Making’Finance’WorkFor’Africa’ - Home: MFW4A ... · PDF...

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Making Finance Work For Africa

Second Genera3on Development Finance Innova3ve Approaches to Closing Gaps in

Financial Intermedia3on

Dakar, Senegal June 11, 2014

K. S. Singhwan Chief General Manager

Small Industries Development Bank of India (SIDBI)

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PRESENTATION FRAMEWORK

§  SIDBI §  Indian MSME Sector §  Transforming Market Failures into Opportuni3es

– Product Development §  Areas of Co-‐opera3on

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SIDBI SNAPSHOT •  Constitution §  Set up in 1990 – by an act of Parliament. •  Mandate §  Promotion, financing and development of MSMEs §  Co-ordinate functions of institutions engaged in serving MSME sector. •  Shareholding

§  Authorised – `10,000 million (Euro 117.51 million)/ Paid-up – ` 4,500 million (Euro 52.88 million)

§  33 GoI owned/controlled Banks, Insurance Companies and FIs. •  Size §  Balance sheet size - ` 618,000 million (Euro 7262 million) as on March 31,

2013. Cumulative disbursements USD 50 billion by FY 2013. •  Structure §  Head Office at Lucknow and Mumbai, 15 Regional and 82 branch offices §  1052 full time staff (228 women employees) – 886 officers, 98 Class III staff

and 68 Subordinate staff •  Rated “AAA’ by CARE and CRISIL •  International Partners – KfW, GIZ, Germany; World Bank; JICA, Japan;

IFAD, Rome; AFD, France and ADB

§  Subisidiary (i) / Associates (ii to v) •  (i) SIDBI Venture Capital Limited, (ii) SME Ra:ng Agency (iii) Credit Guarantee

Trust for Micro & Small Enterprises (iv) India SME Asset Reconstruc:on Company, (v) India SME Technology Services Limited.

§  Co Promoted •  Canbank Factors, SBI Factors

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SIDBI – GOVERNANCE MODEL

§  The general superintendence, direc3on and management of affairs and business of SIDBI vests in a Board of Directors (15 Directors) •  The Board consists of :

o  a Chairman and Managing Director and two whole-‐3me directors (DMDs) appointed by the Central Government ;

o  two directors who are officials of Central Government (nominated by the Central Government) ;

o  And 10 other Directors appointed / nominated as per the provisions of the SIDBI Act.

§  Corporate Governance related ini3a3ves – Independent Board, Ci3zen’s Charter, Code of Commitment, KYC/AML Controls, Grievance Redressal Policy, Online Applica3on Form, Web-‐based system for tracking applica3on and account status etc.

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SIDBI – DIVERSIFIED RESOURCE BASE

§  Domes3c §  Short term market borrowings and Fixed Deposits §  LoC from banks, Commercial Papers/Cer:ficate of Deposits §  Bond Issues §  Government / RBI support through special funds. §  Repayments and Internal Accruals

§  Interna3onal §  LoC (both General and Specific purpose) from mul:lateral and

bilateral ins:tu:ons like World Bank, KfW, DFID, JICA, ADB and AFD etc.

§  Technical Assistance support from above ins:tu:ons. §  Domes:c and Interna:onal borrowings has been in the ra:o of

roughly 80:20 during the last couple of years.

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SIDBI – Products & Services

REFINANCE

WORKING CAPITAL FINANCE

RECEIVABLE FINANCE

MICRO CREDIT

PROMOTIONAL & DEVELOPMENTAL

ACTIVITIES

TECHNOLOGY UPGRADATION,

CLUSTER DEVELOPMENT

RISK CAPITAL

DIRECT FINANCE

SIDBI

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One Stop Solution for MSME sector

Credit Plus Approach

Entrepreneurship / Enterprise promotion

Credit delivery models

Business Development Services

Missing Middle – Downscaling /upscaling

Associate organizations-

Specialized functions

SVCL- Venture Capital

SMERA- credit rating- green rating

CGTMSE – credit guarantee- RSF

ISTSL-technology transfer-pCDM

ISARC – Asset reconstruction

Micro Finance

- Nurturing MFIs

Direct Credit - Risk Capital

- Sustainable Finance

Refinance Structured products

Improve flow of Credit to MSMEs

INDIAN MSME SECTOR :DEFINITION

Service (Ceiling on investment

in Equipment)

Micro

Small

INR 2.5 Mn (USD 0.05 Mn)

INR 1 Mn (USD 0.02 Mn)





Manufacturing (Ceiling on investment in Plant & Machinery)

Medium

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INDIAN MSME SECTOR:A SNAPSHOT

§  A vehicle for faster, sustainable and inclusive Growth. §  Placorm for Entrepreneurship Development

•  over 30 million enterprises, over 6,000 products §  Second largest source of employment: over 80 million §  Share in GDP: 8.7%, in Industrial Produc3on: over 40%, in exports: over 45% §  Turnover increased from USD 129 billion in 2007 to approx. USD 200 billion in 2011 – an average growth rate of around 14% even during crisis period – higher than the na3onal industrial and economic growth.

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MSME Sector - Key Constraints / Market Failures

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PRODUCT DEVELOPMENT Start up / Eco System for Equity Finance §  Debt equity ra3o gets strained and MSMEs are unable to access bank

finance for expansion / modernisa3on purposes. §  The Risk Capital Finance Scheme of SIDBI seeks to address the above

issue by providing subordinated debt / quasi equity. §  Fund of Funds – Investment in 52 Venture Capital Funds -‐ Na3onal and

Regional §  SIDBI Venture Capital Ltd. (SVCL) -‐ set up in 1999. Covered SMEs in

growth areas like pharmaceu3cals, retailing, engineering, communica3on technology, logis3cs, somware and IT, etc. So far, 56 investments made

§  Samridhi Fund – DFID collabora3on: £ 40 million social enterprise fund aimed at impact inves3ng in Low Income States of India for social ventures.

§  Direct Risk Capital – Equity / subordinated debt (quasi-‐equity). §  Government set up the India Opportuni3es Venture Fund of US $ 900

million with SIDBI.

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PRODUCT DEVELOPMENT __ Contd Access to Funds (A2F) § Delayed Payments §  Credit period to large / medium purchasers range from 30-‐90 days and

beyond, leading to working capital shortage. §  Single customer MSMEs suffer more. §  Receivable Finance Scheme of SIDBI seeks to address the above problem. §  SIDBI pioneered Receivable Financing for MSMEs -‐ Reverse Factoring §  Introduced in 1992 §  Adopted by all major Commercial Banks §  Created an electronic placorm for e-‐discoun3ng of bills –on lines of

NAFIN model. •  Instant bills discoun3ng against 2-‐3 days in paper form •  Lower discount rates, quick transac3on at less cost, safe and secure, transparent system for MSMEs.

§ Faster Credit / Turn Around Time §  Developed a simple Credit Appraisal and Ra3ng Tool – CART

•  reduc3on in turnaround 3me – from 15 days to 2 days. •  Regulator has encouraged commercial banks to adopt CART

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PRODUCT DEVELOPMENT __ Contd Access to Funds (A2F) §  Collateral Free Loans §  To combate the problem of collateral security, Credit Guarantee Trust for

Micro & Small Enterprises set up jointly with Govt of India §  All major commercial banks are Member Lending Ins3tu3ons §  Issued over 1.4 million guarantees covering loans of about USD 11 billion §  Energy Efficiency §  Loans at concessional rates for promo3ng energy efficiency in MSMEs,

environment protec3on and adop3on of environmental & social standards (E&S) -‐ Through bilateral / mul3lateral Line of Credits (LoC) from JICA, Japan, KfW, Germany, ADB, AfD, France and World Bank.

§ Services Sector

§ Specific schemes for various segments of the services sector. Long repayment periods. Ac3vi3es where tangible assets are minimal, Knowledge based industries.

PRODUCT DEVELOPMENT __ Micro Finance

Exploratory Phase Inception

Achievement Alternate credit delivery

channel

Learning Perceived high risk Need for CB support

Collateral free assistance

Growth Phase 1999-‐2010

Achievements Successful Implementation of

National Microfinance Support Programme Need based products

Operational & Financial Sustainability of MFIs

Capacity Assessment Rating

Learning Need for regulation

Transparency Governance

Responsible Lending 2010 Onwards

Achievements Lenders Forum Code of conduct

assessment

Learning Client focused

strategies Rope in more stakeholders

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PRODUCT DEVELOPMENT __ Contd

Access to Funds (A2F) § Micro Finance • Help transform NGOs/Socie3es etc. to more regulated en33es.

• Associated with more than 140 MFIs •  Term loans, Equity / Quasi Equity, Capacity Building Grants

•  Introduced the concept of ra3ng of MFIs, Code of Conduct Assessment, Responsible Micro Finance…

•  Total funding support USD 1.50 billion benefitng 33 million poor, mostly women

•  India Micro Finance Plateform -‐ MIX

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MICRO FINANCE : MARKET FAILURE SIDBI RESPONSE

§  Propaga3ng responsible Micro Finance in India

•  Transparency and reduc3on in interest rates

•  Created Lenders’ Forum to bring alignment of efforts

•  India Microfinance Placorm (IMFP)

•  Code of Conduct Assessment (COCA) – adherence measurement.

•  Credit bureau to avoid mul3ple lending

•  Lenders’ Forum -‐ Encouraging informa3on sharing amongst MFIs

•  Set up IMEF ($ 54.55 million)

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PRODUCT DEVELOPMENT __ Missing Middle

(> INR 50,000 upto INR 10,00,000)

•  Missing Middle -‐ financing gap i.e. above micro-‐finance and below traditional institutional financing

•  It is a crucial segment that has to be addressed in the growth trajectory of micro enterprises to the more organised smaller enterprises

•  There is dearth of small collateral free loan products which cater to the financial needs of micro entrepreneurs, especially women

§  Micro Enterprise Strengthening §  Downscaling Project

§  to develop tools to assess cash flows of the borrowers who generally do not have formal financial data/information

§  validate such information through cross verification §  standardize the methodology for use on a larger scale among

different categories of borrowers in the segment. §  The project also developed a credit scoring tool contextualized to the

Indian missing middle segment and risk monitoring formats, etc. to monitor the portfolio quality and its performance over a period.

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Developmental Initiatives §  Developmental services to MSME sector complementing the role of

Commercial Banks - 1.  www.smallB.com [a virtual mentor website] - online support to

budding entrepreneurs / MSMEs, by addressing the issues of information asymmetry / Information dissemination, in order to promote entrepreneurship among the youth by meeting information gaps in setting up units

2.  Credit Facilitation Centre - To guide entrepreneurs in major clusters on bank schemes and help in pre & post sanction formalities of availing loans

3.  Loan Syndication Services - in association with the various Rating Agencies and Accredited Knowledge Partners, based on a small fee

5.  MEPP, EDPs, and other Developmental Initiatives like Cluster Development, Capacity building training for bankers for SME loans, Financial Literacy among SMEs, etc

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Institutional Solutions

§  Nodal / Implemen3ng Agency to GoI Schemes / Programmes §  To offer specialized func3ons/services, created following subsidiaries/

associates q  1999 -‐ SIDBI Venture Capital Ltd (SVCL) – to catalyse entrepreneurship by

providing capital and other strategic inputs for building businesses around growth opportuni3es and maximize returns on investment.

q  1999 –SIDBI Founda3on for Micro Credit (USD 1.50 billion 3.3 mio women) q  2000 -‐ Credit Guarantee Fund Trust for MSMEs (CGTSME) – to strengthen

credit delivery system and facilitate flow of credit to the MSE sector. (1.4 million guarantees for USD 11 billion loan)

q  2005 -‐ SME Ra3ng Agency (SMERA) – exclusively set up for micro, small and medium enterprises in India for ra3ngs on creditworthiness. (28000 ra3ngs

q  2008 -‐ India SME Asset Reconstruc3on Company (ISARC) -‐ to unlock the idle NPA assets for produc3ve purposes which would facilitate greater and easier flow of credit from the banking sector to the MSMEs. (AUM 190 million USD)

q  2005 -‐ India SME Technology Services Ltd. (ISTSL) -‐ provides a placorm where MSMEs can tap opportuni3es at the global level for acquisi3on of new and emerging technology or establish business collabora3on.

q  Co-‐promoted Ins3tu3ons -‐ Canbank Factors, SBI Factors

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Takeaways / Learnings §  DFIs to evolve constantly with changing circumstances/environment.

§  Meet both credit & non-‐credit (developmental) needs.

§  Set up specialised organisa3ons to meet diverse needs e.g. Venture Capital / Credit Guarantee / Ra3ng.

§  Iden3fy and fill in the financial and non-‐financial gaps in the eco-‐system rather than compete with commercial banks.

§  Complement and supplement working of commercial banks to ensure adequate credit flow to the targeted sector.

§  Convert crisis to opportuni3es. §  Response 3me to a crisis be minimised.

§  Counter cyclical role in 3mes of crisis.

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WAY FORWARD

•  The spirit of entrepreneurship needs to be kindled and nurtured.

•  Entrepreneurship is an attude and found in abundance in Asian countries.

•  A wholesome entrepreneurship development model found effec3ve in Indian experiment.

•  SIDBI has played a pioneering role and is open to sharing experiences.

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Possible areas of coopera3on

  Access to Finance: Innova3ve financial products and processes;   Credit Risk management to reduce bad debts.   Setng up / strengthening of support ins3tu3ons : Specialized SME Bank; Credit

Guarantee Mechanism; Credit Ra3ng Mechanism; Technology Transfer; Asset reconstruc3on; Risk / Venture / Equity Capital; Credit Informa3on Bureau.

  Capacity Building of MSME sector : Rural Industrializa3on; Entrepreneurship Development; Skill development; Cluster Development; Market Support; Technology Development

  Policy Making based on best interna3onal prac3ces : Framing suitable MSME focused policies based on best interna3onal prac3ces; Setng up co-‐ordina3on mechanism for overall development of the sector.

  Facilitate : Overseas acquisi3on / Mergers and Amalgama3ons; Technology Transfer

  Advisory services : Financial counseling; iden3fy export opportuni3es; Improve compe33veness

  Research / feasibility studies : Undertake product / sector / country specific studies, market surveys, and developing export market entry plans.

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