Roshika Singh and Sylvester Ogbakiri Workshop on Technical Service Provision for MSMEs Eko Hotel and Suites, Victoria I

1. Roshika Singh and Sylvester Ogbakiri Workshop on Technical Service Provision for MSMEs Eko Hotel and Suites, Victoria Island June 28th, 2006 Focus on �unlocking profit potential�� we believe SME lending can be both safe and profitable, and we have first-hand experience that proves it. In the following slides, we will show you why we think that.Focus on �unlocking profit potential�� we believe SME lending can be both safe and profitable, and we have first-hand experience that proves it. In the following slides, we will show you why we think that.

2. Today�s Discussion About Deloitte and Emerging Markets Group, Ltd. Our Work in MSME Finance Potential Approaches to MSME Finance in Nigeria First, we�ll briefly introduce ourselves Then show you just a few examples of our work in MSME finance Then talk about how we can help banks here in Nigeria enter into MSME finance safely and profitably.First, we�ll briefly introduce ourselves Then show you just a few examples of our work in MSME finance Then talk about how we can help banks here in Nigeria enter into MSME finance safely and profitably.

3. Deloitte At A Glance One of the world�s largest and fastest-growing professional services firms Expertise in audit, tax, Consulting and Financial Advisory Services. More than 90,000 professionals in over 130 countries More than 25% of global revenues from serving financial institutions Global expertise in lending technologies, payment systems, small business finance, mortgage lending, capital markets operations, securitisation, Basle II compliance, anti-money laundering, etc. Recognised as �the organisation that believes in � and can deliver � seamless, integrated professional services� (Emerson Review, 2004) Most of you are familiar with Deloitte � leading global firm But you might not know that more than a quarter of our global revenue comes from working with banks and other financial institutions.Most of you are familiar with Deloitte � leading global firm But you might not know that more than a quarter of our global revenue comes from working with banks and other financial institutions.

4. Akintola Williams Deloitte in Nigeria Largest locally-owned accounting and audit firm in Nigeria Founded fifty-two years ago by now retired Akintola Expertise in corporate finance, enterprise risk services, due diligence, merger integration, accounting, tax, audit and consulting services Worked with fifteen financial institutions in Nigeria over last five years Consulting arm engages in project management, information technology, human capital, energy infrastructure and utilities, operations and strategy services as well as economic studies Corporate Finance Unit provides first-class services in due diligence and business valuation Enterprise Risk Services Unit deals with Business Risks and Corporate Governance matters, which is usually an important issue for financial institutions. Here in Nigeria, Deloitte is the largest locally-owned accounting and consulting firm We have a great deal of experience working with some 15 banks just in the last few years Here in Nigeria, Deloitte is the largest locally-owned accounting and consulting firm We have a great deal of experience working with some 15 banks just in the last few years

5. Our Work in Nigeria Nigeria � Helping BPE manage technical assistance for DFID Nigeria � Establishing linkages with water associations and fund management Nigeria � Funds management for census for European Union Nigeria � Funds management for immunization for World Health Organization Nigeria � Conducted due diligence services for EIB International Bank Plc Nigeria � Conducted due diligence services for Bond Bank Plc Nigeria � Conducted due diligence services for Reliance Bank Plc Nigeria � Provided merger integrations and advisory services to Skye Bank Plc Nigeria � Conducted due diligence services for Magnum Trust Bank Plc Nigeria � Conducted due diligence services for Nal Bank Plc EMG, often in cooperation with Deloitte, has worked across West Africa, including several recent projects in Nigeria. We�ve also been involved in financial sector development across the continent.EMG, often in cooperation with Deloitte, has worked across West Africa, including several recent projects in Nigeria. We�ve also been involved in financial sector development across the continent.

6. Our Work in Nigeria / South Africa Nigeria � Conducted due diligence services for NBM Bank Plc Nigeria � Conducted due diligence services for Trust Bank of Africa Plc South Africa � First Rand Bank Limited: Establishment Of A New Micro-Finance Division Nigeria � Conducted due diligence services for Afro-Exim Bank Plc Nigeria � Conducted due diligence services on Assurance Bank for NSITF South Africa � Regional: Fund Managers � Financial Deepening Challenge Fund Zimbabwe � Reserve Bank of Zimbabwe: Establishment of A Depositor Protection Scheme For Zimbabwe Nigeria � Provided pre-merger advisory services to Sterling Bank Plc Nigeria � Provided pre-merger advisory services to Skye Bank Plc EMG, often in cooperation with Deloitte, has worked across West Africa, including several recent projects in Nigeria. We�ve also been involved in financial sector development across the continent.EMG, often in cooperation with Deloitte, has worked across West Africa, including several recent projects in Nigeria. We�ve also been involved in financial sector development across the continent.

7. EMG At A Glance Twenty years as Deloitte�s specialised development consulting unit 200 staff in London, Washington, Brussels and projects around the world Clients include World Bank, DFID, USAID, EU, African Development Bank, and state-owned and private commercial financial institutions Now independent, but associated with Deloitte and still retain strong links with Deloitte � particularly across African continent Dedicated practice units in financial sector development, agribusiness, health care, tourism, private sector development, and public sector reform Expertise includes micro- and SME finance, leasing, credit information systems, value chain finance, housing finance, capital market development, AML, financial sector regulation, pension reform, etc. EMG was, for 20 years, an integral part of the Deloitte network, servicing clients like the World Bank and DFID. We�ve recently become independent, but still work closely with Deloitte offices here in Nigeria and around the world. While we work in a wide range of areas, as you will see in a moment, financial sector work is a key focus for us, particularly MSME finance.EMG was, for 20 years, an integral part of the Deloitte network, servicing clients like the World Bank and DFID. We�ve recently become independent, but still work closely with Deloitte offices here in Nigeria and around the world. While we work in a wide range of areas, as you will see in a moment, financial sector work is a key focus for us, particularly MSME finance.

8. Our Work in Africa Nigeria � Helping Bureau of Public Enterprises manage technical assistance Nigeria � Helped ECOWAS upgrade financial management capability Nigeria � Reviewed operations of Plateau State Water Board Benin � Worked with financial institutions to develop loan products for SMEs The Gambia � Assisted in preparing a Tourism Master Plan Senegal � Conducted public finance review for MCA Jumpstart programme Cameroon � Provided regulatory assistance to the Financial Markets Commission Zambia � Designing training program in SME lending for commercial bankers Swaziland � Conducted assessment of financial sector, measured SME access Other projects in Ghana, Botswana, Kenya, Uganda, Tanzania and Ethiopia EMG, often in cooperation with Deloitte, has worked across West Africa, including several recent projects in Nigeria. We�ve also been involved in financial sector development across the continent.EMG, often in cooperation with Deloitte, has worked across West Africa, including several recent projects in Nigeria. We�ve also been involved in financial sector development across the continent.

9. Today�s Discussion About Deloitte and Emerging Markets Group, Ltd. Our Work in MSME Finance Potential Approaches to MSME Finance in Nigeria So I�d like to share with you a few quick examples of our work in MSME finance, all of which I think is relevant to the issues you are grappling with here in Nigeria.So I�d like to share with you a few quick examples of our work in MSME finance, all of which I think is relevant to the issues you are grappling with here in Nigeria.

10. Selected Experience in MSME Finance Bank training in Thailand and Zambia SME banking in Kosovo New product development in Honduras Bank diagnostics in Tanzania Fisheries and agriculture banking in Kenya Credit reporting and information systems in Zambia, Madagascar, Egypt, East Timor, Mexico, Colombia, Brazil and Uruguay Here are the six areas we�ve selected. Let�s go through them quickly.Here are the six areas we�ve selected. Let�s go through them quickly.

11. Bank Training in Thailand and Zambia Designed tailored training courses for six banks in Thailand, with funding from USAID and commercial banks Delivered separate programmes at each institution, including private and state-owned banks, ranging from 1 day to 3 weeks Topics included SME lending, credit and operational risk management, loan workout Also trained potential SME borrowers on bank requirements, how to complete applications Trained over 1,000 bankers, achieved measurable results in skill levels Now conducting a training needs assessment for bankers in Zambia to unlock profit potential among SMEs and agribusinesses Until recently, Thai banks were facing some of the same constraints to MSME lending that Nigerian banks face today. They had plenty of liquidity, but little SME lending experience and were concerned about the risks involved. EMG developed tailored training programs for 6 different banks � not only on SME lending but also credit and operational risk management, loan workout and other topics. While we trained over 1000 bankers, each program was unique and designed for each specific bank, based on their existing credit policies and organizational culture, etc. We�re now launching a similar effort in Zambia. One of my colleagues is there this week working with commercial banks to design a training program on SME lending.Until recently, Thai banks were facing some of the same constraints to MSME lending that Nigerian banks face today. They had plenty of liquidity, but little SME lending experience and were concerned about the risks involved. EMG developed tailored training programs for 6 different banks � not only on SME lending but also credit and operational risk management, loan workout and other topics. While we trained over 1000 bankers, each program was unique and designed for each specific bank, based on their existing credit policies and organizational culture, etc. We�re now launching a similar effort in Zambia. One of my colleagues is there this week working with commercial banks to design a training program on SME lending.

12. SME Banking in Kosovo One of the things that makes EMG really unique is that we don�t just do training and consulting to banks, but we�ve actually established and managed an SME lending bank ourselves�. So we have first hand experience. In Kosovo, we launched a $30 million SME lending fund that we transformed into a full-fledged commercial bank, and then sold to Raiffeisen. We lent out about $65 million, mostly to SMEs, with loan losses under 3%. And we managed the bank profitably. One of the keys to our financial performance was that we developed �holistic� relationships with SME clients � not just loans, but we �cross-sold� payment services, deposits, etc. One of the things that makes EMG really unique is that we don�t just do training and consulting to banks, but we�ve actually established and managed an SME lending bank ourselves�. So we have first hand experience. In Kosovo, we launched a $30 million SME lending fund that we transformed into a full-fledged commercial bank, and then sold to Raiffeisen. We lent out about $65 million, mostly to SMEs, with loan losses under 3%. And we managed the bank profitably. One of the keys to our financial performance was that we developed �holistic� relationships with SME clients � not just loans, but we �cross-sold� payment services, deposits, etc.

13. Other Successes in MSME Finance Here are a few other examples of our work. In Honduras, we worked with 2 commercial banks that had little experience of SME lending. We helped them develop new products, and showed them how to manage the risks of SME lending. One bank estimates the new product will generate $50 million in new lending over 3 years. Our work with banks in Tanzania goes back 5 years or more. We�ve done thorough assessments of three state-owned banks there, including credit policies and loan quality. In Kenya, on a more grassroots level, we�ve worked with banks and other FIs to create innovative products that allow them to extend credit, safely and profitably, to very small enterprises in ag and fisheries.Here are a few other examples of our work. In Honduras, we worked with 2 commercial banks that had little experience of SME lending. We helped them develop new products, and showed them how to manage the risks of SME lending. One bank estimates the new product will generate $50 million in new lending over 3 years. Our work with banks in Tanzania goes back 5 years or more. We�ve done thorough assessments of three state-owned banks there, including credit policies and loan quality. In Kenya, on a more grassroots level, we�ve worked with banks and other FIs to create innovative products that allow them to extend credit, safely and profitably, to very small enterprises in ag and fisheries.

14. Our Work on Credit Reporting Systems Zambia: Working with Central Bank to revise legal framework and attract a privately-managed credit bureau Madagascar: Working with Financial Services Commission to design and establish a credit information system for microfinance institutions Egypt: Helped Central Bank strengthen and expand public credit registry to include smaller loans, worked with commercial banks to improve data security, accuracy and relevance as well as consumer protection. East Timor: Designed and now helping to establish a public credit registry for commercial banks, NBFIs and microfinance institutions Latin America and the Caribbean: Working with the World Bank and the FIRST Initiative to evaluate and strengthen public and private credit information systems in Colombia, Brazil, Mexico, Uruguay, Costa Rica and Trinidad & Tobago Finally, I wanted to mention that EMG is also the leading firm working with the World Bank and other donors to strengthen credit reporting and information systems around the world. We�re currently working with regulators and commercial banks in Zambia, Madagascar and Egypt, as well as other countries around the world.Finally, I wanted to mention that EMG is also the leading firm working with the World Bank and other donors to strengthen credit reporting and information systems around the world. We�re currently working with regulators and commercial banks in Zambia, Madagascar and Egypt, as well as other countries around the world.

15. Today�s Discussion About Deloitte and Emerging Markets Group, Ltd. Our Work in MSME Finance Potential Approaches to MSME Finance in Nigeria We don�t have much time left, so I�d likely to quickly go through how all this global experience in MSME finance might be helpful to you in Nigeria.We don�t have much time left, so I�d likely to quickly go through how all this global experience in MSME finance might be helpful to you in Nigeria.

16. MSME Lending in Nigeria 65% of economically active population have little / no access to finance Less than 10% of some 8.4 million MSMEs have access to finance SME lending accounts for less than 9% of total bank credit As these numbers demonstrate, there is a huge untapped market for MSME finance in Nigeria, which we all know. But this has two implications for banks� First, MSMEs are less price sensitive than large firms, so lending to them is (at least potentially) more profitable. Second, there�s very little competition in the MSME market so far, so there is a huge �first mover advantage� to whichever bank gets in first. The problem, of course, is that MSME lending can be risky. And also costly � the transaction costs relative to loan volume can be high. Let me explain how EMG can help you overcome these issues.As these numbers demonstrate, there is a huge untapped market for MSME finance in Nigeria, which we all know. But this has two implications for banks� First, MSMEs are less price sensitive than large firms, so lending to them is (at least potentially) more profitable. Second, there�s very little competition in the MSME market so far, so there is a huge �first mover advantage� to whichever bank gets in first. The problem, of course, is that MSME lending can be risky. And also costly � the transaction costs relative to loan volume can be high. Let me explain how EMG can help you overcome these issues.

17. How EMG and Deloitte Can Help Manage risks and reduce transaction costs associated with SME lending Broadly, there are four ways that we can help banks: We can help you improve your ability to manage risks associated with SME lending � through training and/or through hands-on technical assistance. EMG can help you design, test and launch new loan or leasing products, like we did in Honduras, that reduce risks and generate sustainable profits. We can work with you to streamline lending procedures � while still ensuring proper risk management � in order to reduce transaction costs For those who may have already entered the SME market, we can help maximize the profit potential of each client relationship by identifying and implementing cross-sell opportunities. We can also help improve MSME access to finance in Nigeria more broadly, by working with potential borrowers, and also by working with donors, Gov�t and other stakeholders � for example by improving credit information systems or removing policy constraints and making it easier for banks to lend to MSMEs.Broadly, there are four ways that we can help banks: We can help you improve your ability to manage risks associated with SME lending � through training and/or through hands-on technical assistance. EMG can help you design, test and launch new loan or leasing products, like we did in Honduras, that reduce risks and generate sustainable profits. We can work with you to streamline lending procedures � while still ensuring proper risk management � in order to reduce transaction costs For those who may have already entered the SME market, we can help maximize the profit potential of each client relationship by identifying and implementing cross-sell opportunities. We can also help improve MSME access to finance in Nigeria more broadly, by working with potential borrowers, and also by working with donors, Gov�t and other stakeholders � for example by improving credit information systems or removing policy constraints and making it easier for banks to lend to MSMEs.

18. For more information� Sylvester Ogbakiri Email: sogbakiri@deloitte.com Email: sogbakiri@awdeloitte.com Phone: +234 (0) 803 300 6806 Roshika Singh Phone: +44- (0) 20 7303 2288 Email: rsingh@emergingmarketsgroup.com

19. about planning for the future If you are planning for a year, sow rice; If you are planning for a decade, plant trees If you are planning for a lifetime, educate people - Chinese Proverb