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Dubai May 2013
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SME Finance – the way forward
Matthew GamserHead, SME Finance Forum
Dubai, May 2013
managed well, SME Banking can be very profitable…
Key observations• ROE can be very attractive (up to 25-35%)• Margin compression inevitable but can be
negated by establishing a “total wallet” P&L• Key profit drivers are typically deposits and
transaction banking, representing between 50-60% of total SME business profitability
• Need to take a 5-year view of product profitability
“We want to double in 3 years. Returns are the best in the Group. Risk-returns are now twice as high as all our consumer banking businesses”
Global Product Head, SME Banking Standard Chartered Sept.2010
Faster Revenue Growth………..
Higher RoA’s………..
2SME
Finance Gap
Challenges in SF
IFC – What &
HowIFC and
G-20IFC
Footprint
Performance in SME Banking can be highly volatile if the right capabilities are not put in place…
SME ROAPERCENT
SME Banking rewards those with the right capabilities in placeSource: Mckinsey
3SME
Finance Gap
Challenges in SF
IFC – What &
HowIFC and
G-20IFC
Footprint
Challenges and Solutions - Overview
PoorCustomer KnowledgePoor
business enablers
Lack of collateral or capitalLack of
credit data
Low profitabili
ty
SME skills and
literacy
• Government initiatives (e.g. procurement)
• Financial infrastructure
• Credit guarantees
• Unsecured/ partially secured
• Loan guarantees
• Value chain financing
• Credit scoring• Psychometric testing• Operating account track
record • Early warning
indicators
• Value based sales and service coverage models
• Retail-style products• Automated and
reengineered processes
• Low cost channels (e.g internet, call centre)
• Retail and business linkages
• Educate SME through non-financial advisory provision (e.g. SME toolkit)
• Provision of training, information & networking
• Granular definition of SME supported by market research
• Segmentation: Specific value propositions to target specific sub-segments of SME (e.g. women)
• Greater focus upon customer management
IFC Internal Analysis, 2011
SMEFinance
Challenges
• SME treated as corporate for medium SME and/or retail clients for small SME
• 100% secured lending driven with undifferentiated products of service levels
• Limited product program approaches and a lack of cost-effective methods to address segment
• Emphasis upon lending, not SME Banking
Common weak models in EM countries today:
4SME
Strategy Thought Leadersh
ip
Project Design/ Portfolio
SME Finance Initiative
Lessons Learned
Formal SME credit gap remains as large as ever at ~ $ 1 Trillion
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
Myths and Opportunities #1
Acleda Cambodia – using the data!
- Expand operational areas and provide more conveniences to MSME entrepreneurs in both urban and rural areas such as: fund transfer, ACLEDA Unity (Mobile phone banking),…etc.
26
Myths and Opportunities #2
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
Myths and Opportunities 3
Myth Opportunity
3. It’s all about banks Banks matter, but so do partnerships - with real sector large firms, and others.
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
The Way Forward - Potential of both relationship and transactional-based strategies
and
Using new tools: IFC’s Customer Management Excellence Program• Support our clients with their growth
strategies, increase profitability ratios, and augment the bank’s capabilities across key areas of customer management to better acquire and retain SME clients
• The tools and models of the program include: (1) a maturity assessment tool; (2) a wallet share sizing tool; (3) a revenue projection model; and (4) a sales Du-Pont Model
• The program was designed to evaluate the current customer management capabilities across key areas in SME customer relationship management including:– Identifying best customers within an SME
Banking portfolio– Targeting acquisitions and cross-sell– Optimizing risk and performance based
pricing – Optimizing SME touch-points for marketing
profitably – Managing retention and churn practices
– Optimizing collections and recovery actions– Managing activation and reactivation – Managing loyalty for SME clients– Managing customer campaigns– Assessing fees and waivers
3%
23%
1%2
%2%2
%3%
4%
6%
Customer Management Items
Standard Sale force skills
Operations optimization
Improved acquisition
Optimized approval rates/ pricing
Active Cross Selling
Retention Measures
Collection Optimization
Best-in-class
Difference between standard and best-in-class SME banking [ROE]
14 SME Strategy
Thought Leadersh
ip
Project Design/ Portfolio
SME Finance Initiative
Lessons Learned
As of February 2013, the SME Banking advisory program had 37 active projects, with a total value of US$30 million with 86% of projects linked to
investments
Global Footprint: IFC has implemented 74 SME banking advisory projects around the world worth $50 million from 2007-12
Ceska Sporitelina (Czech Republic)
FMB and NBS Bank (Malawi)
Bank Muscat
(Oman)
Access Bank(Nigeria)
AgroInvest
Bank(Tajikistan
)CHUEE Energy
Efficiency
(China)
Dewan (India)
Finterra
(Mexico)Banco
Atlantida and Ficohsa(Honduras)
Atlantic bank(Belize)
15SME
Strategy Thought Leadersh
ip
Project Design/ Portfolio
SME Finance Initiative
Lessons Learned
Knowledge Resources
16
Creation of SME Finance Forum & Global SME Finance Initiative
• IFC hosts the SME Finance Forum a G20 global initiative for inclusive knowledge sharing on SME finance data, research and best practices and facilitation among public/private actors in SME finance
Lead Implementing Partner to the G-20 SME Finance Sub-Group (and contributor to
Data SG)
SME Finance Stocktaking
Report
Innovative Agricultural SME Finance
Models
Strengthening A2F for Women-owned
SMEs in Developing Countries
SME Finance Policy Guide
Scaling up Access to Finance for
Agricultural SMEs
GPFI: Global Partnership For Financial InclusionShaping the Global Agenda on SMEs and Financial Inclusion
SME Strategy
Thought Leadersh
ip
Project Design/ Portfolio
SME Finance Initiative
Lessons Learned
Achievements to date
News/reports on SME finance with daily feeds
Growing LinkedIn group: over 1400 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 launched 21
April 2013!
600,000-800,000 unserved or under-served SMEs
reached over 10 years
Global SME Finance Initiative: Global platform of joint delivery of AS, IS and mobilization
Capacity Building for
Banks & NBFIs
Don
ors
Financial Infrastructure: Supports capacity of banks to lend and manage SME risk, and strengthens SMEs’ ability to monetize assets
IFI/D
FIs
10 year timeframe. Anchor partners DFID & EIB
INVESTMENT SERVICESCommercial Funding from
IFIs/DFIs (up to $1.4 billion)
A2F Advisory Services
FI Capacity Building (target $50 million)
Financial Infrastructure (target $15 million)
Global Facility Participating FIs SMEs
Concessional Funding from Donors
(up to $400 million )
Commercial or Blended funding to FIs through: • Credit Lines• Credit
Enhancement
• Risk Sharing Facilities
50-70 Global,
Regional &
Local Banks
and NBFIs in the SME
business
Up to $4 billion new funding available for SMEs in emerging markets
(cycled 3-4 times over 10 years)
18SME
Strategy Thought Leadersh
ip
Project Design/ Portfolio
SME Finance Initiative
Lessons Learned
On the Web at www.smefinanceforum.org
LinkedIn Group: SME Finance Forum
Twitter: @SMEFinanceForum
Annexes
IFC SME Banking Advisory can support FIs in the following capacity building areas…
Develop products
& services
Acquire & Screen
SME Clients
Serve SME Clients IT / MIS
Strategy / Business
Model• Market
assessment including women entrepreneurs
• Business/Strategic Planning
• Organizational set-up or realignment
Support FIs to set-up
SME Units or grow in
the segment
• Research SME needs
• Product Bundling
• Non-financial services
• Value proposition for women owned businesses
• SME Centers or Branch redesign
• Alternative Delivery Channels
• Profitability analysis
• Efficiency analysis
• Sales effectiveness
• Credit reengineering
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SME Banking Guide
SME Banking Training Program
Risk Assessment Framework
Customer Management SME Banking
Guide
SME CHECK Diagnostic
Tools for FIs
SME Strategy
Thought Leadersh
ip
Project Design/ Portfolio
SME Finance Initiative
Lessons Learned
Case Study 1 – Banco Atlantida, Honduras
The client and the project:
22
Pricing: AS Project Value: US$ 405,000
Targets:• SME reach (loans outstanding):
2,337• Target Value of Loans
Outstanding: US$ 44 million• Improving NPL levels from 9%
to 5%Demonstration Effect:Led to more projects with the bank in other countries in the region.
Project implementation ends 30 June, 2013.
• Largest local bank by assets with a large national network
• Investments: US$35 million trade line & US$50 million SEF loan
• Multiple product components in the SME Banking project:
• SME Banking• Risk Management• Sustainable Energy Finance• Cross cuts with SBA product: Non-
financial services & SME Toolkit
• Establishment of a SME Banking Unit includes:
• Organization structure adapted to capacity for SME finance
• Loan officers hired and trained
SME Strategy
Thought Leadersh
ip
Project Design/ Portfolio
SME Finance Initiative
Lessons Learned
Case Study 2 – BLC Bank, Lebanon
The client and the project:
23
Pricing: AS Project Value: US$ 400,000
Targets:• SME reach (loans outstanding):
10,700 (of which 17% are women)
• Target Value of Loans Outstanding: US$ 350 million
• Improving NPL levels from 9% to 5%
Demonstration Effect:Women’s business growing by over 60 percent, bank overall only by 20 percent.Role model for other banks in the region to serve women markets.
Project implementation ends 30 June 2013.
• First bank in Lebanon and MENA to recognize business case for reaching out to women clients
• First member of IFC’s Green Building Initiative in MENA; member of GTFP
• Multiple product components in the SME Banking project:
• SME Banking (50%)• Gender Finance (30%)• Risk Management (20%)
• Development of SME and Women value proposition:
• Market research• Women in Business training design support for BLC staff
• Value proposition development for SMEs, focus on women
• Non-financial advisory services
SME Strategy
Thought Leadersh
ip
Project Design/ Portfolio
SME Finance Initiative
Lessons Learned
Case Study 3 - BINHAI RURAL COMMERCIAL BANK (BRCB)
• Formed 2007 through consolidation of two existing rural cooperative banks and one rural credit union in the Tianjin Binhai New District
• IFC committed US$32 million in equity and a 3-year comprehensive advisory program
corporate governance, risk management, internal controls, and lending to SMEs
• As of December 2008, the Bank had 8,895 SME loans worth US$765.5 million
Increased its SME loan portfolio by 84 percent in number and by 49 percent in volume from 2007 to 2008
“Over the past year, IFC provided training and advisory services and played an active role at the Board level. These are instrumental in helping the bank implement its strategy, advance its SME and rural financing business, improve staff quality as well as its corporate governance and risk management situation.”Fengchang Qi, Chairman, Binhai Rural Commercial Bank
24
