ADB-OECD Workshop on Enhancing Financial Accessibility for SMEs 2013/3/6 Session 1 1 A New Regime of SME Finance in Emerging Asia The First ADB-OECD Workshop on Enhancing Financial Accessibility for SMEs Session 1, 6 March 2013, ADB HQ, Manila Shigehiro Shinozaki Financial Sector Specialist (SME Finance) Office of Regional Economic Integration (OREI) Asian Development Bank This presentation was prepared under the author‟s responsibility. The views expressed here do not necessarily reflect the views or policies of ADB, its Board of Directors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this presentation and accepts no responsibility for any consequences of their use. Agenda I. SMEs in the Global Economy II. Supply-Demand Gap in SME Finance III. Bank Lending Efficiency IV. Diversified Financing Mechanism V. A New Regime of SME Finance 2
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
1
A New Regime of SME Finance in Emerging Asia
The First ADB-OECD Workshop on Enhancing Financial Accessibility for SMEs
Session 1, 6 March 2013, ADB HQ, Manila
Shigehiro Shinozaki
Financial Sector Specialist (SME Finance)
Office of Regional Economic Integration (OREI)
Asian Development Bank
This presentation was prepared under the author‟s responsibility. The views expressed here do not necessarily reflect
the views or policies of ADB, its Board of Directors, or the governments they represent. ADB does not guarantee the
accuracy of the data included in this presentation and accepts no responsibility for any consequences of their use.
Agenda
I. SMEs in the Global Economy
II. Supply-Demand Gap in SME Finance
III. Bank Lending Efficiency
IV. Diversified Financing Mechanism
V. A New Regime of SME Finance
2
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
2
I. SMEs in the Global Economy
Landscape of SME Sector
Roles of SMEs
Global Imbalances
Savings, Investment, and Credit
3
Landscape of SME Sector
Developing Countries
-No. of SMEs: 25-30 mil. formal SMEs
55-70 mil. formal microenterprises
285-345 mil. informal enterprises
-Employment: 45% of total (formal SMEs)
-GDP contribution: 33% of GDP (formal SMEs)
-Financial access: 45-55% of formal SMEs
28-35% of all MSMEs
ASEAN (10)
-No. of SMEs: over 96% of all enterprises
-Employment: 50-85% of total
-GDP contribution: 30-53% of GDP
-Exports: 19-31% of total values
-Financial access: n/a,
APEC (21)
-No. of SMEs: over 90% of all enterprises
-Employment: 60-80% of total
-Productivity: 50% of sales & added value
-Exports: about 30% of total values
-Financial access: n/a,
*
* Brunei, Indonesia, Malaysia, Philippines,
Singapore, Thailand, and Viet Nam
Sources:
Developing Countries: GPFI (2011), “Report to the Leaders”, G20 Leaders Summit, Cannes
APEC: official website (http://apec.org); APEC-SMEWG (2003), „APEC Informatization Survey for Small and Medium Enterprises‟, p.3 [productivity]
ASEAN: ASEAN (2010), “ASEAN Strategic Action Plan for SME Development”, p.2, Jakarta
4
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
3
SMEs as a key driver of economic and social stability
1) Expected Roles at the National Level:
- create jobs
- encourage innovation, competition, and growth of national & rural economy
- division of labor (subcontracting with large firms)
USA OECD EU PRC East Asia & Pacific (developing only)
-50
-25
0
25
50
-1.00%
-0.50%
0.00%
0.50%
1.00%
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
East Asia & Pacific (developing only) EU OECD High income Middle income Low income
6
Global Imbalances
Current Account Balance (% of world nominal GDP)
Source: World Bank Data (http://data.worldbank.org/)
Current Account Balance & Gross Savings
Gross savings (% of GDP) [right] Current account balance (% of world GDP) [left]
%
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
4
Note: Based on the World Bank Analytical Classifications 2011, high income countries include Brunei Darussalam, Hong Kong,China, Japan, Republic of Korea, and Singapore; and
middle income countries include the People’s Republic of China, Indonesia, Malaysia, Mongolia, Philippines, Thailand, and Viet Nam. Source: ADB Key Indicators 2011
Notes: Credit refers to value of loans or lines of credit approved by a financial institution. Investment refers to value of fixed assets purchased by firms in a fiscal
year (machinery, vehicles, equipment, land, and building). SMEs = small and medium enterprises with 5 ≤ employees ≤ 99. Source: World Bank Enterprise Surveys 7
Savings, Investment, and Credit
10
20
30
40
50
60
0 50 100 150 200 250 300
Gro
ss
Do
mest
ic S
avin
g (%
of G
DP
)
Domestic Credit by Bank (% of GDP)
High Income Countries
0
10
20
30
40
50
0 50 100 150
Gro
ss
Do
mest
ic S
avin
g (%
of G
DP
)
Domestic Credit by Bank (% of GDP)
Middle Income Countries
10
15
20
25
5 10 15 20 25
Investm
ent (
ln)
Credit (ln)
Indonesia - SMEs
15
20
25
30
15 20 25 30
Investm
ent (
ln)
Credit (ln)
Viet Nam - SMEs
Enhanced access to finance can contribute to adjustments in domestic savings or current account balance in high income countries, while this trend is reversed in middle income countries.
Positive correlation btw credit and investment by SMEs (INO & VIE). Increasing the depth of credit will accelerate SMEs’ investment.
Implications:
i. SMEs having access to formal finance contribute to higher domestic investment?
ii. Individual savings, rather than corporate savings, contribute to higher domestic savings? Informal MSMEs included in ―individual‖?
iii.SMEs having no access to formal finance keep profits as precautionary savings?
Expectation: Promoting SME status from informal to formal and improving financial access for formal SMEs will contribute to mobilizingexcess savings to investment in emerging Asia.
Savings, Investment, and Credit
8
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
5
II. Supply-Demand Gap in SME Finance
SMEs’ Access to Finance
Methodology: Case of Indonesia
Supply-Demand Gap in SME Finance - Indonesia
Implications
9
10
SMEs’ Access to Finance
Value of Credit
Gap
($ billion)
Number of
Firms
(million)
With Deposit
Accounts
With Loans or
Overdraft
East Asia MSMEs 900–1,100 170–205 115–140 17–19
Formal
SMEs
250–310
[11%–14%]
11.2–13.6 7.6–9.1 2.0–2.5
South Asia MSMEs 310–370 75–91 47–57 15–17
Formal
SMEs
30–40
[29%–35%]
2.0–2.8 1.0–1.2 0.5–0.7
Total
excluding high-income
OECD
MSMEs 2,100–2,500 365–445 240–290 75–90
Formal
SMEs
700–850
[21%–26%]
25–30 18–22 8–10
[ ] = gap as percentage of current outstanding SME credit, MSMEs=micro, small, and medium enterprises, OECD=Organisation for Economic
Co-operation and Development, SMEs=small and medium enterprises.
Note: Regional classification is based on the World Bank definition.
Source: IFC and McKinsey & Company. 2010. Two trillion and counting. Washington, DC: IFC.
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
6
Disequilibrium Model of Credit Market:
Fair and Jaffee (1972), Rimbara and Santomero (1976), Laffont and Garcia (1977), Pazarbasioglu
(1997), Ghosh and Ghosh (1999), Agung et al. (2001), etc.
Data: Bank Indonesia’s Banking Statistics, Financial Statistics, and BPS statistics [Jan/07-Dec/11]
Credit Supply Function (Ls):
Lst = a + b1 capt + b2 rt + b3 yt + b3 nplt + ut (1)
where a and b = coefficients to be estimated; cap = banks’ lending capacity as local currency values calculated based on commercial banks’ balance sheets (total liabilities – equity capital – required reserves); r = average lending rate for working capital; y = value of real GDP; NPL = value of non-performing loans; t = observed point in time; and u = residual.
Credit Demand Function (Ld):
Ldt = a + b1 rt + b2 yt + ut (2)
where a and b = coefficients to be estimated; r = average lending rate for working capital; y = value of real GDP as a determinant of credit demand; t = observed point in time; and u = residual.
Supply-Demand Gap:
Lt = min(Lst, L
dt) (3)
where Lt = actual lending value observed at period t. L corresponds to Ls if Ld>Ls, while L follows Ld if Ls>Ld.
S-D gapt = Ldt – Ls
t (4)
Methodology: Case of Indonesia
11
12
Supply-Demand Gap in SME Finance- Case of Indonesia -
-0.10
-0.05
0.00
0.05
0.10
0.15
2011.1
2
2011.1
1
2011.1
0
2011.9
2011.8
2011.7
2011.6
2011.5
2011.4
2011.3
2011.2
2011.1
2010.1
2
2010.1
1
2010.1
0
2010.9
2010.8
2010.7
2010.6
2010.5
2010.4
2010.3
2010.2
2010.1
2009.1
2
2009.1
1
2009.1
0
2009.9
2009.8
2009.7
2009.6
2009.5
2009.4
2009.3
2009.2
2009.1
2008.1
2
2008.1
1
2008.1
0
2008.9
2008.8
2008.7
2008.6
2008.5
2008.4
2008.3
2008.2
2008.1
2007.1
2
2007.1
1
2007.1
0
2007.9
2007.8
2007.7
2007.6
2007.5
2007.4
2007.3
2007.2
2007.1
Total commercial bank lending SME lending
New Economic
Policy Package I
New Economic
Policy Package II
Public guaranteed loan program for MSMEs (KUR) started
MSME Law (Law No.20/2008)
enacted
Yudhoyono Administration (2004 -)
National Strategy for Financial Inclusion
(NSFI) announced (Jun.2012)
European sovereign debt crisis (late 2009 -) Lehman shock (Sep/08)2008/09 Global financial crisis
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
7
Limit of bank financing for SMEs under the continuing global financial uncertainty.
i. The root of financial crisis will change as global financial system is advanced.
ii. Well-established SME finance policies will alleviate credit contraction, but cannot remove it perfectly.
iii. Possible negative impact of Basel III.
Diversification of financing modality is necessary.
i. No one-size-fits-all financing solution.
ii. Long-term funding needs will increase as SMEs grow further.
iii. A comprehensive menu of policy options on SME finance is needed, with innovation.
Implications
13
III. Bank Lending Efficiency
Financial Infrastructure for SMEs
Innovative Financial Product Design
Sustainable Credit Guarantee Systems
Public Finance for SMEs
14
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
8
Credit data infrastructure
i. Reduce the cost of producing information for lenders and the supply-demand gap in SME finance.
ii. Control excessive competition among banks and excessive credit reliance among SMEs.
SME informatization
i. Timely availability of high quality financial and non-financial information on SMEs. Anonymous info sharing.
ii. Asia SME Finance Monitor at ADB (S-RDTA)
Legal infrastructure for secured transactions
i. Legal framework for establishing and operating collateral registries.
ii. Facilitate the use of movables for loans and minimize dependency on real estate security.
Financial Infrastructure for SMEs
15
Asset based finance (ABF)
Financing approach based on both firm’s credit worthiness and the value of its assets.
i. Asset based lending (ABL): finance secured by accounts receivable
and movables (inventory, machinery, and equipment).
ii. Factoring: short-term financing for suppliers, selling A/R.
iii. Financial lease: mid-term financial instrument, giving the right to use
owner’s assets for specific period.
iv. Structured finance/asset backed securities (ABS)
Credit score based lending/risk-based lending
SME cluster financing
Debtor-in-possession (DIP)/Exit financing
Finance for firms under bankruptcy/restructuring process.
Innovative Financial Product Design
16
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
9
Roles of credit guarantee(i) Fill the supply-demand gap in SME finance; (ii) lower funding cost for SMEs; and (iii) alleviate financing constraints for SMEs, partially or fully released from collateral requirements.
Potential negative effects(i) Impact of Basel Capital Accords; (ii) adverse selection & moral hazard; (iii) a life-prolonging measure for SMEs; (iv) less incentive to improve SME management; and (v) bloating national budgets (public credit guarantee).
Challenge: business sustainability and soundness
A gradual shift from public-dependent to private-led business to effectively deliver guarantee benefits to SMEs.
(i) Cost efficiency; (ii) profitability; (iii) management & staff capacity; (iv) operating system; (v) diversified & demand-driven product design; (vi) self-funding; and (vii) country context & needs.
Sustainable Credit Guarantee Systems
17
Roles of public financial institutions
i. Public intervention: (i) direct lending; (ii) interest subsidy; and (iii) credit guarantee & insurance.
ii. Reduce social opportunity costs (outreach to the underserved).
iii. Timely response to external shocks, e.g., financial crisis and disaster.
Debates
i. Supplementary or suppression of private businesses?
ii. Bloating national budget with no risk conscious?
iii. Political bias, addressing ―save the weak‖?
Challenges
i. Balance between fiscal cost and macroeconomic benefit.
ii. Ex post facto evaluation of public intervention.
Public Finance for SMEs
18
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
10
IV. Diversified Financing Mechanism
Non-Bank Financial Institutions
Trade Finance & Supply Chain Finance for SMEs
Capital Markets for SMEs
Brainstorming: ―Exercise‖ equity market for high-end SMEs
19
Diverse players for financing SMEs, besides banks
i. Specialized financiers: credit cooperatives, credit unions, pawnshops,
finance companies, leasing companies, factors, etc.
ii. Market organizers: securities dealers & brokers
iii. Risk-taking/contractual savings institutions: venture capital, monoline,
hedge funds, pension funds, mutual funds, PE funds, etc.
iv. Financial conglomerates/investment banks
Debates
i. Stimulate sound competition in financial systems?
ii. Provide financing alternatives for growth-oriented SMEs?
iii. Shadow banking & regulatory arbitrage as a potential risk?
Challenges
i. Establish sound competitive environment among players.
ii. Balanced macro- & micro-prudential regulation.(if systemic risk is identified)
Non-Bank Financial Institutions (NBFIs)
20
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
11
Importance of supporting industries
i. SMEs can contribute to intra- & extra-regional trade through subcontracts with large firms.
ii. As large firms expand their business to overseas, SMEs have a chance to entering foreign markets.
Instruments to stimulate internationalization of SMEs
i. Trade finance: documentary credit, documentary collection, etc.
ii. Supply chain finance: ―a combination of trade finance and a technological platform which connects trading partners and financial institutions and provides various services related to some supply chain events‖ (IFG). e.g., Intl. factoring.
Challenges
i. Product design & combination to supplement disadvantages on conventional trade finance (e.g., process time & cost)
ii. IT infrastructure/electronic trade data exchange
iii. Product literacy for SMEs
Trade Finance & Supply Chain Finance for SMEs
21
A trial and error for creating an equity financing venue for high-end SMEs
i. Exchange market: e.g., SME Board & ChiNext (SZSE/PRC), SME Exchange (BSE/India)
ii. Organized OTC:
e.g., FreeBoard (KOFIA/Korea)
iii. Alternative Investment Market (AIM):
e.g., CATALIST (SGX/Singapore), ACE (KLSE/Malaysia), mai (SET/Thailand)
iv. Market for unlisted SME stocks: e.g., Pink Sheets/USA
A new movement of creating an SME bond marketi. QIB (Qualified Institutional Buyer) market for professional investors/Korea (2012)
ii. SME Collective Note, SME Joint Bond & SME private placement bond/PRC
Challenges
i. Demand creation mechanism: (i) fostering investor base/VC industry; (ii)
supporting infra building; (iii) government support (e.g., tax incentive)
ii. Sustainable market mechanism: (i) liquidity enhancement
(e.g., market making); (ii) cost management for market operation
Capital Markets for SMEs
22
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
12
What is the ―Exercise‖ market?
i. Equity market for unlisted SMEs that are willing to raise growth capital, separated from the regular market of stock exchange
ii. Learning venue on market rules & responsibility for SMEs before tapping the regular market (preparatory market)
iii. A mechanism supporting SMEs in equity finance from various angles
iv. Channel investment capital into ―smaller but growing‖ firms
the importance of increasing ―corporate value‖; (ii) take a funding alternative besides lending; (iii) strengthen capital necessary to achieve further growth, balancing debt; (iv) enhance social credibility of business & employee’s incentive to work; and (v) promote easiness of bank lending.
ii. For the market side: increase the depth of capital market through
involving a new layer of potential issuers to the market, i.e., SMEs.
Brainstorming: ―Exercise‖ equity market for high-end SMEs
23
Brainstorming: ―Exercise‖ equity market for high-end SMEs
24
Investors
Sophisticated investors
Liquidity enhancement
Government
Tax incentive scheme
Socialization
Regulation on investment by SOEIncorporation support Monitoring(Indirect supervision)
Internal Rules on
- Stock Exchange
- Securities firms
- Sophisticated investors
Private Sector
Disclosure support
SME recruiter
RegulatorSelf-regulatory rule
Exercise MarketSMEs
Securities firms
CPA Network
Stock Exchange
/Dealers Assoc.
Venture capital
Banks
SME consultants
VC Fund
Financial
institutions
Institutional
investors
Government (LP)
Bi/Multi donors (LP)
State owned enterprises
(LP)
Large companies
(business partners)
Angel investors
Venture capital (GP)
Private sector (LP)
Primary market Secondary market
Market
making
system
Obligatory
shareholder
allotment
Valuation system
of
unlisted stocks
Tax
Agency
Ministry of
Industry
Ministry of
TradeCentral Bank Capital Market
Regulator/FSA
SME/
Cooperative
Agency
Ministry of State
Owned
Enterprises
Ministry of Justice
Universityspin-off
venture
Other
relevant
Ministries
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
13
V. A New Regime of SME Finance
A Big Picture
Brainstorming: Possible Donor Support Areas
25
Financial Infra
Regular Markets
Government
Sophisticated
Investors
NBFIs
26
A Big Picture
Factors Leasing
Firms
Securities
dealers/
brokers
Venture
CapitalMonoline
Finance
Firms,
etc.
Banks
Bond
Market
Equity
Market
Credit
Guarantee
Corps.
Consolidated SME Information
Sharing Platform(financial & non-financial data)
Public
Financial
Institutions
SPC
FSA/MOFCentral
Bank
SME/Coop
Agency
Other Line
Ministries
“Exercise”
Equity
Market
Collateral
Registry
Credit
Bureau
Growth-
oriented
SMEs
Supporting professionals(CPAs, audit firms, SME associations,
SME consultants, banks, VCs, etc.)SME Development Policy
(access to finance, etc.)
Growing with innovation & competitiveness SMEs’ internationalization & promotion of
intraregional trade
Financial
Education
Large
Firms
-Regulation & supervision
-Policymaking for financial inclusion
(inc. improving SMEs’ access to finance)
Statistics/data Policy implication
Anonymous data
Evidence-based policymaking
Innovative products
(ABL, credit score finance,
DIP finance, etc.)
Trade finance/SCF
Guaranteed loans
National
budget
(National
budget) Credit infoCredit among
corporations
Insurance
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
14
27
Brainstorming: Possible Donor Support Areas
Financial Infra
Regular Markets
Government
Sophisticated
Investors
NBFIsFactors Leasing
Firms
Securities
dealers/
brokers
Venture
CapitalMonoline
Finance
Firms,
etc.
Banks
Bond
Market
Equity
Market
Credit
Guarantee Corps.
Consolidated SME Information
Sharing Platform(financial & non-financial data)
Public
Financial Institutions
SPC
FSA/MOFCentral Bank
SME/Coop Agency
Other LineMinistries
“Exercise”
Equity
Market
Collateral Registry
Credit Bureau
Growth-
oriented
SMEs
Supporting professionals(CPAs, audit firms, SME associations,
SME consultants, banks, VCs, etc.)SME Development Policy
(access to finance, etc.)
Growing with innovation & competitiveness SMEs’ internationalization & promotion of
The Asian Development Bank (ADB) is dedicated to reducing poverty in the Asia and Pacific region
through pro-poor sustainable economic growth, social development, and good governance. Established in 1966, it is owned by 67 member nations—48 from the region—who have committed $167.1 billion in loans to the vision of a region free of poverty. With headquarters in Manila, ADB has 30 offices around the world with 2,833 staff from 59 members as of 31 December 2010. (As of end 2010)
About OREI:
OREI traces its roots to the Regional Economic Monitoring Unit (REMU)—established in the
aftermath of the 1997/98 Asian financial crisis. It was upgraded and renamed OREI in April 2005, as ADB expanded its role in promoting regional cooperation and integration (RCI) throughout Asia and the Pacific.
OREI assists its developing member countries in pursuing open regionalism that serves as a building block to global integration. OREI works toward building a regionally integrated and
globally connected Asia and the Pacific by
Promoting regional economic policy dialogue in Asia and the Pacific and providing policy advice;
Supporting capacity building and institutional strengthening to help ADB member countries integrate both within the region and with the rest of the world;
Conducting research and serving as a knowledge and information center on RCI; and
Acting as ADB’s focal point for regional infrastructure and financial sector development and developing partnerships with regional forums and international institutions.
29
Case of Indonesia
- MSMEs seek to access formal finance & diversified long-term funding instruments for stable growth of business, diminishing informal finance dependency.
30
0% 20% 40% 60% 80%
Bank loan
Non-bank loan
Venture capital
MFIs
Family, relatives & friends
Credit among corporations
Public loan program
Informal loan
Corporate bond/debenture
Equity finance
Own fund
Present
Future
0% 10% 20% 30% 40%
Bank loan
Non-bank loan
Venture capital
Short-term ( <1y) Mid-term (1-5 y)
Long-term (>5 y) n/a,
0% 10% 20% 30% 40%
Bank loan
Non-bank loan
Venture capital
Short-term ( <1y) Mid-term (1-5 y)
Long-term (>5 y) n/a,
Funding Instruments: Present and Future
Note: Present = funding instruments accessed. Future = funding instruments desired in the future.
Source: Author’s compilation from JICA-Bapepam-LK Survey on Funding Environment for MSMEs in 2010.
Loan TermPresent
Future
Valid data: 622 MSMEs
Ref. Demands and Constraints on SME Finance
ADB-OECD Workshop on Enhancing
Financial Accessibility for SMEs
2013/3/6 Session 1
16
Case of Indonesia
- Collateral/guarantee requirements & high borrowing rate are the most critical barriers for MSMEs to access formal financial institutions.
31
Source: Author’s compilation from JICA-Bapepam-LK Survey on Funding Environment for MSMEs in 2010.