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
Nobody Likes to Hug a Tractor TBLI Conference Europe 2010 12 November 2010 Holger Rothenbusch Senior Vice President DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH
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
Ecological and social standards according to international guidelines
Contributions to sustainable economic growth and poverty reduction
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
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.
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%
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.
SME Financing Growth initiative for small and medium-sized enterprises
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
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
SME Financing Innovative Instrument: SME Credit Finance Facility
Financing bottleneck I: Lack of long-term finance via local banks
The root of the „missing middle“ is the lack of profitability of SME lending.
demand for refinancing SME loans
- 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