SME Finance - stocktake
Matt GamserHead, SME Finance Forum
Hanoi9 April 2013
SME Finance Forum Mission
Promote and disseminate global knowledge and good practices in SME finance to accelerate financial inclusion for SMEs
Achievements to date
News/reports on SME finance with daily feeds
Growing LinkedIn group: over 1300 members
Promotion of innovative approaches to promote SME finance/SME Finance Challenge
Data sharing/harmonization Policy dialogue (G20/AFI) Impact analysis Women’s Finance Hub coming
soon!
Our TeamMatthew Gamser, [email protected]
Hourn Thy, Operations & Technical [email protected]
Nadia Afrin, KM & Web [email protected]
Minerva Kotei, Women’s Finance [email protected]
Nothando Nyathi, [email protected]
Support for the SME Finance Forum:
Support for the G20 Finance Innovation Fund provided by:
Donors
SMEs provide 2/3 of formal jobs in the private sector in emerging markets
SMEs consider access to finance and power as the leading constraints
Formal SME credit gap remains as large as ever at ~ $ 1 Trillion
Today 55-68% of formal SMEs in emerging markets are either unserved or underserved
82-86% (~ 0.8-0.9 Tn) of total credit gap of formal SMEs in emerging markets is represented by formal SMEs that already have a deposit account
Worldwide majority of woman-owned formal SMEs are unserved or under-served
But financial institutions face 6 main challenges when lending to SMEs
….. And banks need capacity to address these challenges
Financial infrastructure is a critical building block for SME financial inclusion
Credit reporting systems reduce information
asymmetries, support efficient credit allocation
and strengthen risk management
Payment and settlement systems
facilitate access to financial services and the safe transfer of funds. PS
can mitigate financial crises by reducing settlement risks
Secured transactions systems and collateral
registries reduce risk to lenders,
facilitate access to credit, and promote credit diversification
A solid Financial
Infrastructure serves both
Inclusion and Stability
Impact of improved credit reporting on financial inclusion
Source: Love & Mylenko (2003)
Full information-sharing increases access to credit
¨Out of every 100,000
loan applications
11,400 are lost if
assessment is based
on negative info only¨
% increase in lending volumes
73.7
83.2
Negative information only
Negative and positiveinformation
Source: Barron and Staten (2000). Note: Figure shows the simulated acceptance rate assuming a default rate of 4% overall
MSME and Payments
• More electronic transactions lower information costs• More electronic transactions save time and money for firms• More electronic transactions offer alternative portfolio
management options
Issues:• Payments data availability• Movable assets/secured transactions rights/regulations• Inter-operability• Financial institution capacity/awareness
19
The Project facilitated strong growth of SME lending by banks (1/2) – absolute growth in FI portfolio
Secured Transactions Reform – China case
Source: 50 FIs surveyed in Anhui, Guangdong, Shaanxi, Shandong, Shanghai, ZhejiangNote: The multiple government policies targeted at SMEs, including financial stimulus, during the course of the Project are
potential confounding factors
4 of Big 5 banks reported an average 25% CAGR in 2008-2010, up from 2% in 2006-2008 period; 7 other large commercial banks also reported an average of 45% over 20%
20
The Project facilitated strong growth of SME lending by banks (2/2) – FI perception
87% of surveyed FIs rated the 2007 Property Law as very/somewhat important to “serve new segments of SME market”
Secured transactions reform – China case
Source: 50 FIs surveyed in Anhui, Guangdong, Shaanxi, Shandong, Shanghai, Zhejiang
21
The Project contributed to SMEs’ business performance, as perceived by SMEs (1/2)
Source: 100 SMEs surveyed in Beijing, Chengdu, Hangzhou, Wuhan and Zhengzhou
SMEs perceive “unacceptable collateral” as by far the #1 reason for why their loan applications were denied in the past. 59% of surveyed SMEs believe that their business development would be
severely impacted, or worse, if their current access to movables financing were to be removed
Secured transactions reform – China case
The Project contributed to SMEs’ business performance, as perceived by SMEs (2/2)
Source: 100 SMEs surveyed in Beijing, Chengdu, Hangzhou, Wuhan and ZhengzhouNote 1: This evaluation attempted to compare job growth between SMEs with A/R financing and those with immovables
financing. Yet the channel of immovables financing also provides needed working capital for business and employee growth. SMEs without access to both movables and immovables financing have likely winded down.
88% of surveyed SMEs said that business growth was a benefit resulted from obtaining accounts receivable financing
22
Secured transactions reform – China case
• SMEs had increased their workforce, although employee growth was not perceived as a high benefit area
• The 2011 median and average growth rates in employees were 7% and 36%, respectively, according to the SME Survey
• However, a different methodology is needed to qualify the Project’s impact on job creation
• This evaluation lacks a control group for valid comparison1 (see more discussion on Lessons Learned)
Suppliers Pakistan
Suppliers India
SuppliersBangladesh
SuppliersVietnam
SuppliersBrazil
Buyer
SCF Delivery Solution/ Platform
Receivables purchase from Suppliers
Suppliers, Other EM
SuppliersUS
SuppliersGermany
SuppliersJapan
Buyer acceptance
Payment of discounted proceeds
Request for finance
Payment on Invoice Due Date
Accepts request and initiates payment
Funded Participation or Guarantee coverage on Buyer and country risk
$ Fees
GTSF Program Approach through Partner Banks
PartnerBank
1
2
3
4
5
Low SF utilization in emerging markets compared to OECD countries presents significant market potential
Global Warehouse Finance Program (GWFP) – WHR Scheme
Program focuses on IDA countries and works with banks which intend to increase exposure in the agriculture sector
Program covers pre-export and import financing, as well as domestic sales IFC will identify the pre-approved sub-borrower names together with banks.
Distributor Finance
IFC:• Funding or Unfunded risk
sharing facilities/partial guarantees
• Advisory Services solutions for distributors and / sub-distributors, for capacity building and risk mitigation, to be customized as per needs
BANK: Origination and monitoring in:• Receivables-based financing
to Seller• Overdrafts/loans to
Distributors/sub-Distributors or
• Floor-planning & equipment financing including end-user financing
End-Customer
SELLER varying forms of contractual support, including First Loss/counter guarantee
DistributorSeller (Anchor)
Sub-Distributor
Bank
Myths and Opportunities #1
Myths and Opportunities #2
Myths and Opportunities # 3
And maybe all of us?
On the Web at www.smefinanceforum.org
LinkedIn Group: SME Finance Forum
Twitter: @SMEFinanceForum
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