Workshop on SME Financing – Reaching Scale

FSDT SUPPORT TO SME FINANCE

Renatus D. Mushi

Deputy SME Finance Specialist

FINANCIAL SECTOR DEEPENING TRUST

June 27, 2007 Moevenpick Royal Palm Hotel - Dar es Salaam, Tanzania,

CONTENTS OF PRESENTATION

• Introduction to FSDT• Themes Under which FSDT Projects are Organized• Significance / Rationale for FSDT Support to SMEs

- Importance of SMEs• SME Related Targeted Outputs• FSDT’s Intervention - Activities & Inputs

INTRODUCTION TO FSDT

• Established in July 2005; Operations February 2006• Five Government donors: CIDA, DFID, RNE, SIDA,

DANIDA• Government of Tanzania to join soon• Pooled resources into a single operation• FSDT is the implementing agency

INTRODUCTION TO FSDT (Cont.)

• Goal:A deeper financial system providing greater access to financial services for more people and businesses

• Purpose:Improved capacity of Tanzania’s financial sector to meet the needs of MSMEs and poor rural and urban people and to contribute to economic growth.

• Overall aim: identify and finance ways to provide greater identify and finance ways to provide greater access for more people to engage with the financial system access for more people to engage with the financial system in Tanzaniain Tanzania

MACRO PolicyLegal & RegulatoryData

MESOSupervisionFinancial Sector InfrastructureCapacity Building

MICROMicrofinance Providers – AgricultureMicrofinance Providers – Non-agricultureSME Finance

THEMES UNDER WHICH FSDT PROJECTS ARE ORGANIZED

• Address issues across all three pillars of the financial sector:– Micro ~ supporting organisations and transactions – Meso / Infrastructure ~ capacity-building– Macro ~ policy, legal and regulatory frameworks

• Focus on making markets work, especially for the poor• Need to define the shape and nature of financial markets,

the gaps between supply and demand, and the barriers to access

THEMES UNDER WHICH FSDT PROJECTS ARE ORGANIZED

SIGNIFICANCE OF FINANCING SMEs:

RESULTS FROM FINSCOPE Access to financial services by categories

9% 2% 35% 54%

FI - Formally Included SI - Semi FormalII - Informally Included E - Excluded

SIGNIFICANCE OF FINANCING SMEs

• Little is known on SME Finance Market in Tanzania. Researches on both the supply and demand for finance in relation to SMEs have been empirically-based

• About a third of the GDP originates from the SME sector

• Create employment at relatively low levels of investment per job created. Public sector employs only about 40,000 per annum (5.7% of the new entrants)

SIGNIFICANCE OF FINANCING SMEs

•Effective in the utilization of local resources, using simple and affordable technology.

•SMEs play a fundamental role in utilizing and adding value to local resources.

SIGNIFICANCE OF FINANCING SMEs• The role of finance has been viewed as a critical element for

the development of small and medium-sized enterprises.

• Studies have highlighted the limited access to financial resources available to smaller enterprises compared to larger organizations and the consequences for their growth and development.

• Typically, smaller enterprises face higher transaction costs than larger enterprises in obtaining credit. Insufficient funding has been made available to finance working capital.

SIGNIFICANCE OF FINANCING SMEs

• Poor management and accounting practices have hampered the ability of smaller enterprises to raise finances.

• Information asymmetries associated with lending to small scale borrowers have restricted the flow of finance to smaller enterprises.

• Some studies show a large number of small

enterprises fail because of non-financial reasons.

SME FINANCE RELATED TARGETED OUTPUTS

• More and better financial services available to meet the needs of urban and rural enterprises (MSMEs)

• More and better financial services available to meet the needs of poor urban and rural households and individuals

• Structure accommodates offices of SME Finance Specialist & Agriculture Finance Specialist: SME & Agriculture are not diverse.

• Funded national survey of demand for, and barriers to access financial services – FinScope

• To be involved with and fund survey of supply for financial services – soon

• Vested to be involved in survey of market environment for SME finance

FSDT’S INTERVENTION - ACTIVITIES & INPUTS

• Identifying gaps in institutional knowledge, product development and related processes in banks and other financial institutions

• Organising and managing technical assistance to banks and other financial institutions

• SME finance support for banks and other financial institutions – including guarantee schemes and longer-term finance for on-lending

• Promote greater harmonisation of approach to SME finance in Tanzania and synergies where appropriate

FSDT’S INTERVENTION - ACTIVITIES & INPUTS

FSDT’S INTERVENTION - ACTIVITIES & INPUTS

• Investment in financial institutions with credible plans for achieving financial sustainability

• Support capacity building for MFIs & other FIs• Develop providers of services to Banks, SACCOs

and other MF providers, particularly in MIS and ICT.• Management

FSDT’S INTERVENTION - ACTIVITIES & INPUTS

Projects - Examples:• Cash collateral for loan from AGITF to Dunduliza for

on-lending to SACCOs• Support for SME finance capacity of Eurafrican

Bank• Guarantee fund with FBME in Zanzibar• Support for BRAC pilot activities in Tanzania• Funding for Access Bank

FSDT’S INTERVENTION - ACTIVITIES & INPUTS

• Investment in KFCB (includes capacity building)• Funding for SEDA• Community Bank development and future

investment• Guarantee for bank loan to SELFINA• Warehouse receipts pilots• Low-cost housing pilot for WAT

FSDT’S INTERVENTION - ACTIVITIES & INPUTS

• Support for FERT network of SACCOs• Funding for Dunduliza network• Regional study of costs & benefits of different models for

SACCO networks• National capacity building for SACCOs –Introduction of

minimum qualifications for anyone working in SACCOs

FSDT CONTACTS1 Physical Address PPF Tower, 8th Floor, RM #: 0803, Dar es

Salaam, Tanzana2 Postal Address P. O. Box 4653, Dar es Salaam,

Tanzania3 Telephone #s +255 22 202 9060/1

4 Fax # +255 22 202 9062

5 E-mail ian@fsdt.or.tz

6 FinScope D-Group http://dgroups.org/groups/FSDT-Tanzania

THANK YOU FOR YOUR ATTENTION!