Access to Finance - A Global Agenda

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30/03/11 Presentation at the 2011 'Better Business Kenya' conference in Nairobi

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Access to Finance - A Global Agenda

  1. 2. Access to Finance: A global agenda .
  2. 3. <ul><li>WHY ACCESS TO FINANCE? </li></ul><ul><li>Employer and member focus </li></ul><ul><li>Core values of opportunity, diversity, innovation, integrity, accountability </li></ul><ul><li>Global agenda for a global organisation </li></ul>
  3. 4. <ul><li>SOME EARLY LESSONS </li></ul><ul><li>Finance is key to growth & innovation </li></ul><ul><li>Sustainable finance is diverse and widely available; might be less finance </li></ul><ul><li>Finance needs solid governance, not just better regulation </li></ul><ul><ul><li>Compliance = zero liability, not risk </li></ul></ul>
  4. 5. “ How does finance create value ? ”
  5. 6. <ul><li>RAW MATERIALS OF FINANCE </li></ul><ul><li>Information – costly and noisy </li></ul><ul><li>Control – costly and unwelcome </li></ul><ul><li>Collateral – unequally distributed </li></ul><ul><li>Risk – unwelcome and transferable </li></ul>
  6. 7. $ 10tn Of formal loans to SMEs worldwide [5.1% of global GDP] Ardic, Mylenko & Saltane (2011)
  7. 8. 0.52 % of this went to Sub-Saharan Africa, [2.6% of regional GDP] Ardic, Mylenko & Saltane (2011)
  8. 9. <ul><li>RAW MATERIALS OF MICRO FINANCE </li></ul><ul><li>Information – costly and noisy </li></ul><ul><li>Control – costly and unwelcome </li></ul><ul><li>Collateral – unequally distributed </li></ul><ul><li>Risk – unwelcome and transferable </li></ul>
  9. 11. <ul><li>THE FINANCIAL CRISIS IN BRIEF </li></ul><ul><li>Information – costly and noisy </li></ul><ul><li>Control – costly and unwelcome </li></ul><ul><li>Collateral – unequally distributed </li></ul><ul><li>Risk – unwelcome and transferable </li></ul>Risk – unwelcome and transferable Risk – unwelcome and transferable
  10. 13. <ul><li>SOAKING UP THE RISK </li></ul><ul><li>Sacrifice some growth for stability </li></ul><ul><li>New capital adequacy rules aimed at making sure risk stays with the banks </li></ul><ul><li>But their IAs completely ignore SMEs! </li></ul><ul><li>Past experience says short-term financing for SMEs will shrink </li></ul>
  11. 14. Result: The number of ‘un-financeable’ businesses will grow .
  12. 15. “ Shouldn’t governments do something? ”
  13. 16. <ul><li>DESIGNING GOOD POLICIES (I) </li></ul><ul><li>Demonstrate market failure </li></ul><ul><li>Set clear, measurable objectives </li></ul><ul><li>Promote accountability </li></ul><ul><li>Do not overlook delivery </li></ul>
  14. 17. <ul><li>DESIGNING GOOD POLICIES (II) </li></ul><ul><li>Be humble: macro > micro </li></ul><ul><li>Remember the four Raw Materials </li></ul><ul><li>Make sure schemes are sustainable </li></ul><ul><ul><li>Commercially profitable </li></ul></ul><ul><ul><li>Self-financing </li></ul></ul>
  15. 18. <ul><li>THE G-20 AGENDA </li></ul><ul><li>09/09 – Fin. Inclusion Expert Group </li></ul><ul><li>06/10 – Principles of Innovative Fin. Inclusion, SME Finance Challenge </li></ul><ul><li>09/10 – Flexible Finance Framework </li></ul><ul><li>10/10 – IFC report on upscaling </li></ul>
  16. 19. <ul><li>THE IFC’S ADVICE TO THE G-20 </li></ul><ul><li>Establish Global SME Finance Forum </li></ul><ul><li>Set up global funding platform </li></ul><ul><li>Gather better SME financing data </li></ul><ul><li>Establish recommendations for developing countries </li></ul>
  17. 20. <ul><li>WHAT RECOMMENDATIONS? </li></ul><ul><li>Diagnostics and strategies </li></ul><ul><li>Supportive regulatory framework </li></ul><ul><li>Stronger fin. information infrastructure </li></ul><ul><li>Effective government support </li></ul><ul><li>Better SME finance data </li></ul><ul><li>Build capacity in fin. institutions </li></ul>
  18. 21. <ul><li>SAMPLE DIAGNOSTICS </li></ul><ul><li>The EIU Microscope index </li></ul><ul><ul><li>Kenya first covered in 2010 </li></ul></ul><ul><li>MFTransparency </li></ul><ul><ul><li>Kenya the first African participant </li></ul></ul>
  19. 23. “ Kenya has a global reputation for innovation and dynamism in microfinance ” Economist Intelligence Unit, Global Microscope on the Microfinance Business Environment 2010
  20. 24. <ul><li>STRENGTHS (I) </li></ul><ul><li>Capital market development </li></ul><ul><li>Accounting standards </li></ul><ul><li>Governance standards </li></ul><ul><li>MFI transparency </li></ul>
  21. 25. <ul><li>STRENGTHS (II) </li></ul><ul><li>Wide range of MFI services, innovatively delivered </li></ul><ul><li>‘ Global leader in mobile banking’ </li></ul><ul><li>Credit bureaux supported by CBoK </li></ul><ul><li>Regulation of DTMs, NGO-MFIs </li></ul>
  22. 26. <ul><li>WEAKNESSES </li></ul><ul><li>Political stability </li></ul><ul><li>Judicial system </li></ul><ul><li>Level of competition </li></ul>
  23. 27. What do you think ?
  24. 28. CONTACT Please send suggestions for further research to [email_address]

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