ADFIAP CEO Forum VII
November 17 – 19, 2010, Cambodia
Sustainable SMEs through Value Chain Financing
„KfW‘s Experience in Funding Business Start-Ups“
Barbara Schnell, Division Chief
Financial and Private Sector Asia
Agenda
1
KfW Bankengruppe: Overview
2
Start-up Activity in Germany: Current Developments
3
KfW‘s Promotional Approach in Financing Start-ups
4
Examples: StartGeld and ERP Start Fund
5
Conclusions
2
60 years of KfW
Financing with a public mission
● Promotional bank of the Federal Republic of
Germany
● Founded in 1948 as
Kreditanstalt für Wiederaufbau
● Shareholders: 80% Federal Republic,
20% federal states
● Headquarters: Frankfurt am Main
Branches: Berlin and Bonn
● Representative offices: around 60 offices and
representations worldwide
● Balance sheet total at end-2009: EUR 400 billion
● Around 4,200 employees (2009)
● Best rating: AAA/Aaa/AAA
● Zero-weight under Basel II
3
A bank with a wide array of functions
Domestic promotion
International business
We ensure
internationalisation
We promote Germany
Business Area
Mittelstandsbank
Business Area
Privatkundenbank
Business Area
Kommunalbank
Promotion of SMEs,
business founders,
start-ups
Promotion of
construction
of new housing
and modernisation
as well as education
Financing municipal
infrastructure
projects and
global loans in
Germany/Europe
agency business for
Federal Government
We promote
development
Business Area
Export and Project
Finance
Business Area
Promotion of
Developing and
Transition Countries
International
project and
export finance
Promotion of
developing and
transition countries
Promotion of environmental and climate protection
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4
Start-up activity in Germany
Current developments
Political importance of start-ups
 Start-ups important for job creation/poverty alleviation – Social Aspect
 In addition: visible number of start-ups necessary to foster economic ability to
innovate/modernize – Economic/Competitiveness Aspect
Start-up activity in 2009
●
Situation largely affected by financial and economic crisis
●
Downward trend prevailing since 2004 reversed; no. of new start-ups +10% YOY (EUR 0.8 mn)
- 45% of these were full-time businesses (+20% YOY)
●
Percentage of former unemployed persons: 30% of full-time businesses
●
High portion of micro-enterprises: Total financing needs up to EUR 10.000 (68%) or up to
EUR 25.000 (79%)
KfW’s start-up finance in 2009
●
Promotion of 25.000 founders / Volume: approx. 3,6 bn EUR
5
Macroeconomic Push/Pull Factors
for Starting Businesses
Macro-Economic Push/Pull Factors in the Economic Crisis
Recession:
- More market entry barriers
Labour Market:
- Uncertainty for Employees
- Fewer options for small
start-ups
- Higher unemployment
- Fewer open positions
Economic Pull Mechanisms
Labour Market Push Mechanisms
2009
Total Net Effect: Increase
-
-
Full-Time
Net Effect: Increase
Part-Time
Net Effect: Unchanged
+
+
6
KfW‘s Promotional Approach in Financing Start-ups (1)
Germany’s banking sector is the most crucial pillar in funding
business start-ups with the MFI’s role almost insignificant
Problem
KfW’s Solution
Lack of Collateral / Lack of Track
Record
Risk-Sharing with Market Partners /
Guarantees
High Transaction Costs
Handling Fees for Banks
Selection Process during Start-Up
Period
(exit rate of new businesses within
3 years approx. 25%)
Accompanying Advisory Services /
Hands-on Approach
Low Percentage of Start-Ups
Introducing Market Novelties
Special Incentives / Access to Finance
for Innovative Companies
7
KfW‘s Promotional Approach in Financing Start-ups (2)
Conceptual Aspects of KfW’s Start-up Programmes
 Financing Programmes:
- Commercial approach regarding risk assessment; bankable
clients/projects
- Cooperation with market partners using their distribution channels/
market expertise
 Supplementary consultancy services (e.g. start-up coaching)
 Coordination with governmental politics/measures
(e.g. assistance for formerly unemployed business founders)
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Example 1:
KfW-StartGeld
Maximum loan amount
EUR 50,000
Working capital
up to EUR 20,000
Term: up to 10 years
Fixed interest rate
Relaxation of collateral
requirements
Promotion up to
3 years after initial
founding
Redemption in equal
monthly instalments
Second application
possible
Prepayment in full
or in part is
possible at no charge
Exemption of liability for on-lending bank: 80 %
9
Neutrality through on-lending principle in loan business
No separate branch network
Customer
Customer's
bank
File loan application
with their regular bank
before start of
investment
If approved,
customer‘s
bank forwards
application to KfW
Enter into the loan
agreement and
disburse the loan
refinances the loan
at favourable
refinancing
interest rates
Private individuals
Enterprises
Public
institutions
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Example 2:
Co-Investment Scheme – ERP Start Fund
KfW / ERP Special Fund
Goal:
Leverage of
private investment
capital
Start-up
Lead Investor
- Risk Capital
Principle:
Provision of
matching funds to
a Lead Investor /
pari passu
approach
- Management Support
- Cooperation Agreement/Compensation
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Conclusions
Global Trends / Central development topics
●
Sustainable economic growth
●
Poverty reduction / Job creation
●
Structural changes and innovation
Crucial factors in financing founders / start-ups
●
Finance and consultancy services
●
Coordinated measures and programmes (government/welfare policy, chambers of commerce
and industry, banks/financial intermediaries etc.)
●
Existence of credit bureaus
General features
●
Standardized and transparent financing instruments
●
Measures with a broad impact / outreach are important
●
Package of instruments accompanying enterprises through their lifecycle
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Contact
Barbara Schnell
Division Chief
Private and Financial Sector Asia
KfW Bankengruppe
Palmengartenstrasse 5–9
60325 Frankfurt am Main
Fon +49 69 7431 – 2205
Fax +49 69 7431 – 2944
barbara.schnell@kfw.de
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