Expert Meeting on Improving Competitiveness ofSMEs in Developing Countries: The Role of Finance, including E-Finance, to enhance enterprise developmentGeneva, Oct 22 - 24, 2001E-finance for SMEsTHE PATH A presentation by: Sanjay Guglani
SMEs • Dominant contributors to GDP • Key employment engines • Enhance National Competitiveness • Commercial Banks, Venture Capitalists, Governments... initiatives • E-payment gateways & platforms Wow!
Do we have reliable data on SMEs ?
The Foundation Authentic & exhaustive database Collation problems: • Spread & Diversity • Income under-reporting • Accounting / Planning • Cost of administration Solution: • Involve SME associations Community Ownership!
e-Culture Comradeship is the key PULL strategies Multi-tier data entry Authentication & normalization Universal Identification Mandatory info. collation & updation Online trade fairs & trusted digital mkt place That’s how!
Who will bell the cat?
Impact of e-finance on banks’ net margins(net interest income) Economies Net margin 1997 20052010 Developed nations average 2.34 1.96 1.69 Emerging markets average 4.39 3.85 2.50 Brazil 7.76 6.63 3.63 Czech Republic 3.04 2.77 2.07 Hong Kong, China 2.90 2.26 1.73 Mexico 3.64 3.26 2.27 Russia 4.79 4.21 2.65 South Africa 4.96 4.34 2.70 Turkey 11.17 9.41 4.75
e-Trade • Lack of credit scores • Opening LSE info-systems • EDI back-bone • Digital storage certificates • Dynamic working capital allocation • Use SME associations • Government-sponsored Trade-Nets • Smart Cards Yes!
Telco loss 100 m projected ‘06: 900 m USD Material costs down by 40 m Inventory down to 57 days (from 75 days) Tata AutoComp: 12 suppliers, 40 OEMs, 330 component cos. & numerous SMEs.
Many of these SMEs with no access to any formal channel of financing Telco info-net JIT - SCM - Transaction history Financial sector provide voluntary quotes rates for discounting Tata Engg bills at 20 - 25% lower rates without bothering of recipient SME, collateral or accounts Turnaround leveraging SME relationship Funding sans collateral /accounts!
Desired govt. initiatives for e-finance Policy AreaCurrentNew paradigmparadigm Creating an enabling environment Telecom & security framework, PKI $ $$$ Info., privacy & contractual framework $$ $$$$ Institution specific financial laws $$$$ $$$ Market infrastructure $$$$ $$$ Consumer, investor & institutional risks Consumer & investor protection $$$ $$$$ Prudential regulation $$$$ $$$ Markets - functioning, performance & risks Competition policy $$ $$$$ Functioning, transparency, liquidity... $$$ $$$$ Forms of government intervention Banking, micro lending,direct credit $$$ $$ Information prov. & collateral inst. $$$ $$$$ Use of existing infrastructure $$$ $$$$
E-finance forSMEs Short term funding: Quasi-factoring… Medium term funding: Dematerialization & standardization of debt paper (mortgage) Risk Capital: Online venture capital processing & monitoring
A Snap-Shot Stage Target Foundation “Live” database e-Culture Unique identity e-Trade Credit history / EDI e-Finance No financial constraint Immediate Action Plan • Leverage SME associations • Open LSE info-systems relating to SMEs to financial community.
Thank-you • Contact details: • Sanjay Guglani • Saksham Financial Services (P) Ltd. • K-101 (3rdFlr) Lajpat Nagar-2 • New Delhi - 110024. INDIA • Tel # +91-11-6914959/69/79 • Mobile # +91-98101-98869 • Email: guglani@VCline.com • Website: www.VCline.com