1 / 27

Innovations for SME finance to counter the economic crisis

Innovations for SME finance to counter the economic crisis. Thierry Sanders Director & Founder BiD Network APEC SME Symposium Taipei, June 8-9 2009. a “declaration of ignorance” 1997. Developing country SMEs seeking between US $10,000 – US $1 million. Peru Postcards US$ 60,000. PNG

emily
Download Presentation

Innovations for SME finance to counter the economic crisis

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Innovations for SME finance to counter the economic crisis Thierry Sanders Director & Founder BiD Network APEC SME SymposiumTaipei, June 8-9 2009

  2. a “declaration of ignorance” 1997

  3. Developing country SMEs seeking between US $10,000 – US $1 million Peru Postcards US$ 60,000 PNG Lighting US$ 200,000 Philippines Lobsters US$ 86,000 Vietnam FaceMasks US$ 15,000

  4. BiD Network: Supports SME centers with Sourcing BPs, BP coaching, investors & internet 500 100 7000 300 25,000 members in 12 countries APEC members: Philippines, Mexico, Peru+ interest from Indonesia, Chile, PNG, Thailand, Vietnam

  5. 1/4 BiD Network helped start 300+ SMEs in 4 years • Average $150,000 financing need • +/-200 of 300 (66%) start without formal finance • 10 direct jobs created within 2 years / SME • 30 jobs created within 3 years / SME • 4 jobs on average, per $60,000 invested / SME • Cost per job: $1500 (BiD budget) or $15,000 invested • Estimated 50% failure rate • Aim for a 15% IRR

  6. Outline • Why are SMEs important? • Consequences of the Economic Crisis for SMEs • Innovations in SME Finance to counteract the crisis

  7. “The Missing Middle”  lack of finance is the biggest constraint to SME growth Contribution of businessto GDP(IFC average) Finance Finance Availability Availability (Indicative ) ( indicative ) International International +/- 20% > $2 > $2 million million commercial commercial finance finance Local banks & Local banks & +/- 30% $ 500,000 $ 500,000 - - subsidized subsidized $ 1 $ 1 million million finance finance Missing Middle +/- 30% Local Local banks banks , , $5,000 $5,000 – – ‘ ‘ hawkers Loan sharks’ & ’ & $ 500,000 $ 500,000 personal personal loans loans +/- 20% Microfinance Microfinance , , $ 0 $ 0 – – ‘ ‘ hawkers Loan sharks’ & ’ & $ 5,000 $ 5,000 personal personal loans loans 1/4

  8. 1/4 SMEs are job creators,exactly what we need in an economic crisis • 95% of the poor earn their income from/via SMEs • 40% of formal GDP and 50% of formal employment • 70%-80% of formal + informal employment Sources: IFC msme database 2005. OECD Private sector development reports 2006

  9. 2/4 Consequences of the Crisis for SMEs • SMEs facing big problems • SMEs doing relatively well ... and the big picture

  10. 2/4 SMEs in the crunch i.e. The bigger formal-sector SMEs. Capital intensive, middle-class & export markets. The ‘financiable’ SMEs. SME Selling products for the middle classes Selling commodities Low cash reserves Capital intensive Leased assets Dependent on export sales Short term loans (1-2 years) Paying off loans via foreign sources (e.g. remittances) Variable interest rates i.e. high debt-equity ratio

  11. 2/4 SMEs doing relatively well SME Selling products for lower classes Buyer of commodities Seasonal labour Selling local markets Labour intensive Low Debt/Equity ratio Reserves Long term loans (3-10 years) Restructuring from debt to equity Fixed interest rates Equity finance or suboordinated loans

  12. 2/4 Sectors Hard hit • Mining • Energy & Utilities • Chemicals • Trade & Transport • Food processors (export) • Textiles & Manufacturing • Construction • Finance • Tourism Doing OK • Agriculture • Fisheries • Affordable consumer goods • Repairs • Supermarkets

  13. 2/4 Growth opportunities in 2009 are with SMEs & growth countries (IMF April 2009 data)

  14. Invest in the middle classes to safeguard SMEs • The Middle classes are: • Consumers • SME entrepreneurs • SME investors • Well educated • The Economist, February 12th 2009

  15. ASIA is by far the biggest market among the poor. Income per person: < $ 3000 / year < $ 3,35 / day Brazil <$ 1,89 / day Ghana <$ 1,58 / day India Source: “Next 4 Billion” WRI 2007

  16. 3/4 8 innovations for SME finance in times of crisis Banks Investors Governments Debt-Equity Swaps Debt-Equity Swaps Help liquidations Royalty Finance Matching Fund Matching Fund Sourcing SMEs Business Angels SME centers online Investor Services BiD-X Finance Systems

  17. 3/4 #1: Help liquidations Bancruptcy = breath of fresh air for the entrepreneur? Cancel payments to creditors. Cancel bank loans. But, lose collateral, debtors & reputation. And, restart with a healthy balance sheet. Law & regulations needs to support this.

  18. 3/4 #2: Source SMEs from banks Banks are writing off bad SME loans. They have shortlists of poor-performing SME loans. Risky clients are interesting clients for investors, especially if the bank is rid of them for favourable terms & for SME is debt is replaced with equity. Investment scouts should talk to banks. BiD Network service

  19. 3/4 #3: Get SME Centers online • Get your SMEs to register themselves & their BPs • Organise BP competitions • Get coaches involved • Seek out the best BPs • Organise investor meetings • A good online platform can increase visibilitydomestically & internationally • Organise an annual event for investors & SMEs BiD Network service

  20. 3/4 #4: Business Angel Networks • Unlisted investments have investor interest • These individuals are poorly organised • Find them, organise peer-networking events • Get them to learn from eachother • Source & discuss deals together • Co-invest, syndicate www.eban.org www.angelcapitalassociation.org BiD Network Latin America (Mexico)

  21. 3/4 #5: Debt-Equity Swaps (revisited) • Short term loans  Long term loans • Variable interest  Fixed interest • Loans  Suboordinated loans • Loans  Royalty Finance • Loans (bank)  Swap to Equity (investor) i.e. investor pays off the loan (principal + interest) to bank for an equivalent value in shares in the company.

  22. 3/4 #6: Royalty based finance Loan Low fixed interest rate (~ 5%) Fee over the sales (~ 1%-5%) Penalty clause for early repayment Exit fee negotiable i.e. Pay more when the sales are good. Business Partners International – South Africa BiD Network service

  23. 3/4 #7: Matching funds 50% automatic matching by government of investment transactions. • Government allocates money to a fund (€50 million). • The fund manager (TechnoPartner, Netherlands) audits & approves participant investors & VC funds. • Investment transactions by investors are automatically doubled by Fund, on the same terms as investor.

  24. 3/4 #8: BiDx - online auction for SME financing (launch 2010) • Established SMEs (€20,000 - € 2 million) • Investors (€ 5000 +) We seek 1 more partner for US$ 750,000

  25. 4/4 BiD Network  www.bidnetwork.org

  26. Thank you !thierry.sanders@bidnetwork.org

More Related