Global SME Banking Program IFC ADVISORY SERVICES | ACCESS TO FINANCE In Partnership with: The State of SME Banking In both developed and emerging economies, promoting a dynamic Small and Medium Enterprise (SME) landscape is a priority amongst numerous economic development goals. SMEs contribute greatly to economic diversification and social stability and play an important role in private sector development. Yet in a typical economy, SME development represents a major and difficult challenge. SMEs typically face more severe constraints to growth than large companies, their lack of significant size resulting in reduced access to markets, skills, and capital. Typical business landscape in emerging economies Average percentage of firms citing access to/cost of finance as major constraint to current operations 0 10 20 30 40 50 46 Corporate & 0.1% 31 multinationals <20 employees 27 Banks’ primary 14 target Large 43 0.9% enterprises 20–99 employees 28 23 11 Medium 5–10% 30 enterprises 100+ employees 22 THE SME FINANCE 18 GAP 7 Small 20% enterprises High income countries Upper middle income countries Micro- Micro Lower middle income countries 65–75% enterprises finance Low income countries Source: SME Banking Knowledge Guide 2009, from World Bank Enterprise Surveys, Dalberg analysis; countries weighted equally Percentages represent the number of companies within income groups to calculate group average. SMEs are also a primary driver for job creation and GDP growth. In many countries, the majority of jobs are provided by SMEs. In 30 high-income countries of the OECD, SMES – registered enterprises with fewer than 250 employees – represent over two- thirds of formal employment. In low-income countries, this figure is also significant. GDP contribution of SME and informal sector SME contribution to formal country employment (median values) 100% Residual 100% 80% 31% Informal 80% 37% 36% SME sector 60% 60% 30% 13% 40% 40% 47% 20% 20% 51% 0% 39% 16% 0% Low-income Middle-income High-income Low-income Middle-income High-income Source: Ayyagari, Beck, and Demirgüç-Kunt (2003); “Residual”includes sources such as large enterprises and public sector. The SME Banking Opportunity • The SME market is becoming increasingly attractive as competition increases for more established corporate clients. • SMEs provide a new target market and business development opportunities which diversify a bank’s portfolio. • The SME market is large, with a potential for significant growth, and still largely underserved in most emerging markets. • SMEs offer an opportunity for portfolio diversification as they are active in various industry sectors and geographic locations. • An SME portfolio generates a stable income and requires less complex asset-liability management at the portfolio level. • SMEs are integrated into the rest of the economy, providing cross-selling opportunities. IFC’s Advisory Services | Access to Finance Unmet demand exists in the area between micro and corporate banking, and IFC works to reduce the SME finance gap by providing institution building services and dissemination of best practices to efficiently target the “Missing Middle”, the SME segment. Strategic Focus and Priorities: Increase access of financial services to SMEs in developing countries and establish IFC as a knowledge and thought leader in the SME Banking space: • Leading FIs to recognize and seize the untapped and profitable opportunities that the SME segment represents • Building capacity of partner FIs committed to expanding financial services to SMEs and underserved market segments • Design SME-focused organization and strategy • Segment clients by characteristics, behaviors, needs, and profit ability • Build strong value proposition in product offering and brand • Standardize products and processes • Optimize delivery cost of products and services through appropriate channels and create a strong sales culture • Implement independent and objective risk management through use of credit scoring and rating tools for risk appraisal, underwriting, process streamlining, and risk-based pricing • Leverage technology to reduce cost-to-serve • Raising awareness of best practices in SME Banking SME banking covers a wide range of firm sizes and types of financing Financial Infrastructure SME UÊ Ài`ˆÌÊ ÕÀi>Õà Banking UÊ*>ޓi˜ÌÊ-ÞÃÌi“à Performance UÊ œ>ÌiÀ>Ê,i}ˆÃÌÀˆià Long-term Finance Private Equity Revenue Asset Operating Generation Quality Efficiency Leasing Equipment Finance SME Banking Microfinance Markets Sales Credit risk IT and and and delivery management MIS Trade Finance products channels Working Capital Informa/ Formal/ Strategy, SME focus, and execution capabilities Smaller Larger Institutional Capacity Building: Engagement Approach Diagnostic *Àœ«œÃ> Implementation UÊ1ÃiʜvÊ ½ÃʜܘÊÀiÜÕÀViÃÊvœÀÊ UÊ ivˆ˜iÊÃVœ«iʜvÊܜÀŽ UÊ*ÀœiVÌʓ>˜>}i“i˜ÌÊ diagnostic phase UÊ iÛiœ«Ê/",Ãʈ˜ÊVœ˜ÃՏÌ>̈œ˜Ê UÊ œ˜ÃՏÌ>˜Ìʓ>˜>}i“i˜Ì UÊ ˆi˜Ìʘii`Ãʈ`i˜Ìˆvˆi`ʓœÀiÊ̅œÀœÕ}…Þ ÊÊÊ܈̅Ê̅iÊVˆi˜Ì UÊ ˜ÃÕÀˆ˜}Ê`iˆÛiÀÞʵÕ>ˆÌÞ UÊ ˆi˜ÌÊÀiVœ}˜ˆâiÃÊ ÊΈÃÉÛ>ÕiÊ>``i` UÊÃÈÃÌʈ˜Êˆ`i˜Ìˆvވ˜}ÊÀiÜÕÀViÃÊÌœÊ UÊ ˜ÃÕÀˆ˜}ÊVˆi˜ÌÊVœ““ˆÌ“i˜Ì carry out assignment UÊœ˜ˆÌœÀˆ˜}ÊEÊ Û>Õ>̈œ˜ Global Knowledge Management: Products and Tools SME Banking Knowledge Guide: The program’s signature publication outlines leading best practices, market trends, opportunities and challenges, and success factors for profitable SME banking operations. Micro, Small, and Medium Enterprise (MSME) Factsheets: The annual publication communicates achievements and showcases successes in MSME Access to Finance advisory and investment services. As of June 2009, IFC’s committed portfolio was about US$ 6.1 billion in 200 financial institutions that primarily target SMEs in developing countries. SME Banking Benchmarking Survey: An on-line tool that allows banks to self-assess and automatically benchmark SME Banking practices against other banks in credit risk management, market, business model, and IT/MIS SME Banking Training Program: Developed in partnership with the World Bank Institute, this training course targets mid-level bank managers and officers. Participants are provided with practical applications, examples, and SME Banking best practice techniques for strategy & commitment, product development, credit risk, and IT/MIS. SME Banking Performance SME Banking CHECK: A diagnostic tool conducted by IFC SME experts to assess SME Banking Markets Revenue Generation Sales Asset Quality Operating Efficiency operations and design relevant advisory services projects, the CHECK is a comprehensive assessment Credit risk IT and framework, in over 100 competencies, of financial institution performance. and and delivery products channels management MIS Strategy, SME focus, and execution capabilities INVESTMENT SERVICES IFC’s Committed Portfolio in SME FIs 7,000 6,000 $ MILLIONS 5,000 4,000 3,000 2,000 1,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1999 Source: IFC 2009 Instruments • Loans • Equity investments • Quasi-equity investments • Risk Management products • SME Refinance Facility Client Highlights Latin America/Caribbean: Bank of St. Lucia East Asia Pacific: Techcombank In 2009, IFC approved a US$ 20 million investment IFC disbursed VND 320 billion in 2008 for SME lending to support Bank of St. Lucia’s funding to corporate and provided advisory services (approximately US$ enterprises and SMEs. To complement its investment, 100,000 for SME segmentation strategy). IFC provides the bank with advisory services to support Techcombank in turn was able to: implementation of its SME strategy. • Increase its SME loan portfolio by four times to US$ 1.2 In turn Bank of St. Lucia was able to: billion from 2007 to 2009 • Create a business unit fully dedicated to attending • Increase its number of SME loans by six times in to the SME segment the same period • Increase banking services offered to SMEs • Introduce a new product of FastLoan which reached throughout St. Lucia the target of 3,000 loans and US$ 58 million balance • Evaluate and adjust risk management and by end 2009 IT/MIS activities Eastern Europe/Central Asia: Hamkorbank South Asia: BRAC Bank IFC committed US$ 1 million in 2001, US$ 3 million in 2006 IFC committed US$ 1.6 million in equity in 2004 and also and US$ 2 million in 2009 in debt and advisory services. subscribed to rights issue of BRAC Bank with an investment Hamkorbank, in turn, was able to: of US$ 1.8 million, in addition to providing advisory services. • Increase its SME loan portfolio by 263 percent from In turn, BRAC Bank was able to: 2006 to 2009 • Strengthen human resources through skills development • Triple the number of SME loans • Improve marketing and communications • Create a risk management department • Develop information systems • Improve Corporate Governance practices and enhance internal audit • Target women entrepreneurs and rural clients through • Improve credit operation procedures and an assistance program portfolio monitoring Sub-Saharan Africa: Diamond Bank Middle East/North Africa: Bank Muscat In 2007, IFC provided Diamond Bank a US$ 20 million loan In 2006, IFC committed US$ 100 million in debt and also coupled with an Africa MSME advisory services package. provided advisory services. Since then the bank has: In turn, Bank Muscat: • Disbursed over US$ 22 million in loans (818 loans) • Has transformed itself into a strong regional bank • Developed two new SME lending products rolled out • Was able to restructure operations and segment lending in 200 branches • Multiplied its customer base, deposits and SME loans We are GLOBAL: active in more than 50 countries with a focus on IDA and frontier countries We are LOCAL: with presence in all 6 IFC regions IFC: The Partner of Choice IFC, a member of the World Bank Group, creates opportunity for people to escape poverty and improve their lives. We foster sustainable economic growth in developing countries by supporting private sector development, mobilizing private capital, and providing advisory and risk mitigation services to businesses and governments. Our new invest- ments totaled US$ 14.5 billion in fiscal 2009. OUR SHARED VISION is that people should have the IFC KEY FACTS opportunity to escape poverty and improve their lives. • Credit Rating: Triple-A (Moody’s, Standard & Poor’s) • Portfolio: US$ 34.5 billion, representing investments in OUR CORE VALUES are 1,579 companies (as of June 30, 2009) • Total Staff: Approximately 3,400 (more than 50 percent • Excellence are based in country offices worldwide) • Commitment • Investments Committed in Fiscal 2009 : 447 in • Integrity 103 countries • Teamwork • Industry Coverage: • Global financial markets; private equity and OUR PURPOSE is to investment funds • Global manufacturing and services; agribusiness, • Promote open and competitive markets in health and education developing countries • Infrastructure; information and communication • Support companies and other private sector partners technologies, oil, gas, mining and chemicals; • Generate productive jobs and deliver basic services subnational finance • Create opportunities for people to escape poverty and improve their lives Key Contact Key Contact Ghada Teima Program Manager gteima@ifc.org For more information about the SME Banking Program visit: www.ifc.org/smebanking 2010