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
  • Holger Rothenbusch

    1. 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. 2. DEG at a glance <ul><li>Mandate and working method </li></ul><ul><li>German development finance institution for the private sector </li></ul><ul><li>Specialist for entrepreneurial development in all sectors </li></ul><ul><li>Long-term investment capital for private enterprises </li></ul><ul><li>Financing of investments with a positive developmental impact </li></ul><ul><li>Market-oriented conditions </li></ul><ul><li>Ecological and social standards according to international guidelines </li></ul><ul><li>Contributions to sustainable economic growth and poverty reduction </li></ul>
    3. 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 <ul><li>eg. tax revenue, jobs, training, ES-standards, CSR </li></ul>3. Role of DEG <ul><li>eg. long-term debt/ equity financier (additionality ), promotor of Corporate Governance </li></ul>1. Long-term profitability/ default probability <ul><li>eg. Rating of sponsors, market, financial ratios, country risk </li></ul>Rating Tool <ul><li>r isik-adjusted return </li></ul>4. DEG´s return on equity
    5. 6. Development effects - What do we measure?
    6. 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* <ul><li>About 230 billion Euro are already invested in accordance with ESG-criteria. Growth up to 40 % p.a. </li></ul><ul><li>Assets under Management (AuM), own estimation based on Eurosif, Booz & Company, IFC/Mercer. Data and definitions are heterogeneous. </li></ul>
    7. 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%
    8. 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.
    9. 10. SME Financing Growth initiative for small and medium-sized enterprises <ul><li>Aim: </li></ul><ul><li>Provide SMEs in developing countries with risk capital and long-term investment capital at matching maturities </li></ul><ul><li>Mobilise additional private capital from external sources in the finance sector (crowding in) for SME financing </li></ul><ul><li>Target commitment volume by 2011: EUR 1 billion </li></ul><ul><li>Development and implementation of innovative financial instruments for SME financing </li></ul>Development constraint: Shortage of long-term finance and risk capital for small and medium-sized enterprises (SMEs) in developing countries <ul><li>Implementation: </li></ul><ul><li>Direct SME financing in manufacturing/services and infrastructure </li></ul><ul><li>Indirect SME financing via financial institutions or private equity funds, complementary allocation of funds for accompanying measures </li></ul>
    10. 11. SME Financing Innovative Instrument: SME Credit Finance Facility <ul><li>Financing bottleneck I: Lack of long-term finance via local banks </li></ul><ul><li> Reason: </li></ul><ul><li> The root of the „missing middle“ is the lack of profitability of SME lending. </li></ul><ul><li>  demand for refinancing SME loans </li></ul><ul><li> </li></ul><ul><li>DEG´s solution: </li></ul><ul><li>- Separation of credit risks and bank risks </li></ul><ul><li>- Improve underwriting standards </li></ul><ul><li>- Transfer of credit risks from SME financing to a fund, which acts as „SME promotion institute“ </li></ul><ul><li>- raise private capital from SRI related investors at lower cost of capital </li></ul>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
    11. 12. <ul><li>Financial bottleneck II: Lack of Risk Capital </li></ul>Indirect SME Financing Innovative Instruments: Equity Finance Facility <ul><li>Reason: </li></ul><ul><li>Small investment size and less institutional setup of SME lead to relatively high costs. </li></ul><ul><li>Difficulty of obtaining sufficient and good quality data about SME in emerging markets makes investment decisions more uncertain. </li></ul><ul><li>Owner-managed businesses with information asymmetry and misalignment among shareholders increase potential conflicts of interest. </li></ul><ul><li>The risk-return-ratio in SME financing is relatively unsatisfying compared to other emerging markets investment opportunities. </li></ul><ul><li>DEG´s solution: </li></ul><ul><li>Founding of a structured fund of funds for SME equity funds </li></ul><ul><li>First-loss tranche by German government to compensate for increased risk and attract private SRI investors </li></ul><ul><li>DEG acts as a co-investor with the fund of funds and investment advisor </li></ul><ul><li>implementation of ESG standards according to international criteria. </li></ul>
    12. 13. Get in touch! <ul><li>Holger Rothenbusch </li></ul><ul><li>DEG – Deutsche Investitions- und </li></ul><ul><li>Entwicklungsgesellschaft mbH </li></ul><ul><li>Kämmergasse 22 </li></ul><ul><li>50676 Köln </li></ul><ul><li>Germany </li></ul><ul><li>Phone: ++49 (0) 2 21 / 49 86 - 1372 E-mail: holger.rothenbusch@deginvest.de </li></ul><ul><li>Telefax: ++49 (0) 2 21 / 49 86 - 1290 Internet: www.deginvest.de </li></ul>