The document discusses enhancing access to finance for small and medium enterprises (SMEs) in the Middle East and North Africa region. It notes that there are 19-23 million SMEs in the region facing a financing gap of $210-240 billion. SME finance from banks is low, at around 8% on average. Serving SMEs can be profitable for banks, with returns on equity ranging from 20-40% for some best practice banks. The document outlines various challenges to SME financing and recommendations to address them, including strengthening legal frameworks, financial infrastructure, public support programs, and bank capacity building. The International Finance Corporation provides various advisory services and tools to support SME development.

1. ENHANCING ACCESS TO FINANCE FOR SMEs
(Key Regional Insights & Leading Practices)
Qamar Saleem
Senior SME Banking Specialist, MENA
IFC Advisory Services
March 19th, 2014

2. Key Messages
 Sizeable SME population in MENA region (19-23 million) largely lacking
access to credit ($210-240 billion financing gap)
 SME finance from the banking sector is low in MENA (8%); Oman only
2%. Multiple access to finance challenges inhibit growth
 Serving SMEs can be profitable with ROEs ranging from 20-40% amongst
some of the best practice banks
 IFC as part of G20 SME Finance sub-group recently reviewed global
SME finance practices & reviewed 164 models
 Significance of legal & regulatory framework, financial infrastructure,
public sector interventions & capacity building for banks emphasized
 IFC as a knowledge leader in SME finance has a range of services and
knowledge collateral available to support SME development
2

3. 3
SOURCE: McKinsey-IFC MSME Database 2011
There are 19-23 million Micro Small & Medium Enterprises in the
MENA facing a financing gap of $210-240 billion
Total 19-23
Informal 12.9-15.7
Micro
(1-4 employees)
4.2-5.2
Very small
(5-9 employees)
0.9-1.0
Small
(10-49 employees)
0.8-0.9
Medium
(50-250 employees)
0.4-0.5
Number of MSMEs in MENA by size
Millions
“Formal” SME’s (>5 employees) by
country ‘000
SOURCE: IFC-McKinsey database 2011, Country statistical offices
Jordan 16-20
Kuwait 28-35
Oman 10-12
UAE 80-90
Yemen 60-70
Iraq 150-190
Saudi Arabia 120-140
Sudan 140-160
Morocco 200-250
Egypt 200-250
Algeria 180-200
Formal
SMEs
10%

4. 4
Unemployment amongst Youth and limited financial inclusion of
Women remain key areas of concern in the region
SOURCE: IFC, Education for Employment Report, 2011 SOURCE: IFC. Strengthening Access to Finance for Women-Owned
SMEs in Developing Countries
Youth unemployment Women in Business

5. 5
SOURCE: Union of Arab Banks/World Bank Financial Flagship Report 2011
SME finance has ~2% share in Oman, one of the lowest in the region

6. 6
83
40
40
40
35
35
31
31
31
30
26
26
26
26
26
26
26
21
19
18
16
16
16
15
9
6
Sou-
th
Afri-
can
bank
1
Indo-
nes-
ian
bank
1
Braz-
lian
bank
1
Chi-
nese
bank
1
Cze-
ch
bank
3
Cze-
ch
bank
2
25
Chi-
nese
bank
2
Cze-
ch
bank
4
Nige-
rian
bank
1
Mor-
occ-
an
bank
1
Indo-
nes-
ian
bank
2
Uni-
ted
Emi-
rates
bank
Sou-
th
Afri-
can
bank
2
Rus-
sian
bank
2
Rus-
sian
bank
1
Eth-
iop-
ian
bank
2
Bra-
zil-
ian
bank
2
Cze-
ch
bank
1
Eth-
Iop-
ian
bank
1
Nige-
rian
bank
2
Col-
omb-
ian
bank
1
Chi-
nese
bank
4
Chi-
nese
bank
3
Colo-
mbian
bank
2
Rus-
sian
bank
4
Rus-
sian
bank
3
Low RoE
<15%
Mid-range RoE
15-30%
High RoE 30%+
5 6 6 6 6 14 11 9 18 14 22 71
24
19
19
SME segment return on equity, %
6
-4 12 14
1 12
-5 27 28 28
16
Serving SMEs can be profitable - a review of leading SME banks
indicates that ROEs from 20% to 40% can be targeted
Source: McKinsey Survey; Emerging bank interviews

7. 7
SOURCE: Union of Arab Banks/World Bank Financial Flagship Report 2011
There are multiple obstacles faced by financial institutions – information
asymmetry, collateral, & enabling environment are key issues
% of banks responding that obstacle is very important or important for SME Financing

8. 8
SOURCE: SMEs in MENA: Leveraging Growth Finance for Sustainable Development (Citi Foundation and Shell Foundation)
There are various barriers for SMEs as well to obtain funding –
collateral, pricing, advisory requirements being the key areas

9. IFC completed a review of leading SME finance practices and models as
part of our work with the G20
 G20 SME finance Sub Group identified successful
practices & policy measures for SMEs in 2011
 Work involved review of 164 different models globally
and subsequent policy requirements
Key Recommendations from the G20 Sub-Group
 Developing specific country strategies
 Developing supporting legal & Regulatory framework
 Building reliable data sources for SME finance
 Strengthening the financial infrastructure
 Effective government support mechanisms
 Building the capacity of financial institutions
 Address specific market failures e.g. women and
sustainable energy
SME Finance Policy Guide – issued October
2011 by IFC
9

10. Country level strategies and supportive legal & regulatory
environment are needed to enhance access to finance for SMEs
 Ensure effective collection &
monitoring of data for
efficiency of measures
 Strengthen credit reporting to
even the playing field between
small and big banks
 Avoid over restrictive licensing
requirements to significantly
increase competition levels
 Support non-FI alternatives to
bank lending in the market e.g.
leasing and factoring
Case Study:
SME Corporation,
Malaysia
 Single dedicated agency to formulate and
coordinate overall policies & strategies for SMEs
 Malaysia Incorporated (established 1983) and
PEMUDAH task force (launched 2007) for public-
private sector collaboration
 Bling (business linkages) program to facilitate
SMEs supplying to large companies
 Launch of SCORE (A diagnostic tool to rate and
enhance competitiveness of SMEs) in 2007
 INNOCERT (Innovation Certification for
Enterprise Rating and Transformation
Programme) program
10
1

11. Financial infrastructure needs to be strengthened for improved
transparency of SMEs
 Accounting and audit requirements
need a balance between transparency
& regulatory simplicity
 Credit bureau & registries need
complimentary systems for personal
and business information from all
players (ie FI and Non-FI)
 SME rating agencies offer a potential
alternative, but need a certain
critical market size (e.g. India)
Case Study:
SME Rating Agency of India
 India’s 1st rating agency for MSME’s
 Diversified equity ownership by 11
banks allowed lenders to accept rating
and extend financial and non-financial
benefits
 SMEs are bucketed by size for peer
comparisons
 Rating fee < $1155, subsidized by the
government by 75%
 SMERA forecast to reach out to over
80,000 SMEs over the next 5 years
11
2

12. ….and financial infrastructure can be strengthened for venture capital
and private equity access to the SME market
 Secured transaction
regimes should allow for a
wide range of enforceable
collateral & out of court
enforcement options
 Improve corporate
governance practices should
allow venture Capital/
private Equity access to SMEs
 SME stock Exchanges have
only proven marginally
useful due to low volumes
and a lack of investor
interest
Case Study: INOVAR Program, Brazil
 Objective: to strengthen investment in new
technology SMEs and to establish Venture capital
 Created a research and information
dissemination platform and developed mgt
capacity to accelerate VC investment
 Established a VC portal where investors and
entrepreneurs register
 Allows for the provision of business plans and
joint due diligence for VC funds
 20 venture forums established and over $1
billion in VC/ PE investment made in SMEs
12
2

13. Effective public sector interventions needed to widen opportunities,
build SME capacities and avoid market distortions
 Credit guarantees can be
highly effective, but subsidies
should be minimized to clear
market failure areas
 Government procurement
can link SMEs into supply
chain finance, providing they
are paid on time
 MSME capacity measures e.g.
training should ideally be on a
commercial/near-commercial
basis and become scalable
Case Study:
FOGAPE, Chile
 Outreach– 30,000 guarantees issued (1,800 per
million people)
 Finance – Targeted to small businesses, low
ceilings
 Distribution – Through its partner lending
institutions
 Coverage – 70-80%, higher for investment loans
 Approach – Portfolio/program Lending
 Fees- risk-based (1-2%)
 Delinquency - Net loss rate = 1.5%
13
3

14. 14
SOURCE: World Bank-A review of Credit Guarantee Schemes in MENA region
….currently credit guarantee schemes outreach in MENA is low –
benchmark country averages (2,080/million people; 1.2% of GDP)
3

15. 15
Banks can play a leading role but capacity of financial institutions
needs to be enhanced to effectively manage SME business
4
SOURCE: IFC Analysis
Key areas where core competencies are required for successful SME banking

16. ….and serving SME segment is much more than lending, best practice
banks follow a differentiated approaches
Case Study:
Wells Fargo, USA
 Outreach– 764,200 small businesses
served
 Finance – $20.2 billion in loans;
average loan size $26k
 Distribution – Through its branch
network, market alliances & heavy use
of alternate channels
 Products – 43 offered; 7 Merchant, 8
Asset, 3 Liability, 5 Alt. Channels, 9
Advisory, 9 Insurance, 2 Payroll
 Resource Center – extensive business
counselling services and tools offered
16
4
 Optimal revenue mix should be targeted into a
3-way revenue distribution (deposit,
transactional, lending)
 Phased lending growth possible using product
programs, modelling tools, strong portfolio
monitoring and collections framework
 Liability and transactional product bundles
needed; best practice SME Banks have liability
2-3 times the assets
 Sophisticated sales & service model to
increase market coverage & sales effectiveness
 Managing costs through alternative channels
usage, automation, RM productivity/
certification and client coverage models
 Differentiate through unique segment
solutions to attract higher customer wallet

17. 17
Specific market failures like financial services to Women-in-business
& Sustainable energy finance (SEF) need to be addressed
Case Study: Women Entrepreneur
Package, Garanti Bank, Turkey
 Objective to meet businesswomen’s network,
training and financial needs
 Provision of customized suite of services and a
support loan and financial training
 Reached out to 8,400 women and $156 m USD
lending disbursed
 Economic impetus - 31 to 38%
of SMEs in developing countries
are owned by women – MENA
average is 12-15%
 Women owned SMEs is a
profitable opportunity but
requires a tailored methodology
 Key approaches adopted for
SEF are a) legal and policy
reforms, b) lending facilities
targeting banks and/or directly
SMEs; c) technical assistance to
raise awareness
5
Case Study:
Erste, Czech Republic
 FINESA (Financing Energy Saving Applications)
developed. IFC supported bank, identified SEF
potential in Czech market- identified SEF potential in
Czech market (10M people), $7.3 billion over 6 years
 CS became leading bank in Czech sustainable energy
market, with a $650M (Euro 500M) portfolio, 1700+
new deposit accounts valued at $10 million
In Collaboration with IFC

18. 18
IFC provides a combination of Investment and Advisory Services for
optimal results
ADVISORY
INVESTMENT
Capacity
Building for FIs
• Build capacity of FIs in strategy, market segmentation, credit risk
management, product development through new approaches and systems to
scale up their financing for SMEs on a sustainable basis
• Promote sub-sector focus: women-owned SMEs, sustainable energy SME
projects, agri SMEs, leasing, etc
• Raise awareness on best practices in the SME Finance space
Financial
Infrastructure
• Develop credit reporting infrastructure based on country needs
• Support development of secured transactions, collateral registries, legal and
regulatory framework
• Build capacity of public/private stakeholders through advice and training
SME Financing
& Investments
• Equity Investments in Financial Institutions / Equity Funds for SMEs
• Funded lines to expand investment and working capital lines especially in
illiquid markets
• Blended finance options to support the expansion of IFC’s risk appetite
(e.g. grace periods, performance based pricing, subordination, higher risk
/lower security or in limited cases, local currency positions) [for selected
projects]
• Focus underserved segments, e.g., gender, fragile/conflict, agri, climate
Risk Mitigation
&
Enhancements
• Risk Sharing Facilities / Partial Credit Guarantees to:
- Enhance risk taking capacity and provide capital relief via low risk
weightings
- Avoid FX mismatches and encourage domestic resources for SME
financing

19. 19
SME Banking Knowledge Guide: Outlines
leading practices and success factors for
profitable SME banking operations. Guide
has been translated into Arabic, Chinese,
French, Russian and Spanish.
SME Banking Training Program: IFC
offers two courses: An introduction or
Scaling up course. The three day course
consists of modules, case studies and
exercises covering the following areas:
business models for SME Banking, identifying
Market Opportunities, Customer
Management, Products & Services, Sales,
Credit Risk Management, IT & MIS,
SME Banking CHECK Diagnostic Tool:
A guide to assess SME banking
operations and design relevant
advisory services projects.
Assessing & Mapping the Global Gap
in SME Finance: A joint IFC &
McKinsey report that assesses and
maps the global gap in SME finance,
including the number of enterprises by
region, size and formality, as well as
SME’s access to credit and value of the
credit gap.
Customer Management Best Practice
Guide: The guide outlines key success
factors in better serving the SME clients and
allowing banks to maximize the revenue
opportunity. It is primarily a technical
publication, intended for bank directors and
managers interested in acquiring the key
capabilities to enhance growth and revenue,
as well as building and retaining profitable
customer relationships amidst ever-
increasing competition for the SME segment.
Customer Management Tools: provision
of wallet sizing, du pont model and
revenue projection models for the SME
segment
SME Banking Benchmarking: An online
SME Benchmarking Survey,
automatically benchmarks SME banking
practices.
Market Segmentation Tool: Generates
information that can be used by the
Bank to make a decision whether to
invest in developing its SME
operations, identify target SME
segments, and decide how to target
them, design & sell products
Supported by innovative tools …

20. International Finance Corporation
Bank Advisory Services, MENA
24th Floor, Nile City Tower (North)
2005C Corniche El Nil
Ramlet Boulac
Cairo – Egypt