9. ….. And banks need capacity to address these
challenges
10. …and if managed well, SME Banking can be very
profitable…
Key observations
• ROE can be very attractive (up to 25-35%)
• Margin compression inevitable but can be negated
by establishing a “total wallet” P&L
• Key profit drivers are typically deposits and
transaction banking, representing between 50-60%
of total SME business profitability
• Need to take a 5-year view of product profitability
“We want to double in 3 years. Returns are the best in the
Group. Risk-returns are now twice as high as all our
consumer banking businesses”
Global Product Head, SME Banking Standard Chartered
Sept.2010
Faster Revenue Growth………..
Higher RoA’s………..
10
SME
Finance
Gap
Challenges
in SF
IFC –
What &
How
IFC and
G-20
IFC
Footprint
11. But performance in SME Banking can be highly volatile if the
right capabilities are not put in place…
SME ROA
PERCENT
SME Banking rewards those with the right
capabilities in placeSource: Mckinsey
11
SME
Finance
Gap
Challenges
in SF
IFC –
What &
How
IFC and
G-20
IFC
Footprint
12. Financial infrastructure is a critical building block for
SME financial inclusion
Credit reporting
systems
reduce information
asymmetries, support
efficient credit
allocation and
strengthen risk
management
Payment and
settlement systems
facilitate access to
financial services and
the safe transfer of
funds. PS can mitigate
financial crises by
reducing settlement
risks
Secured transactions
systems and collateral
registries
reduce risk to lenders,
facilitate access to
credit, and promote
credit diversification
A solid
Financial
Infrastructure
serves both
Inclusion and
Stability
13. Impact of improved credit reporting on
financial inclusion
Source: Love & Mylenko (2003)
14. Full information-sharing increases access to credit
¨Out of every 100,000
loan applications 11,400
are lost if assessment
is based on negative
info only¨
% increase in lending volumes
73.7
83.2
Negative information
only
Negative and positive
information
Source: Barron and Staten (2000). Note: Figure shows the simulated acceptance rate assuming a default rate of 4% overall
15. MSME and Payments
• More electronic transactions lower information costs
• More electronic transactions save time and money for firms
• More electronic transactions offer alternative portfolio
management options
Issues:
• Payments data availability
• Movable assets/secured transactions rights/regulations
• Inter-operability
• Financial institution capacity/awareness
16. 16
The Project facilitated strong growth of SME lending by
banks (1/2) – absolute growth in FI portfolio
Secured Transactions Reform – China case
Source: 50 FIs surveyed in Anhui, Guangdong, Shaanxi, Shandong, Shanghai, Zhejiang
Note: The multiple government policies targeted at SMEs, including financial stimulus, during the course of the Project are
potential confounding factors
4 of Big 5 banks reported an average 25% CAGR in 2008-2010, up from 2% in 2006-2008 period;
7 other large commercial banks also reported an average of 45% over 20%
17. 17
The Project facilitated strong growth of SME lending by
banks (2/2) – FI perception
87% of surveyed FIs rated the 2007 Property Law as very/somewhat important to
“serve new segments of SME market”
Secured transactions reform – China case
Source: 50 FIs surveyed in Anhui, Guangdong, Shaanxi, Shandong, Shanghai, Zhejiang
18. 18
The Project contributed to SMEs’ business performance, as
perceived by SMEs (1/2)
Source: 100 SMEs surveyed in Beijing, Chengdu, Hangzhou, Wuhan and Zhengzhou
SMEs perceive “unacceptable collateral” as by far the #1 reason for why their loan applications
were denied in the past. 59% of surveyed SMEs believe that their business development would be
severely impacted, or worse, if their current access to movables financing were to be removed
Secured transactions reform – China case
19. The Project contributed to SMEs’ business performance, as
perceived by SMEs (2/2)
Source: 100 SMEs surveyed in Beijing, Chengdu, Hangzhou, Wuhan and Zhengzhou
Note 1: This evaluation attempted to compare job growth between SMEs with A/R financing and those with immovables
financing. Yet the channel of immovables financing also provides needed working capital for business and
employee growth. SMEs without access to both movables and immovables financing have likely winded down.
88% of surveyed SMEs said that business growth was a benefit resulted from obtaining accounts
receivable financing
19
Secured transactions reform – China case
• SMEs had increased their workforce,
although employee growth was not
perceived as a high benefit area
• The 2011 median and average
growth rates in employees were
7% and 36%, respectively,
according to the SME Survey
• However, a different methodology is
needed to qualify the Project’s impact
on job creation
• This evaluation lacks a control
group for valid comparison1 (see
more discussion on Lessons
Learned)
21. Global Warehouse Finance Program
(GWFP) – WHR Scheme
Program focuses on IDA countries and works with banks which intend to increase
exposure in the agriculture sector
Program covers pre-export and import financing, as well as domestic sales
IFC will identify the pre-approved sub-borrower names together with banks.
22. Distributor Finance
IFC:
• Funding or Unfunded risk
sharing facilities/partial
guarantees
• Advisory Services solutions
for distributors and / sub-
distributors, for capacity
building and risk mitigation, to
be customized as per needs
BANK:
Origination and monitoring in:
• Receivables-based financing
to Seller
• Overdrafts/loans to
Distributors/sub-Distributors
or
• Floor-planning & equipment
financing including end-user
financing
End-
Customer
SELLER varying
forms of contractual
support, including
First Loss/counter
guarantee
Distributor
Seller
(Anchor)
Sub-
Distributor
Bank