Responding to Global Issues & Trends: The Strategic Role, Resources and Relationships of National Development Finance Institutions

34th ADFIAP Annual Meeting 20-23 April 2011 Kyrenia, North Cyprus Ms. Angela Strachan, Chief, Business Environment Section Division of Business and Institutional Support

Plenary One: “Building Up Capacity for SME Development”

SMEs - Engine of Economic Development

They constitute the majority of business enterprises, and they are vital for employment generation and poverty alleviation.

To alleviate the impact on SMEs, The International Trade Centre has developed a strategy bringing short and medium term solutions to the key problems covered above, which are compounded by the global financial crisis.

Business and Trade PolicyTrade Support Institution

StrengtheningExporter Competitiveness

Export Strategy Trade Intelligence

Trade Policy

Build capacity for trade negotiations

Establish an adequate institutional framework

Develop and implement strategies

Enterprises

Conclude commercial transactions

Prepare for exports

Formulate strategies for exports

Trade Support Institutions

Advise policymakers

Strengthen SME capacities

following ITC criteria

Improve networks

ITC Builds SME capacities on three levels

WHAT BENEFICIAIRIES EXPECT

1. Increase in the value of exports;2. In crease in employment;3. Increase in income;

4. Inclusiveness of vulnerable groups, e.g., women and youth;

5. Sustainability;

6. Measurable results.

ACCESS TO FINANCE FOR SMEs FOR INTERNATIONAL COMPETITIVENESS

Poverty Alleviation, Women EmpowermentGlobal Partnerships for Development

Response to Financial Crisis

TSIsFinancial

Institutions

In country multiplier for SME capacity building before, during

and after the loan

Increased SME lending while

mitigating risks

Restoring dialogue between SMEs and Financial Institutions:

ITCOFFERING : A one stop window

Knowledge base for SME capacity

building in financial

management

TSI coaching for improved SME

support

Assistance to financial

institutionsPartnerships

The Trade Finance for SMEs strategy is built on four pillars:

• Financial Institutions (FIs) are well equipped to attract, support, fund and sustain new and existing exporting businesses;

• Micro, Small and Medium sized enterprises are well equipped with skills and competencies to elaborate and defend sound and viable business proposals;

• Fostering a climate of trust and dialogue with Banks for a better understanding of Small and Medium sized Enterprise (SME) needs and banking requirements;

• Ensuring that long term and medium term financial resources are mobilized to support SMEs development.

Trade Finance for SMEs strategy = A4T

Trade Finance for SMEs in the Business Environment Section

Business Environment Section provides specialized products and services for the development of exporting SMEs along an integrated

approach in three areas

Trade Law Trade Finance for SMEs Trade Facilitation

Business and Trade Policy

Export Strategy TSI Strengthening Exporter

Competitiveness

Linking up with four out of five ITC Business Lines:

Lack of Trade Finance is a major impediment to ITC’s thrive towards export impact for good: “Financing is the number one constraint cited by SMEs in developing countries” (World Bank).

ITC's Trade Finance for SMEs Programme aims at assisting SMEs in the value chain, especially export oriented ones, by enhancing access to affordable credit, building entrepreneurs' financial management skills, and encouraging the development of financial instruments and mechanisms tailored to SME needs.

Trade Finance for SMEs: The Rationale

ITC’s Strategy in response to the SME Financial needs

1- Strengthening the overall management capacities of SME

managers, in particular in financial management

4- Broadening the range of financial services targeting SMEs

3- Building better links between international and regional financial institutions and commercial banks

2- Enhancing financial institutions’ understanding of SME needs and risks

ITC’s Strategy in response to the SME Financial needs (1)

Case Study:Benin: Finnish Funds for enhancing Pineapple Exports to West Africa and the Maghreb100 SMEs (cooperatives, associations) are receiving financial management coaching

from local 34 certified counselors.

ITC’s Strategy in response to the SME Financial needs (2)

Case Study:Zambia: AfDB funded project to promote the private sector

Two commercial banks, Zanaco and Investrust, are partnering in the project. ITC through its certified 16 counselors is helping 70 SMEs enhance their financial management skills and prepare bankable proposals. Each bank is also provided with tailored risk assessment/management software.

ITC’s Strategy in response to the SME Financial needs (3)

Case Study:Cambodia: AFD Support Programme to the Rice Millers

AFD (French Development Agency) is providing some guarantee funds to ANZ Royal Bank through the Ministry of Commerce to cover the risks related to the loans granted by the bank to 100 Rice Millers to improve their machinery and the quality of rice.

ITC’s Strategy in response to the SME Financial needs (4)

Case Study:Senegal: Netherland Funds support Programme to promote the mango sector

ITC to provide coaching on alternative financial services such as export credit insurance and transaction based financing.

What does the Trade Finance unit do?

The Trade Finance for SMEs contributes in building capacity by ensuring that:

•MSMEs are well equipped with skills and competencies to elaborate and defend sound and viable business proposals;

•Financial Institutions (FIs) are well equipped to attract, support, fund and sustain new and existing businesses ;

•Long term and middle term financial resources are effectively mobilized to support SMEs;

•A climate of trust and dialogue with banks is in place for a better understanding of SMEs needs and banking requirements.

Trade Finance for SMEs Approach

Regional & International

Financial Organizations

Commercial Banks & Micro

Financial Institutions

Trade-Related Technical Assistance Services

& Finance

Credit & Guarantee Lines

SMEsSMEs

ITC

SME Financing

Private Sector Development

LOANCOM & other tools

SME Competence

Building

Partnering with regional financial institutions to provide long-term credit and guarantee lines to commercial banks to make finance for trade more accessible to SMEs;

Partnering with commercial and development banks to implement specific strategies targeting exporting SMEs;

Partnering with Trade Support Institutions and Governments to establish networks of certified counsellors for providing training and counselling to the SMEs;

Provide trade-related technical assistance offering the SMEs with a complete range of knowledge, tools and resources ranging from testing and validating their business ideas to providing a label of quality.

Trade Finance for SMEs Approach

Standard Delivery Mode

The programme is usually delivered in an integrated

package. •Average duration: 18 months

Alternative Delivery Mode

The programme can be delivered in an à la carte approach to respond to the client’s specific needs.

• Loan Calculator and Amortization Table;

• Financial Management Self-Checker;

• How to Approach Banks;

• SME Audit Tool;

• Stethoscope.

Self-checkers for TSIs and SMEs

Outcomes and Results

The ITC approach can be considered as a holistic one directed exclusively to enterprise competiveness. Through its Trade Finance for SMEs program, the following concrete outputs are achieved at SMEs, TSIs and Banks level:

☺ SMEs have better access to finance and achieve a low rate of default;

☺Better quality of business plans submitted to the banks;

☺Capacity building of all the actors of the value chain of a specific sector;

☺Stronger trade support institutions delivering better coaching services to their members;

☺Reducing the knowledge and communication gap between the SMEs and the banks.

Credit Scoring Software (LOANCOM) for Financial Institutions

Good management competencies (general and financial) increase the quality of signature of SMEs seeking loans for trade from financial institutions;

Financial institutions need to overcome problems of understanding SMEs' businesses and of assessing the risks of dealing with SMEs;

Helping financial institutions to measure and record general and financial management competencies as well as conventional credit risk assessment criteria.

Customizing LOANCOM application to Specific requirements of partner institutions; LOANCOM to generate specific recommendations allowing the financial institution to

define appropriate risk management processes corresponding to specific loan requests; Delivering training programmes for the loan officers of the partner institutions.

The methodology

The LOANCOM Process:

Path for partnering with DFI’s

The way forward between ITC and DFI’s: Transaction Based Finance (TBF)

Challenges related to the implementation of TBF

Ongoing/Pipeline Projects

Benin: Enhancing Pineapple Exports Project funded by Finland;

Zambia: AfDB funded project to promote the private sector;

Asia and Pacific: ADFIAP/ITC/ITD SME Finance and Knowledge Centre;

DR Congo: UNPD funded program to strengthen the financial management capabilities of the TSIs and SME associations;

Uganda: Netherlands Trust Funds (NTF 2) Project in the coffee sector;

Senegal: Netherlands Trust Funds (NTF 2) Project to promote the mango sector.

1. Business Diagnostics;

2. How to assess SMEs’ financial needs;

3. Alternative sources of finance for SMEs;

4. Developing bankable proposals; (incl. sample loan applications,

business plans);

5. Bookkeeping and cash flow management;

6. Analyzing financial statements;

7. Budgeting and forecasting;

8. Payment mechanisms and risk mitigation in international trade;

9. Good governance and Corporate responsibility;

10.Gender issues in SME Development.

Training Modules

How to Access Finance: A guide for SME Managers;

Islamic Banking Handbook and User Guide for SMEs;

Business Navigator on e-Finance for SME Exporters in Developing Countries;

Examples of Trade Finance Publications

Financing Service Exports;

Foreign Exchange Derivatives and Risk Management in Developing Countries;

How to Approach Banks: A Guide to Short term Trade Credit;

Trade Finance: A legal Guide for Cross-Border transactions.

Examples of Trade Finance Publications

Thank you!

For more information please contact:International Trade Centre 54-56, rue de Montbrillant

Palais des Nations1211 Geneva 10, Switzerland

Tel: +4122 / 730.11.11 Fax: +4122 / 730.05.76email: financefortrade@intracen.org