André LaudeChief Investment Officer Western Europe – IFC France
Global SME Finance Initiative André Laude Utrecht, June 18th, 2012
Kick-off for the Global SME Finance Initiative • In 2009, the Financial Inclusion Experts Group (FIEG) was created by the G-20 • In Seoul 2010, IFC was entrusted by the G-20 to assess the SME Finance Gap in emerging markets • IFC and McKinsey undertook a worldwide stocktaking exercise which showed a financing gap of US$700 to 850 billion for SMEs in emerging markets, although they are an essential ingredient for job creation. This led IFC and the G-20 to pursue a Global SME Finance Facility of ca. US $2.0 billion to prop access to finance by SMEs worldwide 3
SMEs & Jobs: A critical link at a critical time • SMEs account for two-thirds of the full-time/permanent jobs in developing countries • They comprise an even greater percent in low-income countries where nine out of 10 full-time employees work in SMEs • They generate over four-fifth of the new jobs • Banks in developing countries provide marginal investment loan support and charge higher fees and interest rates • Lack of access to funds inhibits SMEs from achieving productivity improvements that contribute to growth, and maximize job creation The global SME Finance Gap is estimated at US$700 to 850 billion 4
Markets: Regional Challenges Differ • Finance is a key constraint for SMEs in all regions, particularly so in Africa and MENA • In South Asia the key challenge is bringing informal SMEs into the financial system. Financing gap for formal SMEs in Developing Countries 5
Closing the finance gap: Finance Facilities Global Facility Participating FIs SMEs Africa E.Asia S.Asia LAC Europe MENA Commercial or blended funding to FIs Up to Donor Funding through: $4 billion priorities for : INVESTMENT SERVICES new 600,000- Sub-Saharan Africa:IFI/DFIs 50-70 funding 800,000 Malawi, Rwanda, Commercial Funding from Credit Lines Global, available unserved or Ghana, Sierra Leone, IFIs/DFIs Credit Regional for SMEs in under- Liberia, Zambia, DRC, (up to $1.4 billion) Enhancement served SMEs & emerging Tanzania, Kenya, Local Banks markets reached Uganda, South Sudan, Risk Sharing Concessional Funding from Facilities and NBFIs in over Mozambique, Ethiopia Donors the SME 10 years and Nigeria (up to $400 million ) business (cycled 3-4 South Asia: India, times over Bangladesh, NepalDonors 10 years) MENA: Pakistan, A2F Advisory Services Capacity Building for Afghanistan FI Capacity Building Banks & NBFIs (target $50 million) Financial Infrastructure Supports capacity of banks to lend and manage SME risk, and strengthens (target $15 million) SMEs’ ability to monetize assets 10 year timeframe 6
A full range of tools to address SME finance gaps •bCommercial and Blended • Credit to expand investment and working capital to underserved SME Credit Lines for segments, especially in illiquid markets SME Financing • Blended funding • Risk Sharing Facilities / Partial Credit Guarantees Risk Mitigation & • Donor funded first loss helps underpin risk taking by IFIs and client banks Enhancements • Avoids FX mismatches and encourages domestic resources for SME financing Capacity • Technical assistance Building for FIs • Promote sub-sector focus : women, fragile, climate, agri SMEs Financial • Develop credit reporting infrastructure & legal instruments Infrastructure • Build capacity of public/private stakeholders 7
SME Finance at work …an example in Kenya PRODUCTS • IFC initial SME credit line of US$45M • IFC Advisory services - In-house MSME expertise build-up - Specialized IT and credit scoring tools • RSF Diamond Trust Bank • SME branch focus from 10 to 100 branches • Fast country expansion: Tanzania, Uganda, RESULTS Burundi, Rwanda • New RSF opens up for very small SME credits from US$8k to 10 k • Deeper downscaling with low delinquency • Habib Bank: 20% equity partner FUTURE • West Africa expansion: Nigeria, Sierra Leone, Gambia… • Regional deposit mobilization 8
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