Ecosystem Supporting SMEs
and SME Banking
QAMAR SALEEM
SENIOR SME BANKING SPECIALIST
IFC BANK ADVISORY SERVICES, EMENA
NOVEMBER 24TH, 2014
Key Messages
 Sizeable SME population in MENA region (19-23 million) largely lacking
access to credit ($210-240 billion financing gap)
 SME finance from the banking sector is low in MENA (8%); Jordan was
estimated at 10%. Multiple access to finance challenges inhibit growth
 Banks as well as SMEs face various obstacles which inhibit easy access
to finance for this underserved segment
 IFC as part of G20 SME Finance sub-group recently reviewed global
SME finance practices & reviewed 164 models
 Significance of legal & regulatory framework, financial infrastructure,
public sector interventions & capacity building for banks emphasized
 IFC as a knowledge leader in SME finance has a range of services and
knowledge collateral available to support SME development
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There are 19-23 million Micro Small & Medium Enterprises in the
MENA facing a financing gap of $210-240 billion
Formal SME’s (>5 employees) by country
‘000
Number of MSMEs in MENA by size
Millions
Small
(10-49 employees)
Very small
(5-9 employees)
Micro
(1-4 employees)
Informal
0.4-0.5
0.8-0.9
0.9-1.0
Formal SMEs 10%
Medium
(50-250 employees)
Egypt
200-250
Morocco
200-250
Algeria
180-200
Iraq
Sudan
140-160
Saudi Arabia
4.2-5.2
Yemen
120-140
60-70
UAE
12.9-15.7
Qatar
Total
150-190
19-23
Kuwait
Jordan
80-90
10-12
28-35
16-20
SOURCE:
IFC-McKinsey
database
2011, Country
SOURCE:
McKinsey-IFC
MSME Database
2011 statistical offices
3
Unemployment amongst Youth and limited financial inclusion of
Women remain key areas of concern in the region
Youth unemployment
SOURCE: IFC, Education for Employment Report, 2011
Women in Business
SOURCE: IFC. Strengthening Access to Finance for Women-Owned
SMEs in Developing Countries
4
While SME finance has 10% share in Jordan, it is heavily medium
enterprise focused; ~$2 billion finance gap needs to be addressed
75%
Korea
SOURCE: Union of Arab Banks/World Bank Financial Flagship Report 2011
5
However, there are multiple obstacles faced by financial institutions –
information asymmetry, collateral, & enabling environment are key issues
% of banks responding that obstacle is very important or important for SME Financing
SOURCE: Union of Arab Banks/World Bank Financial Flagship Report 2011
6
There are various barriers for SMEs as well to obtain funding –
collateral, pricing, advisory requirements being the key areas
SOURCE: SMEs in MENA: Leveraging Growth Finance for Sustainable Development (Citi Foundation and Shell Foundation)
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IFC completed a review of leading SME finance practices and models as
part of our work with the G20
 G20 SME finance Sub Group identified successful
practices & policy measures for SMEs in 2011
 Work involved review of 164 different models globally
and subsequent policy requirements
Key Recommendations from the G20 Sub-Group
 Developing specific country strategies
1
 Developing supporting legal & Regulatory framework
 Building reliable data sources for SME finance
2
 Strengthening the financial infrastructure
3
 Effective government support mechanisms
4
 Address specific market failures e.g. women and
sustainable energy finance
5
 Building the capacity of financial institutions
SME Finance Policy Guide – issued October
2011 by IFC
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1
Country level strategies and supportive legal & regulatory
environment are needed to enhance access to finance for SMEs
 Ensure effective collection &
monitoring of data for
efficiency of measures
 Strengthen credit reporting to
even the playing field between
small and big banks
 Avoid over restrictive licensing
requirements to significantly
increase competition levels
 Support non-FI alternatives to
bank lending in the market e.g.
leasing and factoring
Case Study:
SME Corporation,
Malaysia
 Single dedicated agency to formulate and
coordinate overall policies & strategies for SMEs
 Malaysia Incorporated (established 1983) and
PEMUDAH task force (launched 2007) for publicprivate sector collaboration
 Bling (business linkages) program to facilitate
SMEs supplying to large companies
 Launch of SCORE (A diagnostic tool to rate and
enhance competitiveness of SMEs) in 2007
 INNOCERT (Innovation Certification for
Enterprise Rating and Transformation
Programme) program
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2
Financial infrastructure needs to be strengthened for improved
transparency of SMEs
 Accounting and audit requirements
need a balance between transparency
& regulatory simplicity
 Credit bureau & registries need
complimentary systems for personal
and business information from all
players (i.e. FI and Non-FI)
 SME rating agencies offer a potential
alternative, but need a certain
critical market size (e.g. India)
Case Study:
SME Rating Agency of India
 India’s 1st rating agency for MSME’s
 Diversified equity ownership by 11
banks allowed lenders to accept rating
and extend financial and non-financial
benefits
 SMEs are bucketed by size for peer
comparisons
 Rating fee < $1155, subsidized by the
government by 75%
 SMERA forecast to reach out to over
80,000 SMEs over the next 5 years
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2
….and financial infrastructure can be strengthened for venture capital
and private equity access to the SME market
 Secured transaction
regimes should allow for a
wide range of enforceable
collateral & out of court
enforcement options
 Improve corporate
governance practices should
allow venture Capital/
private Equity access to SMEs
 SME stock Exchanges have
only proven marginally
useful due to low volumes
and a lack of investor
interest
Case Study: INOVAR Program, Brazil
 Objective: to strengthen investment in new
technology SMEs and to establish Venture capital
 Created a research and information
dissemination platform and developed mgt
capacity to accelerate VC investment
 Established a VC portal where investors and
entrepreneurs register
 Allows for the provision of business plans and
joint due diligence for VC funds
 20 venture forums established and over $1
billion in VC/ PE investment made in SMEs
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3
Effective public sector interventions needed to widen opportunities,
build SME capacities and avoid market distortions
Case Study:
FOGAPE, Chile
 Credit guarantees can be
highly effective, but subsidies
should be minimized to clear
market failure areas
 Government procurement
can link SMEs into supply
chain finance, providing they
are paid on time
 MSME capacity measures e.g.
training should ideally be on a
commercial/near-commercial
basis and become scalable
 Outreach– 30,000 guarantees issued (1,800 per
million people)
 Finance – Targeted to small businesses, low
ceilings
 Distribution – Through its partner lending
institutions
 Coverage – 70-80%, higher for investment loans
 Approach – Portfolio/program Lending
 Fees- risk-based (1-2%)
 Delinquency - Net loss rate = 1.5%
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….currently credit guarantee schemes outreach in MENA is low –
3
benchmark country averages (2,080/million people; 1.2% of GDP)
Operation
Mechanism
Individual
N/A
Individual
Hybrid
Hybrid
Individual
Individual
Individual
SOURCE: World Bank-A review of Credit Guarantee Schemes in MENA
region
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3 ….benchmark countries schemes exhibit higher scale and proficiency
Operation
Mechanism
Portfolio
Auction
Hybrid
Hybrid
Hybrid
Portfolio
Hybrid
Hybrid
Portfolio
Hybrid
Hybrid
Hybrid
SOURCE: World Bank-A review of Credit Guarantee Schemes in MENA region
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4
Specific market failures like financial services to Women-in-business
& Sustainable energy finance (SEF) need to be addressed
 Economic impetus - 31 to 38%
of SMEs in developing countries
are owned by women – MENA
average is 12-15%
 Women owned SMEs is a
profitable opportunity but
requires a tailored methodology
 Key approaches adopted for
SEF are a) legal and policy
reforms, b) lending facilities
targeting banks and/or directly
SMEs; c) technical assistance to
raise awareness
Case Study: Women Entrepreneur
Package, Garanti Bank, Turkey
 Objective to meet businesswomen’s network,
training and financial needs
 Provision of customized suite of services and a
support loan and financial training
 Reached out to 8,400 women and $156 m USD
lending disbursed
Case Study:
Erste, Czech Republic
In Collaboration with IFC
 FINESA (Financing Energy Saving Applications)
developed. IFC supported bank, identified SEF
potential in Czech market- identified SEF potential in
Czech market (10M people), $7.3 billion over 6 years
 CS became leading bank in Czech sustainable energy
market, with a $650M (Euro 500M) portfolio, 1700+
new deposit accounts valued at $10 million
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5
Banks can play a leading role but capacity of financial institutions
needs to be enhanced to effectively manage SME business
Key areas where core competencies are required for successful SME banking
SOURCE: IFC Analysis
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5 ….SME Banking can be the most profitable business segment in the
Bank but performance varies considerably between winners and losers
SME Banking profitability comparison
SOURCE: IFC, SME Banking Knowledge Guide
Winners vs. Losers in SME Banking
SOURCE: Mckinsey Research
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ADVISORY
IFC provides a combination of Investment and Advisory Services for
optimal results
Capacity
Building for FIs
Financial
INVESTMENT
Infrastructure
• Build capacity of FIs in strategy, market segmentation, credit risk
management, product development through new approaches and systems to
scale up their financing for SMEs on a sustainable basis
• Promote sub-sector focus: women-owned SMEs, sustainable energy SME
projects, agri SMEs, leasing, etc
• Raise awareness on best practices in the SME Finance space
• Develop credit reporting infrastructure based on country needs
• Support development of secured transactions, collateral registries, legal and
regulatory framework
• Build capacity of public/private stakeholders through advice and training
SME Financing
& Investments
• Equity Investments in Financial Institutions / Equity Funds for SMEs
• Funded lines to expand investment and working capital lines especially in
illiquid markets
• Blended finance options to support the expansion of IFC’s risk appetite
(e.g. grace periods, performance based pricing, subordination, higher risk
/lower security or in limited cases, local currency positions) [for selected
projects]
• Focus underserved segments, e.g., gender, fragile/conflict, agri, climate
Risk Mitigation
&
Enhancements
• Risk Sharing Facilities / Partial Credit Guarantees to:
- Enhance risk taking capacity and provide capital relief via low risk
weightings
- Avoid FX mismatches and encourage domestic resources for SME
financing
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International Finance Corporation
Bank Advisory Services, EMENA
24th Floor, Nile City Tower (North)
2005C Corniche El Nil
Ramlet Boulac
Cairo – Egypt
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