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  • 1. SMEs: The Missing Middle
    Peter Johnson, Developing World Markets
    November 11, 2010
  • 2. Presentation Outline
    Developing World Markets (DWM)
    SMEs: The Missing Middle
    SME Funding Sources
    DWM and SME FI Financing
    Looking Forward: Increasing Financing for SMEs
  • 3. I. Developing World Markets
    $850 million* Micro and SME FIs Capital Markets Transactions
    • Structuring
    • 4. M&A/Strategic Advisory
    • 5. Corporate Finance Services
    DWM Finance, LLC
    Investment Banking
    DWM Asset Management, LLC
    Asset Management
    $650 million Micro and SME Financial Institution (FI) Assets under Management
    • Institutional-scale origination capacity & credit skills
    • 6. Emerging Markets assetmanager since 1994
    *includes AUM
    Experienced team with long careers in emerging markets investment banking & fund management
    • Relationships with 300+ MFIs and SME FIs
    • 7. Address full sweep of capital needs
  • I. DWM’s Mission and Business Strategy
    Linking MFIs and SME FIs in developing countries to international capital markets
    Foster financial services to the poor in all developing countries
    Help strengthen & grow MFIs and SME FIs
    Link MFIs and SME FIs to international capital markets funding
    Design innovative financial solutions to meet the capital needs of MFIs and SME FIs and help low-income entrepreneurs to grow and prosper
    DWM
    Investors
    Investment Vehicles
    debt, equity, hybrids & others
    MFIs and SME FIs
    Entrepreneurs
  • 8. II. Defining SMEs
    Small to Medium Enterprises (SMEs) still remains a catch-all
    phrase, open to many different business models and subject to
    many different classifications particular to each respective
    region.
  • 9. II. SMEs and Economic Development
    SMEs can promote economic development in
    emerging markets through:
    Increased business productivity
    Use and promotion of more advanced technologies
    Economies of scale
    Employment creation
  • 10. III. Limited Financing: Obstacle to SME Growth
    SMEs worldwide named financing constraints as the second biggest obstacle to their growth, while large firms placed financing constraints fourth*
    Many SMEs do not qualify at commercial banks
    Weak collateral, unaudited financials, and higher perceived risk and cost
    SME financing needs surpass MFI lending capabilities
    Inadequate underwriting methodologies
    Inexperience with individual-based lending
    Inexperience with collateral
    Limited funding sources
    *World Bank’s “World Business Environment Survey” 2008
  • 11. III. Current SME Lending Sources
    Banks: Commercial banks moving down-market
    ACBA Credit Agricole Bank in Armenia
    Banco Pichincha in Ecuador (CrediFé)
    MFIs: MFIs moving up-market
    Mibanco in Peru
    XacBank in Mongolia
    SME FIs
    ProCredit Bank
    Capital Markets: Domestic and international structured debt transactions
    Venture Capital and Angel Investors
    Debt
    Equity
  • 12. IV: DWM and SME Financing
    For DWM, investing in SME FIsis a natural extension of microfinance investing
    DWM has provided over $100MM in senior and subordinated debt to SME FIs including:
    25% Equity stake in leading Bolivian SME FI
    DWM arranged:
    $25MM Bond issuance for AccessBank, Azerbaijan
    €34MM Private placement for SME Bank Network
  • 13. V: SMEs: Attractive Investment Space
    Strong growth potential – less saturated market than microfinance
    Good credit quality – DWM shows PAR>30 for SME banks ~1.5% less than pure microfinance institutions
    Impact investment – like microfinance, provides a private-sector approach to emerging markets economic development
  • 14. V. Moving Forward in the SME Space
    • Public-private partnerships (e.g. multilaterals)
    • 15. Guarantee programs
    • 16. Direct investments through domestic and international SME-focused funds
    • 17. Capital markets transactions
    • 18. Increase liquidity for SME investment securities
    • 19. Advisory services
    • 20. Equity investments in MFIs
    Promote better business environment for SMEs
    Lower barriers to entry for small businesses
    Improve quality of financial information for lenders (e.g. credit bureaus)
  • 21. Contact Information
    DWM Asset Management LLC
    800 Post Road, Darien, Connecticut 06820, USA
    www.dwmarkets.com
    Tel: 1 203 655 5453 Fax: 1 203 656 9528
    Peter Johnson Simone Balch Kari Filerman
    peter@dwmarkets.comsimone@dwmarkets.comkari@dwmarkets.com
    12
  • 22. Risks and Disclosures
    Opinion
    Any statements of opinion constitute only current opinions of DWM Asset Management, LLC, which are subject to change and which DWM Asset Management, LLC does not undertake to update.
    Unaudited Information Subject to Change
    Some information in this report is based on unaudited information and is subject to change.
    Third Party Information
    Some information contained herein has been obtained from DWM Finance, LLC and other third party sources and has not been independently verified by DWM Asset Management, LLC. DWM Asset Management, LLC makes no representations as to the accuracy or the completeness of any of the information herein.
    Strategy/Process Risk Disclaimer
    No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.
    THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY AN INTEREST IN DWM INVESTMENT PRODUCTS. NO SUCH OFFER OR SOLICITATION WILL BE MADE PRIOR TO THE DELIVERY OF AN OFFERING MEMORANDUM AND OTHER MATERIALS RELATING TO THE MATTERS MENTIONED HEREIN.
    NO REPRESENTATION OR WARRANTY IS MADE BY DEVELOPING WORLD MARKETS OR ANY OF ITS AFFLIATES (COLLECTIVELY, DWM), INCLUDING ANY OF ITS AGENTS OR OTHER REPRESENTATIVES, AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN.
    COPYRIGHT 2010.