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Financing Challenges of SMEs and New Firms in Latin America
MARCO KAMIYA
Vice Presidency of Public Policy and Development Strategies
Division of Public Policy and Competitiveness
New Orleans, September 10 ‐ 11, 2012
Four Decades of Presence in LAC
2011Letters of Intent:
Guatemala and Italia18 countries
14 commercial banks
1970BoliviaColombiaEcuadorPeru Venezuela
1990-2010
Mexico (1990)Brazil (1992)Chile (1992)Trinidad & Tobago (1994)Panama (1997)Paraguay (1997)Jamaica (1997)Argentina (2001)Uruguay (2001)Costa Rica (2002)Spain (2002)Dominican Republic (2004)Portugal (2009)
Finance and SMEs in Latin America
• Many very small micro‐enterprises.
• One family firms driven “by necessity”.
• SMEs don’t grow as it should and have low productivity.
• Low availability of financing for start‐up and firm expansion.
• …and, despite the emergence of ‘Multilatinas’ still few global corporations in most of the countries, so lack of ‘anchor’ firms prevent expansion.
SMEs, New Firms and Financing in LAC
Availability of Cap
ital
R&D Start, Sustainability, ExpansionOperation and Consolidation
Angel Investors
Seed Capital
Initial VC
VC for Expansion
Last Stage of Private Equity
Cycle of Financing in LAC: Many Obstacles
Cash Flow ‐
/ Cash Flow
+
Financial Valley of Death
WeakInnovationSystems
Insufficient Deal flow
Stock Markets, small and with few
instruments
Stock Markets in LAC are Growing…
Source: World Bank and Bank for International Settlements
…but LAC Financial Markets lag Behind
Source: Prepared by CAF with World Bank data. LAC: Argentina, Brazil, Chile, Colombia, México, Peru and Venezuela. Emerging Asia includes: China, South Korea, India, Indonesia, Philippines, Singapore and Thailand
…and Financial Development is lower than expected
Source: Prepared with World Bank data.
Latin America
Emerging Asia
Entrepreneurship and Nascent Firms
Source: OECD , CAF 2011
Private Finance for New Ventures in Latin America and East of Asia
9
LAC East Asia
Start First Years Start First Years
Percent of the Entrepreneurs funded by Private Investors 8,9 % 6,8 % 27,1 % 28,8 %
Perfect of the Entrepreneurs funded by Venture Capital 2,8 % 1,7 % 8,9 % 15,0 %
Venture Capital in LAC: The ‘Critical Mass’ Trap
…and number of deals too small
Investment Deals in 2011, 173. But in some countries were less than 10.
Source: Ernst & Young, LAVCA
Investment amount low…
VC funds committed in LAC in 2011: US$6.5 billion, so PE/VC size in LAC is 5% of total in the World
Total VC Funds Committed in LAC (2011)
Returns of Venture Capital Funds in the US
Source: Lerner (2009)Note: VC Funds Return as of March 2008
High Growth SMEs: Very Few Winners
Ecosystem, Institutions and Programs
Sil Val Israel Sing Bra Chi Mex Colo
Innovation Patents
Universities
Overseas networks
Entrepreneurship Teaching techniques
Training for Business plans, etc.
Tech Transfer Centers
Financing Angel Investors/Seed
Venture Capital
Equity Investment
Enterprise Development Ecosystems
Developed Underdeveloped Incipient
Source: CAF 2012
Business Centers
Export Promotion Productive Development Finance
SECOM –Trade
Promotion Offices
Chambers of
Commerce
International
National
Local
BNDES
BNDES Local Offices
SEBRAE
Oficinas Locales de
SEBRAEPublic
Private
Public‐Private
Confede‐ración de Industrias
Conf. Industrias Locales
FINEP
Oficinas Locales de FINEP
APEX
International
Multilateral
Investment Banks
Min. De Industria
y Comercio Exterior
Min. De Relacione
s Exteriores
Agency for Industrial Develop‐ment
Estados /Municipio
Example: Institutional Ecosystem in Brazil
Source: CAF 2012
R&D Start‐Up, Sustainability, Expansion Consolidation
Example: Instruments and Programs in Brazil
Exit to MarketVenture Capital Initial
SeedCapital
Research and Development
Angel Networks
InstrumentsFINEP
Non‐reimbursable
funds
Innovar Seed
Innovar Juro Zero
Innova Brasil
InstrumentsSEBRAE
InstrumentsBNDES
FUNTEC
CRIATEC
Prosoft Comercializao / Prosoft Empresa
FINAMEPROFARMA CARTAO BNDES
FINEM Revitaliza
PROIMPE
PRIME
Negocio Certo Entrepreneurs fairs
Venture Capital
Expansion
Source: CAF 2012
Instruments and Programs to Expand SMEs’ Financial Access in
Latin America
National Development Banks in LAC *
Public Credit to SMEs
Number of % Assets (US$) %
First‐tier banks 66 65.3 376,365 43.5
Second‐tier banks
23 22.8 237,762 27.5
Banks of 1st and 2nd tier
12 11.9 251,043 29.9
TOTAL 101 100.0 865,169 100.0
Source: ALIDE data as of 2009 (Latin America Association of Financial Development Institutions)
(*) i.e. Chile‐CORFO; Brazil‐BNDES and FINEP; México‐NAFINSA; Colombia‐BANCOLDEX; Peru‐COFIDE; etc.
Financial Development withCluster / Value Chain
CAF, IADB, World Bank, Governments
o Cluster Development Operations
Manaos, Ceará, Dominica Republic, etc.
o City Development (Cities with Future)
Comprehensive Approach ‐ CAF
o Regional Innovation Systems
In Santa Catarina‐Brazil, San Juan‐Argentina, Costa Rica
o Value Chain and Finance
Provinces in LAC countries
Successful Instruments and Programs for Financial Access
Source: Prepared by CAF with data from CAF, ALIDE, World Bank
Country Name
Guarantees ChileColombiaMexico
Banco Estado ‐ FOGAPEBANCOLDEX ‐ Fondo Nac. Garantías (FNG)NAFIN Garantías Públicas
Credit Bureau Several countries
i.e. Chile, Peru
Factoring Mexico NAFIN Reverse FactoringNAFIN Cadenas Productivas
Seed Capital Several countries
Brazil ‐FINEP Inova, Chile‐Sercotec, Uruguay‐Red Emprender, Costa Rica, etc.
Outsourcing of Banking services
BrazilMexico
Caixa, Banco do BrasilBANSEFI ‐ Banco de Ahorro Nac. y Serv. Financ.
CAF’s Role in SMEs’ Finance and Support of New Firms
CAF: Higher Credit Ratings than the Owners
Standard & Poor's Fitch Ratings Moody’s
Investment Grade
AAAAA+
ChileAA AA‐A+ Chile ChileAA‐BBB+
Mexico, Peru, BrazilColombia, Uruguay
Brazil, México, PeruColombia
MexicoBrazil, PeruColombia, Uruguay
BBBBBB‐
Non‐investment
grade
BB+
Venezuela
UruguayBBBB‐B+ Bolivia, Paraguay
ArgentinaEcuador
Bolivia, Venezuela
Argentina, Ecuador
Bolivia, ParaguayEcuador, VenezuelaArgentina
BB‐CCC+CCCCCC‐
Source: As of August 2012
CAF Investing in Microfinance Funds
Regional Funds:
(i) LOC Fund
(ii) Solidus Investment Fund
(iii) Microfinance Growth Fund
(iv) Próspero Microfinanzas Fund
Bolivia•BancoSol (2 operac.)•Banco Los Andes ProCredit•Banco FIE (2 operac.)•FFP Prodem•FFP Fassil•Eco Futuro (2 operac.)•Cooper. Jesús Nazareno•ONG Crecer
Paraguay•Banco Regional•Visión Banco S.A•Banco Amambay
Uruguay•Microfinanzas del Uruguay S.A.
Peru•MiBanco•CMAC Arequipa•CMAC Tacna•Financiera Crear Arequipa•Edpyme Nueva Visión•Edpyme Confianza•Edpyme Edyficar•Caja Nuestra Gente
Argentina•FIE Gran Poder
Mexico•Banco Compartamos
Panama•Microserfin•Banco Delta
Colombia•Banco WWB Colombia (Cali)•2 Fundaciones del WWB• (Bucaramanga y Popayán)
Ecuador•Banco Procredit
ParaguayVisión Banco S.A.
PanamaTrust (FCS)
BoliviaFondo Fortaleza PYMEFondo Emprender
BrazilFondo Burril Brasil, FMIEECRP VI Venture Fundo Mutuo
VenezuelaDynamic Equity Venture Fund
Trinidad y TobagoDynamic Equity Venture Fund
Dominican RepublicTrust Capital Semilla
ArgentinaCap VenturesFOGABAFondo PymarCGM Leasing
ColombiaFondo Escala Capital FCPColombia Opportunity FundFondo Nacional de Garantías
Costa RicaBanco ImprosaFinanciera Desyfin
MexicoFondo PronafimIgnia Fund Latin Idea Fund IINew Growth Fund I
CAF investing in Seed Capital, PE/VC
Regional Funds:
(i) Aureos Latin America Fund
(ii) Cleantech Fund
(iii) CASEIF Corporation II
SpainFondo Axon
Product:
Venture Capital
Guarantees
Value Chains PeruFOGAPI
EcuadorFideicomiso Inver. Agrop.Fondo País Ecuador
UruguayUruguay IVC PartnersFondo Emprender
BOLIVIABolivia Cost IndexCluster DevelopmentDevelopment AgencyCity Development
VENEZUELANetwork “Venezuela SíCompite”
Incubators and UniversitiesSupport to Start‐Ups (SACEV)
COSTA RICASupport to Public administration efficiency and Public reform
PANAMAPanama Competitiveness Program
Innovation studies, entrepreneurship
ARGENTINAEntrepreneurshipCluster DevelopmentTourism Development
COLOMBIA:Support to Competitiveness Strategies
Cluster Development
ECUADOR:Business Registration ProgramValue Chain in rural zonesSupport to Entrepreneurship
PERU:Corporate governance in Public firmsYoung Entrepreneurs program Local Productive DevelopmentRegional supply chain SME networks
Supporting Productive Transformation
CAF Technical Cooperation to
SMEs
Conclusion: The Road Ahead
• Many obstacles to SMEs and new firms in the cycle of financing. So firms don’t grow and new ventures are lower than they should be.
• So, public policy have two tasks:
– In 5 to 10 years, keep building the ecosystem with better public capacity
– In the short term, think in terms of ‘efficient and flexible’instruments and programs.
• In alliance with the private sector, combine provision of financial access with technical cooperation to SMEs.
• And finally, engage multilateral financial institutions (i.e. CAF) in policy design and facilitation.
MARCO KAMIYA
Vice Presidency of Public Policy and Development Strategies
Division of Public Policy and Competitiveness
New Orleans, Thanks!