This document provides an overview of strategies and initiatives to improve SME finance. It discusses key observations on SME banking profitability and challenges in the sector. It then outlines IFC's approach to addressing these challenges through advisory services, partnerships, knowledge sharing initiatives like the SME Finance Forum, and investment projects. Case studies highlight projects in Honduras, Lebanon, and China that helped participating banks grow their SME lending and improve performance.

1. SME Finance – the way
forward
Matthew Gamser
Head, SME Finance Forum
Dubai, May 2013

2. managed well, SME Banking can be very profitable…
Key observations
• ROE can be very attractive (up to 25-35%)
• Margin compression inevitable but can be negated
by establishing a “total wallet” P&L
• Key profit drivers are typically deposits and
transaction banking, representing between 50-60%
of total SME business profitability
• Need to take a 5-year view of product profitability
“We want to double in 3 years. Returns are the best in the
Group. Risk-returns are now twice as high as all our
consumer banking businesses”
Global Product Head, SME Banking Standard Chartered
Sept.2010
Faster Revenue Growth………..
Higher RoA’s………..
2
SME
Finance
Gap
Challenges
in SF
IFC –
What &
How
IFC and
G-20
IFC
Footprint

3. Performance in SME Banking can be highly volatile if the right
capabilities are not put in place…
SME ROA
PERCENT
SME Banking rewards those with the right
capabilities in placeSource: Mckinsey
3
SME
Finance
Gap
Challenges
in SF
IFC –
What &
How
IFC and
G-20
IFC
Footprint

4. Challenges and Solutions - Overview
Poor
Customer
Knowledge
Poor
business
enablers
Lack of
collateral
or capital
Lack of
credit
data
Low
profitability
SME
skills and
literacy
• Government
initiatives (e.g.
procurement)
• Financial infrastructure
• Credit guarantees
• Unsecured/
partially secured
• Loan guarantees
• Value chain
financing
• Credit scoring
• Psychometric testing
• Operating account track
record
• Early warning indicators
• Value based sales and
service coverage models
• Retail-style products
• Automated and
reengineered processes
• Low cost channels (e.g
internet, call centre)
• Retail and business linkages
• Educate SME through
non-financial advisory
provision (e.g. SME
toolkit)
• Provision of training,
information &
networking
• Granular definition of SME supported
by market research
• Segmentation: Specific value
propositions to target specific sub-
segments of SME (e.g. women)
• Greater focus upon customer
management
IFC Internal Analysis, 2011
SME
Finance
Challenges
• 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
Common weak
models in EM
countries today:
4
SME
Strategy
Thought
Leadership
Project
Design/
Portfolio
SME
Finance
Initiative
Lessons
Learned

5. Formal SME credit gap remains as large as ever at
~ $ 1 Trillion

6. 82-86% (~ 0.8-0.9 Tn) of total credit gap of formal SMEs in
emerging markets is represented by formal SMEs that already
have a deposit account

7. Myths and Opportunities #1

8. Acleda Cambodia – using the data!
- Expand operational areas and provide more conveniences to MSME
entrepreneurs in both urban and rural areas such as: fund transfer, ACLEDA
Unity (Mobile phone banking),…etc.
26

9. Myths and Opportunities #2

10. Suppliers
Pakistan
Suppliers India
Suppliers
Bangladesh
Suppliers
Vietnam
Suppliers
Brazil
Buyer
SCF
Delivery
Solution/
Platform
Receivables
purchase from
Suppliers
Suppliers,
Other EM
Suppliers
US
Suppliers
Germany
Suppliers
Japan
Buyer acceptance
Payment of discounted
proceeds
Request for finance
Payment on Invoice Due Date
Accepts request
and initiates
payment
Funded Participation or
Guarantee coverage on
Buyer and country risk
$ Fees
GTSF Program Approach through Partner Banks
Partner
Bank
1
2
3
4
5
Low SF utilization in emerging markets compared to OECD countries
presents significant market potential

11. Myth Opportunity
 3. It’s all about banks  Banks matter, but so do
partnerships - with real
sector large firms, and
others.

12. Distributor Finance
IFC:
• Funding or Unfunded risk
sharing facilities/partial
guarantees
• Advisory Services solutions
for distributors and / sub-
distributors, for capacity
building and risk mitigation, to
be customized as per needs
BANK:
Origination and monitoring in:
• Receivables-based financing
to Seller
• Overdrafts/loans to
Distributors/sub-Distributors
or
• Floor-planning & equipment
financing including end-user
financing
End-
Customer
SELLER varying
forms of contractual
support, including
First Loss/counter
guarantee
Distributor
Seller
(Anchor)
Sub-
Distributor
Bank

13. and

14. Using new tools: IFC’s Customer Management Excellence Program
• Support our clients with their growth strategies,
increase profitability ratios, and augment the
bank’s capabilities across key areas of
customer management to better acquire and
retain SME clients
• The tools and models of the program include:
(1) a maturity assessment tool; (2) a wallet share
sizing tool; (3) a revenue projection model; and
(4) a sales Du-Pont Model
• The program was designed to evaluate the
current customer management capabilities
across key areas in SME customer relationship
management including:
– Identifying best customers within an SME
Banking portfolio
– Targeting acquisitions and cross-sell
– Optimizing risk and performance based pricing
– Optimizing SME touch-points for marketing
profitably
– Managing retention and churn practices
– Optimizing collections and recovery actions
– Managing activation and reactivation
– Managing loyalty for SME clients
– Managing customer campaigns
– Assessing fees and waivers
3%
23%
1%
2%
2%
2%
3%
4%
6%
Customer
Management
Items
Standard Sale force
skills
Operations
optimization
Improved
acquisition
Optimized
approval
rates/
pricing
Active
Cross
Selling
Retention
Measures
Collection
Optimization
Best-in-class
Difference between standard and best-in-
class SME banking [ROE]
14
SME
Strategy
Thought
Leadership
Project
Design/
Portfolio
SME
Finance
Initiative
Lessons
Learned

15. As of February 2013, the SME Banking advisory program had 37 active projects, with a total
value of US$30 million with 86% of projects linked to investments
Global Footprint: IFC has implemented 74 SME banking advisory
projects around the world worth $50 million from 2007-12
Ceska Sporitelina
(Czech Republic)
FMB and NBS Bank
(Malawi)
Bank Muscat
(Oman)
Access Bank
(Nigeria)
AgroInvest
Bank
(Tajikistan)
CHUEE
Energy
Efficiency
(China)
Dewan (India)
Finterra
(Mexico)
Banco Atlantida
and Ficohsa
(Honduras)
Atlantic bank
(Belize)
15
SME
Strategy
Thought
Leadership
Project
Design/
Portfolio
SME
Finance
Initiative
Lessons
Learned

16. Knowledge Resources
16
Creation of SME Finance Forum &
Global SME Finance Initiative
• IFC hosts the SME Finance Forum a G20
global initiative for inclusive knowledge
sharing on SME finance data, research and
best practices and facilitation among
public/private actors in SME finance
Lead Implementing Partner to the G-20
SME Finance Sub-Group (and contributor to Data SG)
SME Finance
Stocktaking Report
Innovative
Agricultural SME
Finance Models
Strengthening A2F for
Women-owned SMEs in
Developing Countries
SME Finance
Policy Guide
Scaling up Access to
Finance for
Agricultural SMEs
GPFI: Global Partnership For Financial Inclusion
Shaping the Global Agenda on SMEs and Financial Inclusion
SME
Strategy
Thought
Leadership
Project
Design/
Portfolio
SME
Finance
Initiative
Lessons
Learned

17. Achievements to date
 News/reports on SME finance with
daily feeds
 Growing LinkedIn group: over 1400
members
 Promotion of innovative approaches
to promote SME finance/SME
Finance Challenge
 Data sharing/harmonization
 Policy dialogue (G20/AFI)
 Impact analysis
 Women’s Finance Hub launched 21
April 2013!

18. 600,000-
800,000
unserved
or under-
served
SMEs
reached
over
10 years
Global SME Finance Initiative: Global platform of joint delivery of
AS, IS and mobilization
Capacity
Building for
Banks & NBFIs
Donors
Financial Infrastructure: Supports capacity of banks to lend and
manage SME risk, and strengthens SMEs’ ability to monetize assets
IFI/DFIs
10 year timeframe. Anchor partners DFID & EIB
INVESTMENT SERVICES
Commercial Funding from
IFIs/DFIs
(up to $1.4 billion)
A2F Advisory Services
FI Capacity Building
(target $50 million)
Financial Infrastructure
(target $15 million)
Global Facility Participating FIs SMEs
Concessional Funding from
Donors
(up to $400 million )
Commercial or
Blended
funding to FIs
through:
• Credit Lines
• Credit
Enhancement
• Risk Sharing
Facilities
50-70
Global,
Regional
&
Local
Banks and
NBFIs in
the SME
business
Up to
$4 billion
new
funding
available
for SMEs
in
emerging
markets
(cycled
3-4 times
over 10
years)
18
SME
Strategy
Thought
Leadership
Project
Design/
Portfolio
SME
Finance
Initiative
Lessons
Learned

19. On the Web at www.smefinanceforum.org
LinkedIn Group: SME Finance Forum
Twitter: @SMEFinanceForum

20. Annexes

21. IFC SME Banking Advisory can support FIs in the following
capacity building areas…
Develop
products &
services
Acquire &
Screen SME
Clients
Serve SME
Clients
IT / MIS
Strategy /
Business
Model
• Market
assessment
including
women
entrepreneurs
• Business/Strateg
ic Planning
• Organizational
set-up or
realignment
Support FIs to
set-up SME
Units or grow
in the
segment
• Research SME
needs
• Product
Bundling
• Non-financial
services
• Value
proposition for
women owned
businesses
• SME Centers or
Branch redesign
• Alternative
Delivery
Channels
• Profitability
analysis
• Efficiency
analysis
• Sales
effectiveness
• Credit
reengineering
21
SME Banking
Guide
SME Banking
Training Program
Risk Assessment
Framework
Customer
Management SME
Banking Guide
SME CHECK
Diagnostic
Tools for FIs
SME
Strategy
Thought
Leadership
Project
Design/
Portfolio
SME
Finance
Initiative
Lessons
Learned

22. Case Study 1 – Banco Atlantida, Honduras
The client and the project:
22
Pricing:
AS Project Value: US$ 405,000
Targets:
• SME reach (loans outstanding):
2,337
• Target Value of Loans Outstanding:
US$ 44 million
• Improving NPL levels from 9% to 5%
Demonstration Effect:
Led to more projects with the bank in
other countries in the region.
Project implementation ends 30 June, 2013.
• Largest local bank by assets with a large
national network
• Investments: US$35 million trade line & US$50
million SEF loan
• Multiple product components in the SME
Banking project:
• SME Banking
• Risk Management
• Sustainable Energy Finance
• Cross cuts with SBA product: Non-
financial services & SME Toolkit
• Establishment of a SME Banking Unit includes:
• Organization structure adapted to
capacity for SME finance
• Loan officers hired and trained
SME
Strategy
Thought
Leadership
Project
Design/
Portfolio
SME
Finance
Initiative
Lessons
Learned

23. Case Study 2 – BLC Bank, Lebanon
The client and the project:
23
Pricing:
AS Project Value: US$ 400,000
Targets:
• SME reach (loans outstanding):
10,700 (of which 17% are women)
• Target Value of Loans Outstanding:
US$ 350 million
• Improving NPL levels from 9% to 5%
Demonstration Effect:
Women’s business growing by over 60
percent, bank overall only by 20
percent.
Role model for other banks in the
region to serve women markets.
Project implementation ends 30 June 2013.
• First bank in Lebanon and MENA to recognize
business case for reaching out to women clients
• First member of IFC’s Green Building Initiative
in MENA; member of GTFP
• Multiple product components in the SME
Banking project:
• SME Banking (50%)
• Gender Finance (30%)
• Risk Management (20%)
• Development of SME and Women value
proposition:
• Market research
• Women in Business training design support
for BLC staff
• Value proposition development for SMEs,
focus on women
• Non-financial advisory services
SME
Strategy
Thought
Leadership
Project
Design/
Portfolio
SME
Finance
Initiative
Lessons
Learned

24. Case Study 3 - BINHAI RURAL COMMERCIAL BANK (BRCB)
• Formed 2007 through consolidation of two existing rural cooperative banks and
one rural credit union in the Tianjin Binhai New District
• IFC committed US$32 million in equity and a 3-year comprehensive advisory
program
 corporate governance, risk management, internal controls, and lending to SMEs
• As of December 2008, the Bank had 8,895 SME loans worth US$765.5 million
 Increased its SME loan portfolio by 84 percent in number and by 49 percent in volume
from 2007 to 2008
“Over the past year, IFC provided training and advisory services and played an
active role at the Board level. These are instrumental in helping the bank
implement its strategy, advance its SME and rural financing business, improve
staff quality as well as its corporate governance and risk management
situation.”
Fengchang Qi, Chairman, Binhai Rural Commercial Bank
24