IFC SME Banking Advisory Services
May 10, 2005
SME Definitions
Number of
Employees
Revenues
< 500
< USD 5 MM
10 < X < 250
< USD 50MM
Canada
< 500 manufact.
< 50 services
< USD 4 MM
Mexico
10 < X < 500
Country
United States
European Union
South Africa1
Pakistan
Turkey
> 10-20
< 100-200
< 250 manufact.
< 50 services
> US$ 0.05 MM
< USD 1 - 8 MM
<USD 4 MM
Asset Base
< USD 34 MM
> USD 0.07 MM
< USD 0.3 – 3 MM
< USD 1.35 MM
manufact.
<USD 0.7 MM services
10 < X < 200
0-14 staff
15-49 staff
50-199 staff
MICRO
SMALL
MEDIUM
> 200 staff
LARGE
SME Policies
•
SMEs are Key for Economic Development…
– They provide most of the employment opportunities
– They are flexible in economic downturns
– They allow a homogeneous geographic development
•
SME Development in a country requires:
– A strong culture of Entrepreneurship
– A business enabling environment
• Low barriers to entry and development
• Adequate legal and regulatory framework
– Access to Finance
• Financing Needs:
– Start-Up: Self-financing, Family, Venture Capital, MicroFinance, Government Guarantee Schemes
– Growth: Banking and Specialized Financial Services
– Maturity: Banking Services, Bond Markets, Stock Markets
SMEs and Economic Development
in Emerging Markets
Estimated SME Contribution to
Employment
Estimated SME Contribution to GDP
100%
100%
91%
80%
80%
80%
67%
61%
56%
60%
60%
54%
48%
40%
48%
45%
40%
40%
30%
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So
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0%
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0%
fri
ca
20%
Pa
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20%
fri
ca
25%
IFC Technical Assistance
in MENA region
•
3 year technical assistance program to support private
sector development
•
Covering 22 countries, from Morocco to Pakistan
•
Managed by International Finance Corporation
•
US$100m co-financed by IFC and bilateral donors
•
5 Pillars:
– Financial Sector (SME banking, leasing, housing,
banks corporate governance)
– SMEs
– Business Enabling Environment
– Privatisations
– Public-Private Partnerships
SME Banking Advisory Services
OBJECTIVE:
Develop the SME finance supply by improving the capacity
of commercial banks to serve this market
RATIONALE :
• SMEs are a central factor for growth and job creation in
developing countries
• Access to Finance is mandatory for SMEs growth and
sustainability
• There is a gap between where micro-finance ends and
corporate banking starts
• SME Banking has proven to be highly profitable when
best practices are applied
Scope of Advisory Services
• Bank SME Strategy
– SME Definition
– Market segmentation
• Risk Management
– Credit Policy
– Risk Rating/ Scoring
•
•
•
•
•
Product Development
Organization Structure
Bad Debt Recovery and Collections
IT Systems
Staff Training on new products/processes
3 Sub-segments/approaches
• Micro-enterprises: micro-finance
approach/products leveraging bank’s
network and resources
• Small-enterprises: scale-up retail banking:
scoring, mass-market, packaged products
• Medium: scale-down corporate banking:
rating, semi-packaged,
enhanced/simplified/streamlined corporate
banking
Completed and Ongoing Mandates
1. United Bank of Egypt (UBE), Egypt
2. Commercial International Bank (CIB), Egypt
3. Banque Misr, Egypt (2 projects)
4. Export Development Bank of Egypt (EDBE), Egypt
5. Alexandria Businessman Association, Egypt
6. Banque Commerciale du Maroc (BCM), Morocco
7. Banque Centrale Populaire (BCP), Morocco
8. Banque Internationale Arabe de Tunisie (BIAT),
Tunisia
9. Credit Populaire d’Algerie (CPA), Algeria
10. Ryad Bank, Saudi Arabia
Example 1
Egypt: Banque MISR
Project
Component / Activities
Performance Indicators
Outputs
Develop micro finance policy
and procedures
Program policy and
procedures manual
developed
Training staff
25 training days
29 credit officers trained
IT systems
Develop Business Plan
Recommended loan
tracking system
Impacts
Adopted
policy and
procedures
Implemented
loan tracking
system
Conducted 3 year financial
analysis and projections
Individual loan product
Design loan product
Outcomes
Individual
loan product
Implemented in 5
branches
6,401 loans disbursed
$ 6 million disbursed
$1.5 million outstanding
4,098 active clients
100% repayment
Example 2
Morocco: BCM
Project Activities
Performance Indicators
Outputs
Improve credit
underwriting:
• by developing a
standardized risk rating
system for commercial
lending
•introduction of credit
scoring for retail lending
 Basle II compliant scorecard for
commercial lending
Improve banks collection
practices
 Recommendations for reorganizing the collection function
10 middle managers and staff
trained on the risk rating system
Recommendations for future
implementation of credit scoring
for retail lending
Outcomes
 Integrated the rating system in
the bank’s credit processes and
information system
4400 companies rated
representing ($2.5 billion
equivalent of loans outstanding)
 Created a dedicated specialized
department for commercial
recovery of large non performing
loans
 $300 million equivalent
recommendations made within the
first six months of activity)
SMEs in Pakistan: a large market…
• A Cornerstone of the Economy
–
–
–
–
90%
30%
80%
50%
of
of
of
of
businesses are SMEs (250,000 > 5 employees)
GDP
workforce
FX earnings
–
–
–
–
–
–
Textile
Food Processing
Leather
Metal products (auto. Spare parts, bicycles, elect. fans..)
Wood & Furniture
Marble/granite
• Concentrated in Trade (51%) and Services (34%)
• Manufacturing (15%):
• Important vehicule of poverty reduction (employment
to low income groups)
• Low productivity
…but largely untapped/underserved
• Lack of finance is first barrier to growth
• Limited access to formal credit:
– > 5 employees: less than 5%
– > 100 employees: less than 13% for working capital
– Only 15% of aggregate banks loans
• Perceived by banks as high risk, costly,
unprofitable
• Banks have surplus liquidity
SME Banking in Pakistan…
SIGNIFICANT MARKET POTENTIAL
OPPORTUNITIES FOR BANKS TO ENTER THE
SME MARKET
WITH APPROPRIATE TOOLS, PRODUCTS,
PROCESSES, ORGANIZATION
….AND SUPPORT FROM IFC
Next …
• Expression of Interest by Bank
• Diagnostic questionnaire and assessment
visit
• Banking Advisory Proposal and Terms Of
Reference (objective, deliverables, budget
and time-plan, cost-sharing)
• Consultants selection and budget
finalization
• Advisory Services Agreement
• Contracting consultants
• Project kick-off
If you are interested….
Please contact
IFC Islamabad
Ayesha Muzaffar
amuzaffar@ifc.org
IFC Cairo
Antoine Courcelle-Labrousse:
acourcelle@ifc.org