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Holger Rothenbusch

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  • DFIs and SRI-/Philantropic Investors share several goals Common responsibility to achieve Millenium Development Goals Focus on sustainable business creation in terms of ESG-issues Top-5 countries for SRI in EM: Brazil, China, India, Mexico, South Africa DFIs and SRI-Investors have a similar investment universe. Some cooperations with private and philantropic investors and NGOs already in place Innovative finance together with SRI- and philantropic investors as a model for modern development cooperation DEG Competence in SRI-related sectors: Agriculture, Financial Sector, Infrastructure etc. Country specific knowledge: Investment climate, transparency, lender in times of crisis Additionality Active management and reporting of projects creates added value Own Corporate-Policy Project Rating Tool GPR: comprises financial, environmental, social and governance criteria as well as development indicators KfW Entwicklungsbank Experience with high volume management Competence in SRI-related sectors: Infrastructure, Health, Financial Sector etc. Country specific knowledge and political contacts Impact on general framework
  • DEG´s competence: Business relationships and contacts with a significant number of private banks in developing countries - DEG´s strong knowhow and long experience in working with banks as a major asset
  • DEG´s competence: Large SME network in developing countries ensures acces to target group and region Signalling effects due to DEG´s parallel investment DEG´s strong sector knowhow allows for focussing on climate protection, health care, eduction, agriculture
  • Transcript

    • 1. Nobody Likes to Hug a Tractor TBLI Conference Europe 2010 12 November 2010 Holger Rothenbusch Senior Vice President DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH
    • 2. DEG at a glance
      • Mandate and working method
      • German development finance institution for the private sector
      • Specialist for entrepreneurial development in all sectors
      • Long-term investment capital for private enterprises
      • Financing of investments with a positive developmental impact
      • Market-oriented conditions
      • Ecological and social standards according to international guidelines
      • Contributions to sustainable economic growth and poverty reduction
    • 3. What´s the challenge? FX effects Africa Climate change Globalization/ outscorcing Environment Tax effects Social effects / CSR Infra- structure small and medium enterprise Market effects Equity Financial Return / RAROC Training Support of European Investors HIV/ Aids Health & Safety gender ILO-Stand./ child labor Employment & Poverty Reduction / MDG Motivated by the mission challenges, DEG has developed a rating approach to cover financial and non-financial issues that are of concern to our stakeholders
    • 4.  
    • 5. DEG´s rating approach - What do we measure? 2. Development effects/ sustainability
      • eg. tax revenue, jobs, training, ES-standards, CSR
      3. Role of DEG
      • eg. long-term debt/ equity financier (additionality ), promotor of Corporate Governance
      1. Long-term profitability/ default probability
      • eg. Rating of sponsors, market, financial ratios, country risk
      Rating Tool
      • r isik-adjusted return
      4. DEG´s return on equity
    • 6. Development effects - What do we measure?
    • 7. Socially Responsible Investments Assets under Management World & regional 38% 2.500 bn EUR 6% 400 bn EUR 4% 230 bn EUR 52% 3.400 bn EUR USA Developed Asia /Oceania EM Western Europe SRI GLOBAL : 6.530 bn EUR*
      • About 230 billion Euro are already invested in accordance with ESG-criteria. Growth up to 40 % p.a.
      • Assets under Management (AuM), own estimation based on Eurosif, Booz & Company, IFC/Mercer. Data and definitions are heterogeneous.
    • 8. SRI Products Products: 50% is invested in equity, growing role of investment funds; mostly negative/positive selection investment approaches. Need for actively managed portfolios instead of pure negative-screening! Themes: Sustainability in general, „Climate Change“/ Renewables, Water, Health In Emerging Markets: Microfinance is Sexy! … but, no one likes to hug a tractor Equity (Public) 50% Bonds 39% Other 11%
    • 9. 100 SME Financing One of DEG´s core strategic priorities is to promote financing to the SME sector Quelle: Thierry Sanders and Carolien Wegener. 2006. “Meso-Finance: Filling the Financial Service Gap for Small Businesses in Developing Countries.” NCDO. Die Grafik wurde leicht angepasst.
    • 10. SME Financing Growth initiative for small and medium-sized enterprises
      • Aim:
      • Provide SMEs in developing countries with risk capital and long-term investment capital at matching maturities
      • Mobilise additional private capital from external sources in the finance sector (crowding in) for SME financing
      • Target commitment volume by 2011: EUR 1 billion
      • Development and implementation of innovative financial instruments for SME financing
      Development constraint: Shortage of long-term finance and risk capital for small and medium-sized enterprises (SMEs) in developing countries
      • Implementation:
      • Direct SME financing in manufacturing/services and infrastructure
      • Indirect SME financing via financial institutions or private equity funds, complementary allocation of funds for accompanying measures
    • 11. SME Financing Innovative Instrument: SME Credit Finance Facility
      • Financing bottleneck I: Lack of long-term finance via local banks
      • Reason:
      • The root of the „missing middle“ is the lack of profitability of SME lending.
      •  demand for refinancing SME loans
      • DEG´s solution:
      • - Separation of credit risks and bank risks
      • - Improve underwriting standards
      • - Transfer of credit risks from SME financing to a fund, which acts as „SME promotion institute“
      • - raise private capital from SRI related investors at lower cost of capital
      100 45 41 35 -21 Components of net profitability in SME lending* * Source: Central and Eastern European Banking Study 2009 published by zeb/; page 19
    • 12.
      • Financial bottleneck II: Lack of Risk Capital
      Indirect SME Financing Innovative Instruments: Equity Finance Facility
      • Reason:
      • Small investment size and less institutional setup of SME lead to relatively high costs.
      • Difficulty of obtaining sufficient and good quality data about SME in emerging markets makes investment decisions more uncertain.
      • Owner-managed businesses with information asymmetry and misalignment among shareholders increase potential conflicts of interest.
      • The risk-return-ratio in SME financing is relatively unsatisfying compared to other emerging markets investment opportunities.
      • DEG´s solution:
      • Founding of a structured fund of funds for SME equity funds
      • First-loss tranche by German government to compensate for increased risk and attract private SRI investors
      • DEG acts as a co-investor with the fund of funds and investment advisor
      • implementation of ESG standards according to international criteria.
    • 13. Get in touch!
      • Holger Rothenbusch
      • DEG – Deutsche Investitions- und
      • Entwicklungsgesellschaft mbH
      • Kämmergasse 22
      • 50676 Köln
      • Germany
      • Phone: ++49 (0) 2 21 / 49 86 - 1372 E-mail: holger.rothenbusch@deginvest.de
      • Telefax: ++49 (0) 2 21 / 49 86 - 1290 Internet: www.deginvest.de

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