20-21 February 2018, Mexico City: Workshop on building business linkages that boost SME productivity. http://www.oecd.org/cfe/smes/workshop-on-building-business-linkages-that-boost-SME-productivity.htm

1. FINANCING SMES IN GLOBAL
SUSTAINABLE VALUE CHAINS
The role of supply chain finance for SME productivity
February 20th, 2018

2. IFC: A MEMBER OF THE WORLD BANK GROUP
1
 .
Main international development institution dedicated
exclusively to the private sector
 .
Over 60 years of experience in emerging countries as
leader in private transactions and projects
 .
Major source of multilateral financing for the private
sector in emerging markets
 .
Our economists established the term "emerging
markets" in 1981
 .
Stable "AAA“ risk rating by S&P and Moody's
Positive profitability: in the history of IFC never
registered losses
IBRD
• Promoting private
sector
development
• Private companies
in member
countries
• Capital / Loans
• Risk Management
• Technical
assistance
• Mobilization
IFC
Est. 1956
An Unprecedented Opportunity: Ending Extreme Poverty in One Generation

3. GLOBAL SME CREDIT GAP
2
65% of formal SMEs in emerging economies are not served or underserved
Source: Stein, P.; O. Pinar and M. Hommes (2013)

4. DEFINITION OF SCF
3
Supply Chain Finance (“SCF”) has numerous definitions. According to ICC Banking Commission «Standard
Definitions for Techniques of Supply Chain Finance», March 2016:
“Supply Chain Finance is defined as the use of financing and risk mitigation practices and techniques to optimise
the management of the working capital and liquidity invested in supply chain processes and transactions. SCF is
typically applied to open account trade and is triggered by supply chain events. Visibility of underlying trade flows
by the finance provider(s) is a necessary component of such financing arrangements which can be enabled by a
technology platform.”
A general supply chain model
Sub-
Suppliers
Supplier
Retailers: e.g.
VSEs, SMEs
Supplier
Supplier
Corporate
Anchor
Distri-
butor
Distri-
butor
VSEs
VSEs
VSEs
Sub-
Suppliers
Sub-
Suppliers
Distri-
butor

5. THE VALUE OF SCF FOR SMES
SCF benefits SMEs in the following ways:
• Can access funding to be used as working capital, even if they lack collateral or a
credit history,
• Matched funding is linked to business needs,
• No additional liabilities on the balance sheet,
• Strengthen relationship with buyers, which can extend into knowledge sharing
arrangements, adoption of standards, upgrading of processes or technologies,
• Over time, can qualify for better credit terms as payment history data is collected.
SCF addresses SME needs through appropriate partners, products and processes,
accelerating job creation

6. THE ROLE OF SUSTAINABILITY IN GVS
5
By joining global value chains (GVCs), small
and medium enterprises (SMEs) can contribute
to development in emerging economies. There is
evidence that countries and firms grow faster when
they are integrated with GVCs.
Sustainability standards increasingly govern
global value chains. Some of these standards are
voluntary, while others are mandatory. Examples
include national regulations covering environmental
protection, and voluntary sustainability platforms
such as fair trade or organic certification.
Governments, lenders and businesses offer
financial and technical assistance to help SMEs
upgrade their sustainability performance.

7. THE RELATIONSHIP BETWEEN SMES AND GVCS
6
The rise of Global Value Chains (GVC) presents specialization opportunities for SMEs to
drive economic growth, job creation and innovation…

8. THE RELATIONSHIP BETWEEN SMES AND GVCS
7
… but the SME credit shortfall weakens the ability of firms to comply with international
sustainability standards, limiting their entry in GVCs.

9. PhysicalSupply
Chain
Supplier Selection
Pricing
Purchase Order
Manufacturing
Testing
Storage Delivering
Export / Import
Receiving Goods
Warehousing
Invoice Issued /
Approved
Payment Disputes
Payment
Settlement
• Letter of Credit
• Supplier Finance
• Partial Advance
• Merchandise
Finance
• Event-based
advances
Inventory In-
transit Financing
• Factoring
• Receivables
Purchase
• Payables
Financing
• Payment
Processing
• Invoice
Discounting
SupplyChainFinance
Pre-Shipment Finance Post-Shipment Finance
Advise the buyer
on issues related to
credit and financing
Help reconcile disputes, validate data
related to the goods, release funds and
remittance detail
Advisory Services provided by the Banks
Order Production Shipment Invoicing Payment
Advise the buyer about the proper ways of
forecasting cash flow based on cash
management services it may provide
THE VALUE OF SCF FOR BANKS
• Banks can offer multiple products in different stages of the supply chain, carrying the flow of financial
information
• SCF enables reach to SMEs due to technology (reach, scale, risk monitoring & underwriting) and
structuring arrangements taking corporate credit risk.

10. SCF AT IFC: OUR OFFER
9
Sustainability
Returns
Risks
Investment Advisory
Supplier financing
• Credit lines
• Funded/unfunded risk sharing
facilities
• Global Trade Supplier Finance
Program (targeting more cross
border trade)
Operating Model
• Opportunity sizing
• Operating model design & strategy
Products and Services
Sales & Delivery Channels
HR & Systems
Credit & Risk Management
• VCF product strategy
• Product program design
• Product process design
• Anchor selection, sales &
onboarding
• Platform selection & technology
integration
• Training needs assessment, sales
incentives & compensation
• VCF credit policies
• VCF credit application scorecards
• Early warning mechanisms
• Risk based pricing
• Collections framework
• Win market share and
significantly scale up the SME
client base and operations
• Improve the efficiency of
servicing the Trade Finance /
Value Chain Finance transactions
• Boost profitability gained from
reduced transaction costs and
enlarged clientele
• Tighten relationship with large
corporate clients & closely
tracking their business to increase
cross/up-sell rates
Opportunities for
Banking Sector
’s Product Offering

11. COMMON PITFALLS AND LESSONS LEARNED FROM OUR PROJECTS
10
Poor Due Diligence of
Anchor companies
Common Pitfalls Lessons Learned
Poor Due Diligence of
Suppliers
Poor scalability and
growth potential
Poor commitment
from management &
pilot designs
• Establish a clear selection criteria for anchor engagement
• Secure alignment between Anchor Finance/Treasury and Sourcing/Procurement
• Identify a stake in the program for the anchor & encourage anchor to introduce SCF to
suppliers
• Analyze working capital financing of the anchor & see how the financial ratios will be
impacted with SCF
• Check for sporadic suppliers
• Understand level of financing options to test demand for SCF
• Segment the supplier base to determine margins and levers that could be charged
• Develop packages and well structured onboarding programs
• Structured on-boarding program initiated by anchor
• Efficient and electronic documentations to solidify payment settlement terms
• Trained sales force dedicated to SCF with proper incentive structure
• Adequate risk management framework to prevent fraud and limit operational risk
• IT effectiveness with high degree of automation through electronic platform usage
• Obtain buy in from senior management and support from business units within the bank
• Formation of Steering Committee and appointment of an engaged “SCF champion‟
• Carefully design pilot with a sufficient timeframe to prove results

12. SCF: AN INCENTIVE TO DEVELOP SME BANKING OPERATIONS
11
Corporate & Retail
Bank
Supply chain finance
SME Bank
Through supply chain finance solutions, banks can take advantage of their corporate
relationships to expand their lending capacity in the SME segment, under a controlled risk
environment

13. FRONT OFFICE
Ary Naïm Country Manager +52 (55) 3098 0135 anaim@ifc.org
THANK YOU!
Torre Reforma
Paseo de la Reforma 483,
18th floor, Cuauhtemoc,
06500, Ciudad de Mexico
Tel: +52 (55) 3098 0130