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Marco Kamiya New Orleans SMEs And Financing Organization of American States OEA
This document discusses financing challenges for small and medium enterprises (SMEs) and new firms in Latin America. It notes that SMEs in the region do not grow as much as they could due to low availability of financing for startups and expansions. Financial markets in Latin America also lag behind markets in emerging Asian countries in terms of development and size relative to GDP. Access to capital remains a major obstacle for SMEs and new firms seeking to grow in Latin America.
Marco Kamiya New Orleans SMEs And Financing Organization of American States OEA
- 1. Financing Challenges ofSMEs 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 ofPresence 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 Firmsand 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 Financingin 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 inLAC 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 FinancialMarkets 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 Developmentis 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 NascentFirms 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 inLAC: 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$6.5 billion, so PE/VC size in LAC But in some countries were less is 5% of total in the World than 10. Source: Ernst & Young, LAVCA
- 11. High Growth SMEs:Very Few Winners Returns of Venture Capital Funds in the US Source: Lerner (2009) Note: VC Funds Return as of March 2008
- 12. Ecosystem, Institutions and Programs
- 13. Enterprise Development Ecosystems Sil Val Israel Sing Bra Chi Mex Colo Innovation Patents Universities Overseas networks Entrepreneurship Teaching techniques Training for Business plans, etc. Tech Transfer Centers Financing Angel Investors/Seed Venture Capital Equity Investment Developed Underdeveloped Incipient Source: CAF 2012
- 14. Example: Institutional Ecosystemin Brazil Export Promotion Productive Development Finance SECOM – Chambers Multilateral Business Trade International Centers Promotion of Investment Commerce Banks Offices Min. De Min. De Confede- Industria y APEX Relaciones FINEP SEBRAE ración de BNDES Comercio Exteriores Industrias Exterior National Agency for Industrial Develop- ment Local Oficinas Oficinas Conf. BNDES Estados / Locales de Locales de Industrias Local Municipio FINEP SEBRAE Locales Offices Public Private Public-Private International Source: CAF 2012
- 15. Example: Instruments andPrograms in Brazil R&D Start-Up, Sustainability, Expansion Consolidation Research and Angel Venture Venture Seed Exit to Market Development Networks Capital Capital Capital Initial Expansion PRIME Instruments Innovar Juro Innova Non- Innovar FINEP reimbursable Seed Zero Brasil funds PROIMPE Instruments SEBRAE Negocio Certo Entrepreneurs fairs FUNTEC PROFARMA CARTAO BNDES FINAME Prosoft Comercializao / Instruments Prosoft Empresa BNDES FINEM Revitaliza CRIATEC Source: CAF 2012
- 16. Instruments and Programsto Expand SMEs’ Financial Access in Latin America
- 17. Public Credit toSMEs National Development Banks in LAC * Number of % Assets (US$) % 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 andPrograms 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 inSMEs’ Finance and Support of New Firms
- 21. CAF: Higher CreditRatings 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 inMicrofinance 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 inSeed 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 RoadAhead • 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
Editor's Notes
- #7 Stock market capitalization as a percent of GDP increased from less than 20% in the nineties to almost 50% by 2010. However, this is also explained by the ‘Commodity boom’ that has been driven by individual commodity firms followed by commercial and investment banks. The total number of firms listed in stock markets has decreased.
- #8 So this leads to the next point: financial systems in Latin America have taken good steps towards development, but they are still behind. Financial systems in Latin America are shallow compared to financial systems in OECD countries and in emerging Asia. Even though financial systems in Latin America are bank dominated, the amount of credit given to private sector by banks relative to GDP is around 35%, which is half the size of the ratio in emerging Asia and a fourth of the ratio in developed countries. The same is to be said in terms of stock market capitalization;stock markets are small compared to the size of the economies in emerging Asia and OECD countries.
- #9 Latin American financial systems are more shallow and provide less access than what could be expected given their income per-capita levels. Domestic credit to private sector has increased in the last decade from 30% to 40% in 2009, but when we see this in long term perspective Financial Access in Latin America are well behind Asia.This is result of decades of macroeconomic volatility, and prevalent market failures. This also means that in the region financing for SMEs is an structural problem.
- #18 Themostimportantfundingfromgovernmentsisprovided as firt-tier and second-tierbanks. NAFIN, BNDES, Bancoldex, CofidesupplycredittoSMEs and new firmsthroughthismechanism.
- #19 Another important mechanism is through cluster development, value chain projects, or city and local development programs.CAF, IADB, World Bank have designed cluster development programs across the region.Currently at CAF, at the Department of Public Policy we are working in Local Development Programs in several countries improving value chain and public capacity.
- #20 There are manyothermechanismtoprovidefinancialaccess, I havecompiledsome of thesuccesfulinstruments in place. Guarantees, Credit Bureaus, Factoring, Seed Capital, and bankingservicesoutsourcing.There are surelymany more in place.