SME access to finance

1. International Experience in
Developing and Supporting SMEs
Andrew McCartney
Global SME Banking Specialist,
IFC Advisory Services
Riyadh, KSA
8th February 2012
Trends and New Policy Initiatives in SME finance

2. 2
Key Messages
•SME’s can play a major role in economic development, particularly in
emerging markets
•Access to finance remains a key constraint however, particularly in MENA
•IFC as part of G20 SME Finance sub-group recently completed a review of
global SME finance practices and reviewed 164 different models submitted
A number of key trends and recommendations emerged out of the findings
from the G20 work:
 Legal & Regulatory framework reform needs to drive changes in structure of
financial services to support SME growth
 Financial infrastructure needs to be strengthened for greater SME
transparency
 Public sector interventions need to remain focused and avoid market
distortions
 Emergence of specific sub-segments of focus in SME
 Capacity needs to be developed in financial institutions
•IFC as a knowledge leader in SME finance has a range of knowledge
collateral available to support SME development
Presentation Title

3. 3
Access to finance remains a key constraint, particularly for
SMEs across the GCC
Access to finance represents one of the
major drivers for SME growth
GCC shows particularly low levels of SME
lending penetration
Source: Doing business report 2010, World
Bank, Enterprise survey
Source: Bank lending to SMEs in MENA Survey
Report, World bank and Union of Arab banks,
2010
SME loans/ total loans (%)

4. 4
IFC has recently 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
models & policy measures for SMEs in 2011
Work involved review of 164 different interventions
globally and subsequent policy requirements
Resulted in nine major recommendations to support
SME growth
Key Recommendations from the G20 Sub-Group
Developing specific country strategies
Developing supporting legal & Regulatory framework
Strengthening the financial infrastructure
Effective government support mechanisms
Building reliable data sources for SME finance
Building the capacity of financial institutions
Address specific market failures e.g. women and
agriculture
Establish a Global SME finance Forum as a knowledge
sharing platform
SME Finance Policy Guide – issued October
2011 by IFC

5. 5
Legal and regulatory environment reform needs to drive
competition and access to finance for SMEs in MENA
Licensing requirements need to
be relaxed without sacrificing
quality but enable significantly
increased competition levels
Support non-FI alternatives to
bank lending in the market e.g.
leasing and factoring
Strengthen credit reporting to
even the playing field between
small and big banks
Ensure effective monitoring of
data for effectiveness of measures
Case Study: NAFIN,
Mexico
Provides on-line factoring services to SME
suppliers
“Productive chains” program allows SMEs
to use big buyer receivables for working
capital finance
Credit risk of the SME effectively gets
transferred to higher quality corporate
customers
 By 2009, nearly 500 Corporates involved,
and $60 Billion in finance extended to
more than 80,000 SMEs through 21 banks
and non-banks

6. 6
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 of over $1100, subsidized by
the government by 75%
SMERA forecast to reach out to over
80,000 SMEs over the next 5 years
Source: SMERA Website, 2001

7. 7
Financial infrastructure needs to 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

8. 8
Effective public sector intervention needs to build SME capacity
and avoid market distortion
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
Key features of well designed credit
guarantee schemes
Eligibility criteria – should target a broad part
of the market and for small and medium SME
Approval – needs to be streamlined to a max of
1-2 weeks
Collateral – should be allowed, but subject to
reasonable limits
Coverage ratio – need to incentivize risk-taking
over time
Fees- need to be risk-based and contribute to
financial sustainability of the scheme
Capacity building – CGs should play a key role

9. 9
Specific recommendations and trends observed relating to
specific sub-segments of the SME market
Crisis response - initiatives
structured to support SMEs
during time of crisis (e.g.
Turkey)
Women-in-business -
realization that they have
specific needs that the market
is not addressing today
Sustainable energy- SMEs can
play a major role in ensuring
sustainable energy
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 8400 women and $156 m USD lending
disbursed
Russia Energy Efficiency Program
Legal and policy reform coupled with advisory and
credit line to on-lend to SME investment in energy
efficient projects
8 Banks have funded 130 energy efficient projects
with over $100M USD disbursed with expected lifetime
CO2 save of 5.7M tons

10. 10
Efforts should also be made to build internal capacity of the
financial institutions to capture the SME Banking opportunity
Customer
segmentation
Risk
management
Organization &
Human resource
Information
technology
Delivery
channels
Fin./ non-fin.
Prod/
services
Common models in
MENA today
• SME treated as
corporate for medium
SME and/or retail
clients for small SME
• 100% secured lending
driven with
undifferentiated
products of service
levels
• Limited product
program approaches
and a lack of cost-
effective methods to
address segment
• Emphasis upon
lending, not SME
Banking
•Pricing needs to incorporate
data driven risk scoring
•Development of statistical
application & behavioral
scoring
•Strong portfolio management
&EWI’s
•Dedicated
organization
structure for
SME focus
•Strong
relationships
across bank
•KPIs set for
multi-product
•Upgrading in IT platform for
volume growth
•Investment in credit modules
for initiation & scoring to
create credit factory
•Tiered sales and
service – focusing on
higher valued
customers
•Branch-based models
for small SME volumes
•Investment in
alternative channels e.g
internet, call centre
•Heavy customization
of products from
across bank
•Islamic and non-
Islamic banking
provision
•Non-financial
advisory provision e.g.
training, information
•Specific value propositions to
target specific sub-segments
of SME e.g. traders
•Firmographic or behavioral
segmentation techniques
….Banks need to build capacity across 6 main areas to succeed in SME banking
IFC Internal Analysis, MENA 2010

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IFC as a knowledge leader in SME finance has a range of
knowledge collateral readily accessible
HTTP: //WWW.IFC.ORG