New Age Financing Options for Fast Growing MSME...

Copyright Aditya Birla Finance Limited 2010

Aditya Birla Finance

New Age Financing Options for Fast GrowingMSME’s

India MSME Summit, July 2010

Aditya Birla FinanceCopyright Aditya Birla Finance Limited 2010

Flow of presentation

1 Changing Needs of MSME’s

2 Financing options to ‘Wow’ this large segment

3 The ‘Aditya Birla Finance’ Way


MSMEs: Key Contributor to India’s growth

India is estimated to have more than 26 million micro, small and

medium enterprises

MSMEs account for:

40% of India’s industrial production

45% of exports

Directly employ over 60 million people

MSMEs expected to contribute 22% of India’s GDP by March

2012, as compared to 17% nowSource: News articles and reports


Changing Needs of MSME’s

Core Financial Needs Non-core financialneeds

Non-financial AdvisoryNeeds

Asset Products Private Equity Business Consulting

Liability Products Debt Structuring HR Consulting

Transaction Services Estate Planning/Fiduciary

Branding/ Marketing /Geographic expansions

Wealth Management IT/ Processes


Needs vs. Delivery MappingC

usto

mer

Nee

ds

Availability of services

Win–win quadrant

AssetsLiabilitiesTransaction ServicesWealth ManagementPrivate Equity / VCDebt StructuringSupply chain financingEstate PlanningBusiness PlanSales/Marketing PlanMarket Mapping &

DistributionProcesses/Technology

Service Gap

Clear need to introduce new set of products for MSME’s


Financial solutions based on customer segments enablesmeet the critical business needs of SMEs more effectively

Mid &Large

CorporateTier 4 >150

Cr

MediumEnterprises

Tier 3 INR 25Cr –150 Cr

Small EnterprisesTier 2 INR 2.5 Cr – 25 Cr

Micro EnterprisesTier 1 Less than 2.5 Cr

• Good Corporate Governance Practices

• Professional Management

• Reaches maturity with deepunderstanding of business

• Growth phase

• Inadequate access tofinance

• Start-up phase

Financial SolutionsKey Business Characteristics

• Cash Credit / OD• Receivables Finance• Purchase Finance• Business Installment Loans• Mortgages (HL, LAP etc.)• Insurance (Group / Life / Health)• Mutual funds• CV/Machinery/Equipment Loans• Parameterized products

• Corporate Finance• Supply Chain Financing• Project / Infrastructure financing• Transaction banking facilities• Wealth management• Treasury Solutions• Foreign Currency Financing• Private Equity


Contents





Emerging Concepts for MSME financing

Relationship Management

• Relationship model driving theservice philosophy

Industry Focused• Surrogate/ Industry margins for

right computation of limits

• Banks / FI’s are moving to avertical based set ups for MSME’s

• Lenders becoming specialist inparticular industries / trades

Product• Bundling of Products is the

emerging trend

• Healthy mix of secured andunsecured funding

• Suite of Advisory Services• Risk – reward pricing

Process• Changing trends in acquisition

models of banks / FI’s

• Different service methodology forMedium, Small and Microenterprises

MSME


Evolving models for SME’s

Model 2: SMEs in Retail

SMERetail Comm.

MMSB

SB

Retail

Cons.

Commercial

SB MMCorp.

Retail

Cons.

Commercial

MMCorp.

Commercial

SB

Model 1: SMEs in Commercial

Retail

MM

Model 3: Dedicated SME Unit

Model 4: Split*1 with no sub SB and MM units

Source : IFC presentation

Banks have developed multiple models to address the vast MSME market Growing emphasis to differentiate micro and small businessesfrom medium enterprises leading to differentiated service deliverymechanisms


Product segments catering to need of MSMEs

Short term Long term

Medium term

• Lease Rental Discounting

• Loan Against Property

• Asset Financing

• Project Finance

• Working Capital Demand Loan

• Promoter Funding

• Channel Finance

• Pre-shipment

• Post-shipment

• Receivable Financing


Key to Success…

Bank / FI

Operations Technologysupport

CreditAdmin

RelationshipManager

MSME Relationship Management

Ideal single point(Sourcing + Servicing)

Model

Changing trends in acquisition modelsof banks / FI’s

Banks / FI’s are moving to a verticalbased set ups for MSME’s

Service is being fragmented acrossvarious back end platforms

Need to move to unique single pointsourcing and servicing model forSME’s

Relationship Management duringSourcing and Servicing holds the key


Contents





Aditya Birla Finance

Part of Aditya Birla Financial Services Group

Incorporated in 1991

One of the India’s largest players in security based lending

Pioneer of IPO financing in India

Niche positioning in short term corporate finance solutions

Areas of operations include: Corporate Finance – trade and working capital finance

Capital Market – security based lending

Headquartered in Mumbai Has a network of 10 branches across the country


Striking balance between secured & unsecuredfunding

Growth in Business

PromotercontributionPromoter

contribution

Collateralized CClimits / LC

transactions fromBanks

Collateralized CClimits / LC

transactions fromBanks

FutureWorkingCapital

RequirementCurrentWorkingCapital

Requirement

Short TermFinance from

ABFL

Short TermFinance from

ABFL

Pre-shipmentloans

Pre-shipmentloans

Secured termloans

Secured termloans

…and free up collateral for additional financing requirement

UnsecuredFunding. Productssuch as:Channel Finance,Vendor FinanceFactoring


Success Factors

1

2

34

5

Based on combinationsecured and / or

unsecured funding

Competitive interest rates

Single point of contact helpsincrease customer satisfaction

and understand customerneeds

Wide array of productsand advisory led servicing

model

Faster TAT for creditdecisioning

Target level

… and move to a target level by becoming more responsive to customer needs

ABFL has identified 5 criticalsuccess factors for strengtheningits SME financing proposition


Short-Term Products

Vendor Finance

Channel Finance

LC Discounting

Product & Services Suite

ABFL is currently positioned as a niche player, being a specialist in short term financing Going forward, ABFL aspires to grow into a full service provider with a range of Enterprise

and Personal solutions ABFL would strive to provide unsecured lending at most competitive pricing, positioning

itself as the most preferred alternative to Banking

Term

Loa

ns /

LRD

Prom

oter

Fun

ding

PE s

yndi

catio

n

Long-Term Products

Loan Against Shares

Complimentary

Financial

Planning

Personalised Products


Customer 1

Customer /Dealers

Customer n

Material, document flow Value flow

Channel Financing Solutions

Large Corporate sells goods to customers/ dealer1

Large Corporate tosend invoices &

other docs to ABFL2

Large Corporate paid in T+1days thereby funding dealer3

Customer/ Dealerpays ABFL after

funding tenor4

LargeCorporate


LargeCorporateVendor Y

ABFL

Material, document flow Value flow

Vendor Financing Solutions

Placement of Purchase order

Material Supplied

1

Large Corporateconfirms receipt of

material and informsABFL

2

ABFL pays to Vendorafter confirmation from

large Corporate

3 Large Corporatepays to ABFL on

due date4


Summary of our offerings

1. Channel Finance2. Vendor Finance/ Sales bill discounting3. LC Bill Discounting4. Promoter funding5. Loans against shares/ mutual fund units/ life insurance policies6. General Insurance Advisory & Broking Services7. Life Insurance products and solutions8. Mutual Funds and Portfolio Management Services9. Broking, Distribution and Wealth Management10. Private placement of equity with mutual funds,

FIIs, HNIs and Investors


Thank You

For queries kindly contact:Mohit Mathur - 9911378181

New Age Financing Options for Fast Growing MSME...

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