to finance - pma > homes... · a financing gap of up to us$ 2.6 trillion for 360-440...
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SME ACCESS TO FINANCEINTERNATIONAL PERSPECTIVES
Jericho
March 23rd, 2016
SMEs are the backbone of economies but face numerous challenges
• SMEs are at core of business operations of many firms
as suppliers, retailers, customers (e.g. agribusiness,
extractives, financial market, telecoms,
manufacturing)
• 7 in 10 formal jobs are provided by SMEs (9 in 10 in
some low income countries];
• 4 out of 5 new formal jobs in emerging markets
created by SMEs, young and start ups.
• 600 million new jobs are needed over the next 15 years
to absorb a growing workforce and tackle
unemployment;
• SMEs can be important channels for supporting
increased economic participation by women and youth;
• Competitive SME sectors create more diversified, agile
and resilient economies – improving productivity and
competitiveness; contributing to economic growth and
better jobs
Access to Finance &
Capital
Access to Markets &
Networks
Skill Development & Workforce Mgmt.
Technology & Infrastructure
Business environment
In 71% countries, SMEs cite* access to finance as the biggest challenge
*World Bank Enterprise Survey 2014, SME between 5-100 employees
A financing gap of up to US$ 2.6 trillion for 360-440 million MSMEs
• Overall estimated financing gap of US$
2.1 -2.6 trillion to US$ 2.6 trillion
• 45% to 55% of the 360 to 440 million
formal and informal MSME in
developing economies* are not
served or are underserved by the
formal financial sector.
(*Source: ‘IFC: Closing the credit gap for formal and informal SMEs’, IFC, 2013)
• For formal SMEs only, it represents a US$ 1.1
trillion financing gap.
• About 55% to 68% of formal SMEs in
developing countries, accounting for 13.8
million to 20.4 million firms, are
estimated to be unserved or underserved
by the financial sector.
• Another $0.5 to 0.6 trillion represents the
credit gap for the estimated 60 to 70 million
formal microenterprises in emerging
economies
Gap to current outstanding SME credit varies: Sub-Saharan Africa and MENA estimated
to require over 300 % increase compared to 8% in East Asia and 30% in East Asia, ECA to
meet financial needs
Higher financing gap for smaller firms, women, agribusiness
(Source: ITC based on World Bank Enterprise Surveys, ‘Connect, compete
and change for inclusive growth’, SME Competitiveness Outlook 2015, ITC)
• Women in emerging
markets are more likely
to cite access to finance
as a major constraint**
• Women are 15 percent
less likely than men to
have a bank account,
and significantly lag
behind men in saving
and borrowing through
formal financial
institutions
• Women-owned formal
SMEs have $260 to 320
billion in unmet
financing needs world-
wide
(**Source: IFC, Strengthening Access to Finance for
Women-Owned SMEs, 2012 and World Bank Financial
Inclusion database, quoted in ‘SME Finance, new findings,
trends, G20 / Global Partnership for financial inclusion
progress, IFC, 2013)
(**** Source: IFC, Scaling Up Access to Finance
for Agricultural SMEs: Policy Review and
Recommendations, 2011, and IFC, Innovative
Agricultural SME Finance Models, 2012)
• demand for credit by
smallholder farmers
globally estimated to
be nearly as high as
$450 billion (incl.
technology, resource
efficiency)
Main factors leading to SME access to finance challenge
Lack of regulations/
frameworks
“The collateral gap”, credit
bureau and registries
Macroeconomic
environment
information asymmetry
lack of financial capability and
access to support services
Financial institutions
SME needs understanding
Inadequate risk management
and approval processes
Documentation requirementsSME
Trends to address this challenge
The case for
holistic and
integrated
approach in the
financial ecosystem
Broadening
financial
instruments:
alternative
financing and
technology
Deepening
segmentation:
building successful
customer value
propositions
The case for holistic approach
Regulator &
financial
infrastructure
support
Financial
Institution
support
(MFI,
Banks,
Funds)
SME support
SME
improved
access to
formal
financing
• Credit information
bureau
• Insolvency and
creditor rights reform
• Secured transaction
registries for movable
properties
• Payment systems
(including electronic)
• Banking and MFI laws
• Partial credit
guarantee systems
• Leasing framework
• Factoring and
discounting of bills
receivable framework
• pre-bank financing
infrastructure for
early stage finance to
survive the “valley of
death”
• Ease of doing
business (registration,
licensing)
• Trade & supply chain
finance
• Risk management,
corporate
governance, E&S
standards advisory
• Segmentation and
product bundling
(e.g. women,
sustainable energy
finance, agri-finance)
• Digital finance
• Capital market
instruments
• Human capital
development (e.g. FI
academy, or
wholesale sector
academy)
• Corporate governance assessments (incl. for equity)
• Skills, knowledge, networks, standards adoption
• financial capabilities, awareness raising on
broad spectrum of financial instruments,
• non-financial services for FI clients,
• retailer and supplier development in
corporate value chains
• Technology upgrade (e.g. POS)
The need for holistic approach: example of MSME facility MENA
Results (since inception FY12-15)
• 2.56 million loans to MSMEs (US$ 2.89
billion)
• 4,454 deposit accounts opened
Through
• 4 new regulations enacted
• 73 entities received Advisory
• 1,181 MSMEs received capacity building
• US$ 450 million leverage & scale up of
Arab funds
• US$ 2.1 billion leveraged in IFC & IBRD
credit lines
Regional World Bank Group facility to
increase MSME access to finance in
Tunisia, Morocco, Egypt, Lebanon,
Jordan, West Bank and Gaza by
addressing the demand and supply side
constraints
The case for holistic approach: Morocco example
Source: ’Supporting access to MSMEs: the Moroccan experience’, World Bank(2013)
SME access
to finance
Best performing and most inclusive financial sector in MSME Facility
Highest share of SME loan in total to SME loans in MENA
Highest rate of microfinance access in MENA (83% of total MFIs in MENA)
Leasing and factoring among the most developed in MENA
Financial infrastructure• Fiscal, regulatory reforms (secured lending, credit
bureau etc.)
• SME strategy w. uniformed definition
• National Agency for SME Promotion w. BDS
• Guarantee fund reform w. revamped process and
products to better match SME life cycle (e.g.
Damane Express for small business)
• Postal bank w. credit for MSMEs in underserved
areas
• Ecosystem mapping VC and private equity
Financial institutions• Microfinance Fund considering sustainable energy
finance, Strengthening core MFIs
• Banque Centrale Populaire for very small business
SME support
• CG Moroccan Institute of Directors
The need for holistic and integrated approach:
The Textile Value Chain Partnership example - Bangladesh
Yarn Knitting Fabric Dyeing Cutting & Making
Spinning WeavingWashing
Finishing
Export
Cotton
• 1700 units • employing 200,000 workers• Growing at 10% per year• Net value addition 12-20%
Cut
Make
Trim
• ~3500 units • employing 4,000,000 workers• Growing at average 16% per year
since 2010
Partnership for
Cleaner textile
(PaCT)
Bangladesh
Textile
Competitiveness
Points for considerationExample of SME access to alternative
finance facilitated through an
integrated multi-stakeholder sector
approach, in a strategic sector for jobs
and growth
Bangladesh Partnership for Cleaner Textile (PaCT)
CHALLENGES
• Groundwater extraction• Surface water pollution• Groundwater depletion
200 global textile firms, IFC,
Solidaridad, local factories, the
Bangladesh Garment
Manufacturers and Exporters
Association
APPROACH
BRAND ENGAGEMENT
De-risking the supply chain by helping brands
adopt environmental sustainable buying
practices (Capacity building of brand staff,
decision support guidance)
SUPPORTS FACTORIES IMPROVE
THEIR RESOURCE EFFICIENCY AND
WATER FOOTPRINT. Awareness Raising,
Basic and in- depth Cleaner Production,
Water Footprints, Textile Technology
Business Center
FACILITATING INVESTMENT IN
RESOURCE EFFICIENT TECHNOLOGIES
Partnering with local banks and financial
institutions to develop dedicated financial
credit lines of USD 500 million to stimulate
investment
CREATING AN ENABLING
ENVIRONMENT. National & Cluster level
Stakeholder engagement, Cluster water
footprints, innovative private sector led
solutions
RESULTS
• 28.4 million $ investment
• 7.6 million $/ year factory
savings
• 13.4 million m3/ an water
savings
• 1.1 million Mwh/ year energy
savings
• 169,000 tonnes CO2 eq/ year
• 10.6 million m3/ year waste
water avoided
SME factory support• IFC direct investments• GTSF onboarding • Thematic E&S workshops & expo
(e.g. building & fire safety issues, trade linkages at expo; improved labor standards, workers safety & improved productivity)
Support to FIs
• develop remediation financing for RMG factories• Brand engagement• GTSF roll-out (incl.
Levi’s tiering pricing )• credit facility for
structural, electrical and fire safety remediation through 4 banks
• Environmental & Social risk management capacity building withCentral Bank Bangladesh Bank • ESRM training and risk
scoring tool • Pipeline development
Bangladesh Textile Competitiveness
CHALLENGES: strengthen sustainability of RMG factories at the sector level
• Perceived declining attractiveness (unsafe, non-compliant, polluting)
• Lack of access to finance to implement remediation
Support to regulators • study on safety remediation
financing for the RMG sector
to inform policy and identify
opportunities for additional
investments
• Standard for building and fire
safety inspections and issuing
construction permits
• New labor law (Better Work)
• Buyers Forum (30+ brands,
regulators dialogue, design
coordination)
Results
Textile buyer
outstanding balance:
US$ 55million ST
credit
IFC direct investment
in 2 RMG suppliers
($6.25 million in
Ananta Apparels
Limited and DBL
$10.50 million in DBL
Color City)
Trends to address this challenge
The case for
holistic and
integrated
approach in the
financial ecosystem
Broadening
financial
instruments:
alternative
financing and
technology
Deepening
segmentation:
building successful
customer value
propositions
Broadening financial instruments: alternative financing
(Source: ITC based on World Bank Enterprise Surveys, ‘Connect, compete and change for inclusive growth’,
SME Competitiveness Outlook 2015, ITC)
In particular
early stage and
seed finance
Asset
based
lending,
leasing
and value
chain
financing
Angels can play a critical role to finance high growth early stage ventures
• Recent trend in emerging markets with an increasing number of high-net worth individuals, often with large business experience, willing to invest their time and, with money (including Diaspora), when VC increasingly focused on later stage investment.
• High risk, strengthens the balance sheet of the MSMEs, eases working capital requirements and enables additional leveraging of capital.
• Typical ticket range: US$ 20,000 -500,000.
• To be considered: policy framework for investment, awareness of SMEs (still very new)
India - early stage debt financing (including
angel and early stage venture debt) and risk capital
financing to high growth MSMEs. A World Bank-
Small Industries Development Bank India 163 US$
million project (since Feb 2015)
Lebanon - early stage equity financingA World Bank – Kafalat facility, 2.5 US$ million for
SME to develop their concept and 25 US$ million for
investment (since 2013). Complemented by another
project to strengthen the early stage ecosystem by
scaling best practice incubators/ accelerators.
VC4Africa – online platform for catalyzing
start up funding through community networks of
17,000 members in 200 countries. Considered the
largest community of VC, Angels and entrepreneurs
to build early stage business in Africa. Started as a
LinkedIn Group in 2008. 27 US$ million raised since
inception in web, health, education, renewable
energy, agri businesses
Supplier leasing – Example Agri Cooperatives Cote d’Ivoire
• Asset-based finance for the lease of trucks in the value chain of Cargill, one of the largest producer of cocoa globally leveraging innovative assessment tool and tailored support program
• Aggregated fragmented farmers through 300 cocoa cooperatives (start organizations separate from agent/ aggregators)
• Segmented and Scored: Screened and segmented suppliers, providing a score on a 0-5 scale leveraging unique quantitative assessment tool, co-developed by IFC with Scope Insight, to assess the level of business management professionalism of cooperatives across 8 performance dimensions (external risks, enablers, supply, market, operations, financial management, sustainability, internal management)
• Targeted skill development program in the Coop Academy towards most critical needs of cooperatives.
• 43 obtained a commercial mid-term (3 yrs) loan for the lease of 78 new trucks for cocoa bean transportation, provided by IFC client Ivorian Bank SIB and backed by Cargill at lower interest rates than currently available.
Points for consideration
• Diagnostic of strategic value chains
• Aggregation reduces risks and costs-
to-serve. Partnership and
collaboration essential. (e.g. Olive
Oil experience)
• Could be replicated to other sectors
Warehouse financing (WHR) example
(Source: IFC Global Warehouse Finance Program)
• Advice to local banks how to value the commodities and structure financing.
• Regulatory support, review WHR financing (licensing systems, inspection systems, market
information systems, and auction market systems).
• Credit line to Banks or risk-sharing facility
Without warehouse receipt finance,
many traders would not have the
collateral to meet banks’
requirements.” Richard Wangwe, Head
of Agriculture at Stanbic Uganda
ST finance secured by the commodities
deposited in warehouse (approved by the
lender or at the lender, controlled by an
independent third party), through use of the
warehouse receipt (WHR). It allows farmers,
small traders to ease refinancing for the goods
in storage and banks to reduce risk.
In Ethiopia, electronic
warehouse receipts,
commercial banks linked to
commodity exchange for
increased transparency
In Kazakhstan, govt licensed
warehouses, warehouse
receipts by ministry of
agriculture, monthly
inspections
In Malawi, collateral
management agreement
(CMA): contractual
relationship between
depositors, storage
operators, financial
institutions, and ACE (no
regulatory framework)
The Fintech paradigm shift
Source: ‘the future of Fintech: a paradigm shift in small business finance’, World
Economic Forum, Oct 2015
• Innovative credit
scoring models
• Extend volumes to
different risk class
• Speed, costs,
convenience
Enabling factors: awareness, infrastructure, regulation
• Purchase order
finance
• Reverse factoring
• Receivable
finance/ factoring
Example: online invoice finance
Footer
Allow small businesses to monetize outstanding
receivables quickly and easily, connect their
accounting system to the invoice finance platform.
From then onward, SMEs can apply for a loan
based on the value of individual receivables.
Since the application is processed mostly
automatically, payment can be received almost
instantly.
Risk models also take into account the frequency
with which a business uses the platform and the
reliability of its payments. Over time, and after
several flawless repayments, SMEs are able to
borrow at a decreasingly lower discount.
Similar to unsecured marketplace lenders, invoice
finance platforms themselves typically do not
grant loans from their own balance sheet, but
have third-party funds which they allocate.
Reduces information
asymmetry, strengthen
education
e.g. Marketinvoice,
Finexkap, TREFI
Trends to address this challenge
The case for
holistic and
integrated
approach in the
financial ecosystem
Broadening
financial
instruments:
alternative
financing and
technology
Deepening
segmentation:
building successful
customer value
propositions
Deepening segmentation: customer value proposition Rawbank
Raymond Loambo, Commercial Banking Manager
and Project Lead
“Our objective is to attract
potential customers who work
mostly in the informal economy.
Once they start to work with the
bank, they gradually put their
business on a formal footing, which
then enables us to support
them more effectively with
products tailored to their
commercial development projects.”
RawBank DRC small business formalization
• Identified as a promising segment in a
country with 5% banking penetration and 96%
of business informal.
• Tailored financial (account, loan) and non-
financial services (legal support, seminars,
one to one meetings)
• Revised credit analysis, 14 youth agents on-
boarded w. Frankfurt School of Management
• Promising results:
• Increased demand for financial products
from the « informal » segment (23
millions USD credit, i.e. 55% of total
MSME credit)
• Controlled NPLs to 2% (before: 15%)
• +22.4% deposits, +12.6% loans (in 1
year), 30% conversion rate
“I used to do my business banking with another
bank, I had a distorted view of RawBank; it was
too exclusive, not for me. But now, I can see
that it is a bank that is close to its customers,
that it encourages small businesses, and that it
is a good bank to have a relationship with.”
Madison, electrical shop owner
(Source: RawBank Annual report 2014, enterprise development manager)
Example : women in business added value proposition
Source: ‘Women's’ insurance market represents trillion dollar opportunity’, IFC, Axa
Group, Accenture (2015)
• From a market of nearly $800 billion in 2013, the women’s insurance market globally is expected to represent between $1.45 and $1.7 trillion by 2030
• only 31 percent of women entrepreneurs surveyed held protection- or savings-oriented life insurance
• five to six tipping points during a woman’s life at which she makes a significant amount of her insurance related decisions: marriage, entering the workforce, buying a house/car, having children, divorce/widowhood, and retirement
• One-third of the world’s entrepreneurs are women who want to grow their business and take more calculated risks, but who face a glaring gender gap and access to finance. By helping them manage the risks, insurance increases women’s ability to access credit and helps them to make this leap.
Kashf Foundation, Pakistan Ibtida-
e-Karobar Karza- credit life
insurance protection for microcredit
loans to new women entrepreneurs
Intesa San Paolo “Business Gemma”
• business interruption and personal
protection for women entrepreneurs
• Maternity, serious health issue and
assistance at difficult times, e,g. disability
in the case of widowhood.
• Deferral of loan payments by up to 12
months if maternity leave or serious
illness within the family.
• AIFIN-Cerchio d’Oro award for financial
innovation in 2011 and the MF
Innovation Award in 2012.
Example: Women traders needed savings, not another branch
• IFC client Tier 2 bank accounting with another 5
for 63% of all assets of the banking sector in
Nigeria. Launched successful bundle for women,
for SMEs
• Tapped profitably into the women traders
segment by providing what they asked for, a
convenient, affordable, secure, confidential and
flexible mobile savings and borrowing product
increasing their comfort with banks, and
introducing incentives and rewards playing on
the winning oriented mindset.
• BETA customers are using their account
regularly: 74 percent of customers transact more
than once a month, saving an aggregate $1.5
million (US) in deposits in the first six months
from the pilot launch. Ca 39,000 accounts
opened in 6 months.
• Developed with the Women’s World Banking
Mobile BETA savings, Diamond Bank Nigeria
Support to regulators and financial infrastructure:
Reforming insolvency and creditor rights to build confidence
• Starts w. corporate law explicit about liquidation
• Way to improve the financial system’s effectiveness for SMEs, including through reform of the discharge of personal debt (SME Finance Sub-Group of the G20)
• Affects creditors confidence and willingness to invest, and the terms, if they know they can recover at least part of their investment
• More credit available on better terms:• In Brazil, led to greater recovery expectations
from creditors, 7.8 to 16.8% lower cost of debt
and a 17% increase in total debt (23 for LT
debt), particularly for smaller firms
• In Italy, accelerating the liquidation procedure in
Italy led to lower interest rates for SMEs, relaxed
credit constraints and allowed more firms to
obtain loans
Creditors recover more, in countries
where reforms increase the possibility
of asset reorganization
Out-of-the-court informal SME debt restructuring
Contractual agreement between creditors and debtor without court involvement, which can
lead to operational restructuring of the business, and/or financial restructuring of liabilities,
before or after the SME cease to pay.
Benefits
Increased investor confidence in
recovery, impacting access to finance
Enabled business continuity for viable
SME after restructuration plan
Mutual increased revenues and time
saved
• In South Corea (1998): End 2002 : 55 business finalized RED (95% of the total of debt)
• In Malaysia (1998): after 3 years, 37 debtsrestructured (77% of the total debt)
• In Thailand (1998): after 3 years, over 10,260 restructuration completed (48% of the total debt)
• India (2008): 4 years after, 327 restructuration completed (70% of the total debt, i.e. 34 milliards USD)
• In Jordan and Lebanon: with WBG support, endorsement and public launch of 12 principles adopted by Central Bank and Bank association (Oct 2015)