Presentation at OAS Dialogue of SMEs authorities in New Orleans

1. Financing Challenges of SMEs and
New Firms in Latin America
New Orleans, September 10 - 11, 2012
MARCO KAMIYA
Vice Presidency of Public Policy and Development Strategies
Division of Public Policy and Competitiveness

2. Four Decades of Presence in LAC
1990-2010
Mexico (1990)
Brazil (1992)
Chile (1992)
Trinidad & Tobago
(1994)
1970 Panama (1997) 2011
Bolivia
Paraguay (1997) Letters of
Colombia
Jamaica (1997) Intent:
Ecuador
Argentina (2001) Guatemala and
Peru
Uruguay (2001) Italia
Venezuel
Costa Rica (2002) 18 countries
a
Spain (2002) 14 commercial
Dominican Republic banks
(2004)
Portugal (2009)

3. Finance and SMEs
in Latin America

4. SMEs, New Firms and Financing in LAC
• Many very small micro-enterprises.
• One family firms driven “by necessity”.
• SMEs don’t grow as it should and have low
productivity.
• Low availability of financing for start-up and firm
expansion.
• …and, despite the emergence of ‘Multilatinas’ still few
global corporations in most of the countries, so lack of
‘anchor’ firms prevent expansion.

5. Cycle of Financing in LAC: Many Obstacles
Stock of
Last Stage
Private Equity
+ VC for
Expansion
Markets, s
Initial VC
Availability of Capital
Insufficient mall and
/ Cash Flow
Angel
Weak Investors
Deal flow with few
Innovation Seed
Capital instruments
Systems
-
Financial
Cash Flow
Valley of
Death
Operation and
R&D Start, Sustainability, Expansion
Consolidation

6. Stock Markets in LAC are Growing…
60
Stock Market Capitalization
50
40
% of GDP
30
20
10
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: World Bank and Bank for International Settlements

7. …but LAC Financial Markets lag Behind
Source: Prepared by CAF with World Bank data. LAC: Argentina, Brazil, Chile, Colombia, México, Peru and Venezuela.
Emerging Asia includes: China, South Korea, India, Indonesia, Philippines, Singapore and Thailand

8. …and Financial Development is lower than expected
100
45 Domestic Credit
to Private Sector 90
80
40
70 Emerging Asia
% of GDP
60
% of GDP
35
50
40
30
30
20 Latin America
25
10
0
20
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2000
1997
1998
1999
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Prepared with World Bank data.

9. Entrepreneurship and Nascent Firms
Private Finance for New Ventures in Latin America and East of Asia
LAC East Asia
Start First Years Start First Years
Percent of the
Entrepreneurs funded by
Private Investors 8,9 % 6,8 % 27,1 % 28,8 %
Perfect of the
Entrepreneurs funded by
Venture Capital
2,8 % 1,7 % 8,9 % 15,0 %
Source: OECD , CAF 2011
9

10. Venture Capital in LAC: The ‘Critical Mass’ Trap
Total VC Funds Committed in LAC (2011)
Investment amount low… …and number of deals too small
VC funds committed in LAC in 2011: Investment Deals in 2011, 173.
US$6.5 billion, so PE/VC size in LAC But in some countries were less
is 5% of total in the World than 10.
Source: Ernst & Young, LAVCA

11. High Growth SMEs: Very Few Winners
Returns of Venture Capital Funds in the US
Source: Lerner (2009)
Note: VC Funds Return as of March 2008

12. Ecosystem, Institutions and
Programs

13. Enterprise Development Ecosystems
Sil Val Israel Sing Bra Chi Mex Colo
Innovation Patents
Universities
Overseas networks
Entrepreneurship Teaching techniques
Training for Business
plans, etc.
Tech Transfer Centers
Financing Angel Investors/Seed
Venture Capital
Equity Investment
Developed Underdeveloped Incipient
Source: CAF 2012

14. Example: Institutional Ecosystem in Brazil
Export Promotion Productive Development Finance
SECOM –
Chambers Multilateral
Business Trade
International Centers Promotion
of Investment
Commerce Banks
Offices
Min. De
Min. De Confede-
Industria y
APEX Relaciones FINEP SEBRAE ración de BNDES
Comercio
Exteriores Industrias
Exterior
National
Agency for
Industrial
Develop-
ment
Local Oficinas Oficinas Conf. BNDES
Estados /
Locales de Locales de Industrias Local
Municipio
FINEP SEBRAE Locales Offices
Public
Private
Public-Private
International Source: CAF 2012

15. Example: Instruments and Programs in Brazil
R&D Start-Up, Sustainability, Expansion Consolidation
Research and Angel Venture Venture
Seed Exit to Market
Development Networks Capital Capital
Capital
Initial Expansion
PRIME
Instruments Innovar Juro Innova
Non- Innovar
FINEP reimbursable Seed Zero Brasil
funds
PROIMPE
Instruments
SEBRAE Negocio Certo
Entrepreneurs
fairs
FUNTEC PROFARMA CARTAO BNDES FINAME Prosoft Comercializao /
Instruments Prosoft Empresa
BNDES FINEM Revitaliza
CRIATEC
Source: CAF 2012

16. Instruments and Programs to
Expand SMEs’ Financial Access in
Latin America

17. Public Credit to SMEs
National Development Banks in LAC *
Number of % Assets (US$) %
First-tier banks 66 65.3 376,365 43.5
Second-tier 23 22.8 237,762 27.5
banks
Banks of 1st 12 11.9 251,043 29.9
and 2nd tier
TOTAL 101 100.0 865,169 100.0
(*) i.e. Chile-CORFO; Brazil-BNDES and FINEP; México-NAFINSA; Colombia-BANCOLDEX; Peru-COFIDE; etc.
Source: ALIDE data as of 2009 (Latin America Association of Financial Development Institutions)

18. Financial Development with
Cluster / Value Chain
CAF, IADB, World Bank, Governments
o Cluster Development Operations
 Manaos, Ceará, Dominica Republic, etc.
o City Development (Cities with Future)
 Comprehensive Approach - CAF
o Regional Innovation Systems
 In Santa Catarina-Brazil, San Juan-Argentina,
Costa Rica
o Value Chain and Finance
 Provinces in LAC countries

19. Successful Instruments and Programs
for Financial Access
Country Name
Guarantees Chile Banco Estado - FOGAPE
Colombia BANCOLDEX - Fondo Nac. Garantías (FNG)
Mexico NAFIN Garantías Públicas
Credit Bureau Several i.e. Chile, Peru
countries
Factoring Mexico NAFIN Reverse Factoring
NAFIN Cadenas Productivas
Seed Capital Several Brazil -FINEP Inova, Chile-Sercotec,
countries Uruguay-Red Emprender, Costa Rica, etc.
Outsourcing of Brazil Caixa, Banco do Brasil
Banking services Mexico BANSEFI - Banco de Ahorro Nac. y Serv.
Financ.
Source: Prepared by CAF with data from CAF, ALIDE, World Bank

20. CAF’s Role in SMEs’ Finance and
Support of New Firms

21. CAF: Higher Credit Ratings than the Owners
Standard & Poor's Fitch Ratings Moody’s
AAA
AA+
AA
AA- Chile
Investment A+ Chile Chile
Grade A
A-
BBB+ Mexico
BBB Mexico, Peru, Brazil Brazil, México, Peru Brazil, Peru
BBB- Colombia, Uruguay Colombia Colombia, Uruguay
BB+ Uruguay
BB
BB- Venezuela
Non- B+ Bolivia, Paraguay Bolivia, Venezuela Bolivia, Paraguay
investment B Argentina Ecuador, Venezuela
grade B- Ecuador Argentina, Ecuador Argentina
CCC+
CCC
CCC-
Source: As of August 2012

22. CAF Investing in Microfinance Funds
Regional Funds:
Mexico (i) LOC Fund
•Banco Compartamos
(ii) Solidus Investment Fund
Panama
•Microserfin (iii) Microfinance Growth Fund
•Banco Delta
Colombia (iv) Próspero Microfinanzas Fund
•Banco WWB Colombia (Cali)
•2 Fundaciones del WWB
• (Bucaramanga y Popayán)
Ecuador
•Banco Procredit Peru Bolivia
•MiBanco •BancoSol (2 operac.)
•CMAC Arequipa •Banco Los Andes
•CMAC Tacna ProCredit
•Financiera Crear Arequipa •Banco FIE (2 operac.)
•Edpyme Nueva Visión Paraguay •FFP Prodem
•Edpyme Confianza •Banco Regional •FFP Fassil
•Edpyme Edyficar •Visión Banco S.A •Eco Futuro (2 operac.)
•Caja Nuestra Gente •Banco Amambay •Cooper. Jesús Nazareno
•ONG Crecer
Argentina Uruguay
•FIE Gran Poder •Microfinanzas del
Uruguay S.A.

23. CAF investing in Seed Capital, PE/VC
Mexico Dominican Republic
Spain
Fondo Pronafim Trust Capital Semilla
Fondo Axon
Ignia Fund
Panama
Latin Idea Fund II
Trust (FCS) Trinidad y Tobago
New Growth Fund I
Costa Rica Dynamic Equity Venture Fund
Banco Improsa Venezuela
Financiera Desyfin Dynamic Equity Venture Fund
Colombia
Fondo Escala Capital FCP Brazil
Colombia Opportunity Fund Fondo Burril Brasil, FMIEE
Product: Fondo Nacional de Garantías CRP VI Venture Fundo Mutuo
Venture Capital Ecuador Paraguay
Fideicomiso Inver. Agrop. Visión Banco S.A.
Guarantees Fondo País Ecuador
Bolivia
Value Chains Peru Fondo Fortaleza PYME
FOGAPI Fondo Emprender
Regional Funds:
Argentina
(i) Aureos Latin America Fund Cap Ventures Uruguay
FOGABA Uruguay IVC Partners
(ii) Cleantech Fund Fondo Pymar Fondo Emprender
CGM Leasing
(iii) CASEIF Corporation II

24. Supporting Productive Transformation
COLOMBIA: COSTA RICA
 Support to  Support to Public
Competitiveness Strategies administration efficiency and
 Cluster Development Public reform
ECUADOR: PANAMA
 Business Registration Program  Panama Competitiveness
CAF Technical Program
 Value Chain in rural zones
 Support to Entrepreneurship Cooperation to  Innovation studies,
entrepreneurship
SMEs
PERU: VENEZUELA
 Corporate governance in Public firms  Network “Venezuela Sí
 Young Entrepreneurs program Compite”
 Local Productive Development  Incubators and Universities
 Regional supply chain SME networks  Support to Start-Ups (SACEV)
ARGENTINA
 Entrepreneurship BOLIVIA
 Cluster Development  Bolivia Cost Index
 Tourism Development  Cluster Development
 Development Agency
 City Development

25. Conclusion: The Road Ahead
• Many obstacles to SMEs and new firms in the cycle of
financing. So firms don’t grow and new ventures are lower
than they should be.
• So, public policy have two tasks:
– In 5 to 10 years, keep building the ecosystem with better
public capacity
– In the short term, think in terms of ‘efficient and flexible’
instruments and programs.
• In alliance with the private sector, combine provision of
financial access with technical cooperation to SMEs.
• And finally, engage multilateral financial institutions (i.e. CAF)
in policy design and facilitation.

26. New Orleans, Thanks!
MARCO KAMIYA
Vice Presidency of Public Policy and Development Strategies
Division of Public Policy and Competitiveness