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TBN 14 May 2010. Developing SMEs: a case study in transformational investment Peter Hinton SDG. Typical SME: Modern Radiators. Personal History. Africa Trading. MNCs. Affluent. Affluent. Corporates. Middle income. Mid . Mid . –. –. lower income. lower income. Micro finance.

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tbn 14 may 2010
TBN 14 May 2010

Developing SMEs:

a case study in transformational investment

Peter Hinton SDG

personal history
Personal History

Africa Trading

missing middle opportunity

MNCs

Affluent

Affluent

Corporates

Middle income

Mid

Mid

lower income

lower income

Micro finance

Micro finance

Micro finance

Poor

Poor

Missing middle opportunity

Banking opportunity

Over served

Emerging propositions

SMEs,

Unbanked,

Home buyers

Missing

Middle

Missing

Middle

Neglected

opportunity

Donor

focus

Potential clients

Demographic Impact

Less than $2bn in actively managed investment funds specifically target the SME sector, compared with over $6bn invested in microfinance sector

the majority of smes identify access to finance a major constraint
The majority of SMEs identify access to finance a major constraint

Source: World Bank Enterprise Surveys. 2008

while smes tend to be banked less than 30 have access to credit
While SMEs tend to be banked, less than 30% have access to credit

Source: World Bank Enterprise Surveys. 2008

women smes
Women SMEs
  • Access to credit in Kenya & Uganda
microfinance vs sme finance
Microfinance vs. SME finance

Microfinance customer

SME customer

sme finance vs microfinance job creation
SME finance vs. Microfinance:Job creation

$1 of SME finance creates 3 times more jobs than microfinance

Source: a Averages for Sub-Saharan Africa based on 159 institutions surveyed in MixMarket 2008 Microbanking Bulletin

b SDG estimates based on 2008 financial reports for 4 institutions in E. Africa: Development Finance Corporation Uganda and Finabank Group in Kenya, Rwanda, Uganda

C SEAF estimate 26% annual employment growth; These calculations assume SME average employment of 20 with annual growth rate of 20%

sme finance vs microfinance financial statistics
SME finance vs. Microfinance:Financial statistics

Source: a Averages for Sub-Saharan Africa based on 159 institutions surveyed MixMarket 2008 Microbanking Bulletin; Deutsche Bank 2007 report

b SDG estimates based on 2008 financial reports for 4 institutions in E. Africa: Development Finance Corporation Uganda and Finabank Group in Kenya, Rwanda, Uganda; IFC 2007

missing middle finance drives sustainable economic growth
‘Missing Middle’ Finance drives sustainable economic growth
  • Expansion of formal financial inclusion for :
      • SMEs and SME employees
      • Unbanked
      • Low- /middle-income homebuyers
  • Deepening of financial market and enhancing country financial structure
  • Strengthen capacity of management and employees of FIs and SMEs
  • Job creation and contribution to tax base

Source: SEAF 2007, From Poverty to Prosperity: Understanding the Impact of Investing in Small and Medium Enterprises

channels of sme investment
Channels of SME investment
  • Direct – eg Cocoa farms in Ghana
  • Through SME funds eg I&P, Fusion
  • Through MFIs upscaling
  • Through financial intermediaries eg banks with an SME focus

Source: SEAF 2007, From Poverty to Prosperity: Understanding the Impact of Investing in Small and Medium Enterprises

sdg business model fi transformation

Governance

Marketing

Management

Branding

Controls

Balance sheet building

Culture/

Leadership

Processes & procedures

Product

range

Credit management

Risk management

Distribution channels

SDG Business Model: FI Transformation

Transform FI’s into leading local/SME banks

Unfocused

Under-

performing

Under-

managed

Poor

Credit Quality

Missing Middle

Market Focus

Small

Capital base

Weak IT

Sub scale

12 Transformation Aspects

impact investing 10 years
Impact Investing (10 Years)

1.1Job

INVEST $1,000

$6,200 return

(IRR 20%)

conclusion
Conclusion
  • SMEs are key to development
  • On the ground contact is key
  • Banks can be a key channel
  • Multiplier effect is significant
  • Commercial returns, development impact
slide19

Peter Hinton

phinton@summitdevgp.com

www.summitdevgp.com