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IFC SME Banking Advisory Services May 10, 2005

IFC SME Banking Advisory Services May 10, 2005. SME Definitions. 0-14 staff. 15-49 staff. 50-199 staff. > 200 staff. MICRO. SMALL. MEDIUM. LARGE. SME Policies. SMEs are Key for Economic Development… They provide most of the employment opportunities

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IFC SME Banking Advisory Services May 10, 2005

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  1. IFC SME Banking Advisory Services May 10, 2005

  2. SME Definitions 0-14 staff 15-49 staff 50-199 staff > 200 staff MICRO SMALL MEDIUM LARGE

  3. SME Policies • SMEs are Key for Economic Development… • They provide most of the employment opportunities • They are flexible in economic downturns • They allow a homogeneous geographic development • SME Development in a country requires: • A strong culture of Entrepreneurship • A business enabling environment • Low barriers to entry and development • Adequate legal and regulatory framework • Access to Finance • Financing Needs: • Start-Up: Self-financing, Family, Venture Capital, Micro-Finance, Government Guarantee Schemes • Growth: Banking and Specialized Financial Services • Maturity: Banking Services, Bond Markets, Stock Markets

  4. SMEs and Economic Development in Emerging Markets Estimated SME Contribution to Employment Estimated SME Contribution to GDP

  5. IFC Technical Assistance in MENA region • 3 year technical assistance program to support private sector development • Covering 22 countries, from Morocco to Pakistan • Managed by International Finance Corporation • US$100m co-financed by IFC and bilateral donors • 5 Pillars: • Financial Sector (SME banking, leasing, housing, banks corporate governance) • SMEs • Business Enabling Environment • Privatisations • Public-Private Partnerships

  6. SME Banking Advisory Services OBJECTIVE: Develop the SME finance supply by improving the capacity of commercial banks to serve this market RATIONALE : • SMEs are a central factor for growth and job creation in developing countries • Access to Finance is mandatory for SMEs growth and sustainability • There is a gap between where micro-finance ends and corporate banking starts • SME Banking has proven to be highly profitable when bestpractices are applied

  7. Scope of Advisory Services • Bank SME Strategy • SME Definition • Market segmentation • Risk Management • Credit Policy • Risk Rating/ Scoring • Product Development • Organization Structure • Bad Debt Recovery and Collections • IT Systems • Staff Training on new products/processes

  8. 3 Sub-segments/approaches • Micro-enterprises: micro-finance approach/products leveraging bank’s network and resources • Small-enterprises: scale-up retail banking: scoring, mass-market, packaged products • Medium: scale-down corporate banking: rating, semi-packaged, enhanced/simplified/streamlined corporate banking

  9. Completed and Ongoing Mandates • United Bank of Egypt (UBE), Egypt • Commercial International Bank (CIB), Egypt • Banque Misr, Egypt (2 projects) • Export Development Bank of Egypt (EDBE), Egypt • Alexandria Businessman Association, Egypt • Banque Commerciale du Maroc (BCM), Morocco • Banque Centrale Populaire (BCP), Morocco • Banque Internationale Arabe de Tunisie (BIAT), Tunisia • Credit Populaire d’Algerie (CPA), Algeria • Ryad Bank, Saudi Arabia

  10. Example 1Egypt: Banque MISR

  11. Example 2 Morocco: BCM

  12. SMEs in Pakistan: a large market… • A Cornerstone of the Economy • 90% of businesses are SMEs (250,000 > 5 employees) • 30% of GDP • 80% of workforce • 50% of FX earnings • Concentrated in Trade (51%) and Services (34%) • Manufacturing (15%): • Textile • Food Processing • Leather • Metal products (auto. Spare parts, bicycles, elect. fans..) • Wood & Furniture • Marble/granite • Important vehicule of poverty reduction (employment to low income groups) • Low productivity

  13. …but largely untapped/underserved • Lack of finance is first barrier to growth • Limited access to formal credit: • > 5 employees: less than 5% • > 100 employees: less than 13% for working capital • Only 15% of aggregate banks loans • Perceived by banks as high risk, costly, unprofitable • Banks have surplus liquidity

  14. SME Banking in Pakistan… SIGNIFICANT MARKET POTENTIAL OPPORTUNITIES FOR BANKS TO ENTER THE SME MARKET WITH APPROPRIATE TOOLS, PRODUCTS, PROCESSES, ORGANIZATION ….AND SUPPORT FROM IFC

  15. Next … • Expression of Interest by Bank • Diagnostic questionnaire and assessment visit • Banking Advisory Proposal and Terms Of Reference (objective, deliverables, budget and time-plan, cost-sharing) • Consultants selection and budget finalization • Advisory Services Agreement • Contracting consultants • Project kick-off

  16. If you are interested…. Please contact IFC Islamabad Ayesha Muzaffar amuzaffar@ifc.org IFC Cairo Antoine Courcelle-Labrousse: acourcelle@ifc.org

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