TBN 14 May 2010
Developing SMEs:
a case study in
transformational
investment
Peter Hinton SDG
1
Typical SME:
Modern Radiators
2
Personal History
Africa Trading
3
Missing middle opportunity
Banking opportunity
Missing
Middle
SMEs,
Unbanked,
Home buyers
Micro
finance
Micro
finance
Potential clients
Over served
Micro finance
MNCs
Corporates
Affluent
Affluent
Emerging propositions
Middle income
Neglected
opportunity
Mid– lower income
Donor
focus
Missing
Middle
Poor
Demographic Impact
Less than $2bn in actively managed investment funds specifically target
the SME sector, compared with over $6bn invested in microfinance sector
4
The majority of SMEs identify access
to finance a major constraint
Source: World Bank Enterprise Surveys. 2008
While SMEs tend to be banked, less
than 30% have access to credit
Source: World Bank Enterprise Surveys. 2008
Women SMEs
• Access to credit in
Kenya & Uganda
100%
10%
80%
60%
40%
by women
90%
by men
20%
0%
7
Microfinance vs.
SME finance
Microfinance customer
SME customer
8
SME finance vs. Microfinance:
Job creation
$1 of SME finance creates 3 times more jobs than microfinance
Investment size(US$ mn)
Leverage (Deposits mobilized)
Total assets available (US$ mn)
Portion of assets for lending, 75% (US$ mn)
Average loan (US$)
Number of loans
Jobs created per business over 5 yearsc
Total jobs created
Cost per job created (US$)
Microfinancea
1
2x
2
1.5
317
4,732
1
4,732
211
SME banksb
1
8x
8
6
20,000
300
50
15,000
67
Source: a Averages for Sub-Saharan Africa based on 159 institutions surveyed in MixMarket 2008 Microbanking Bulletin
b SDG estimates based on 2008 financial reports for 4 institutions in E. Africa: Development Finance Corporation Uganda and Finabank Group in
Kenya, Rwanda, Uganda
C SEAF estimate 26% annual employment growth; These calculations assume SME average employment of 20 with annual growth rate of 20%
9
SME finance vs. Microfinance:
Financial statistics
ROA
ROE
Total invested in sector (US$ bn)
Average loan (US$)
Loan portfolio (US$ mn)
Average outreach per institution
Microfinancea
-3.2%
-1.1%
4
317
2.6
32,616
SME banksb
2.1%
16.5%
1
20,000
243.4
3,043
Source: a Averages for Sub-Saharan Africa based on 159 institutions surveyed MixMarket 2008 Microbanking Bulletin; Deutsche
Bank 2007 report
b SDG estimates based on 2008 financial reports for 4 institutions in E. Africa: Development Finance Corporation Uganda and
Finabank Group in Kenya, Rwanda, Uganda; IFC 2007
10
‘Missing Middle’ Finance drives
sustainable economic growth
Expansion of formal financial inclusion for :
―
―
―
SMEs and SME employees
Unbanked
Low- /middle-income homebuyers
Deepening of financial market and
enhancing country financial structure
Strengthen capacity of management and
employees of FIs and SMEs
Job creation and contribution to tax base
Source: SEAF 2007, From Poverty to Prosperity: Understanding the Impact of Investing in Small and Medium Enterprises
11
Channels of SME investment
Direct – eg Cocoa farms in Ghana
Through SME funds eg I&P, Fusion
Through MFIs upscaling
Through financial intermediaries eg banks
with an SME focus
Source: SEAF 2007, From Poverty to Prosperity: Understanding the Impact of Investing in Small and Medium Enterprises
12
SME Banking:
Case study
13
SDG Business Model:
FI Transformation
Transform FI’s into leading local/SME banks
Unfocused
Underperforming
Undermanaged
Governance
Management
Poor
Credit Quality
Culture/
Leadership
Weak IT
Small
Capital base
Branding
Marketing
Controls
Balance
sheet
building
Processes &
procedures
Missing Middle
Market Focus
Credit
management
Risk
management
Sub scale
Product
range
Distribution
channels
12 Transformation Aspects
14
SME multiplier effect - latrines
15
SME Multiplier effect - schools
16
Impact Investing (10 Years)
1.1Job
INVEST
$1,000
$6,200
return
(IRR 20%)
17
Conclusion
SMEs are key to development
On the ground contact is key
Banks can be a key channel
Multiplier effect is significant
Commercial returns, development impact
18
Peter Hinton
phinton@summitdevgp.com
www.summitdevgp.com