Peter johnson

SMEs: The Missing Middle

Peter Johnson, Developing World Markets

November 11, 2010

Securities transactions through DWM Finance LLC member FINRA/SIPC

Past performance is not indicative of future results. Please see end of presentation for Important Risks and Disclosures

Presentation Outline

I. Developing World Markets (DWM)

II. SMEs: The Missing Middle

III. SME Funding Sources

IV. DWM and SME FI Financing

V. Looking Forward: Increasing Financing for SMEs



I. Developing World Markets

DWM Finance, LLC

Investment Banking

DWM Asset Management, LLC

Asset Management

Relationships with 300+ MFIs and SME FIs

Address full sweep of capital needs

Experienced team with long careers in emerging markets

investment banking & fund management

$650 million Micro and SME Financial

Institution (FI) Assets under

Management

Institutional-scale origination capacity &

credit skills

Emerging Markets asset manager since 1994

$850 million* Micro and SME FIs

Capital Markets Transactions

Structuring

M&A/Strategic Advisory

Corporate Finance Services

*includes

AUM



I. DWM’s Mission and Business Strategy

• Foster financial services to the poor in all developing countries

• Help strengthen & grow MFIs and SME FIs

• Link MFIs and SME FIs to international capital markets funding

• Design innovative financial solutions to meet the capital needs of MFIs and

SME FIs and help low-income entrepreneurs to grow and prosper

Linking MFIs and SME FIs in developing countries to international capital markets

MFIs and SME FIs

Investment Vehiclesdebt, equity, hybrids &

others

Entrepreneurs

Investors

DWM



II. Defining SMEs

Small to Medium Enterprises (SMEs) still remains a catch-all

phrase, open to many different business models and subject to

many different classifications particular to each respective

region.

Varying Definitions of SMEs

Institution Max. # of employees Max. Revenues or Turnover ($)

Max. Assets

World Bank 300 15,000,000 15,000,000

MIF-IADB 100 3,000,000 (none)

African Dev Bank 50 (none) (none)

Asian Dev Bank No official definition. Uses only definitions of individual national governments.

UNDP (none) (none) (none)



II. SMEs and Economic Development

SMEs can promote economic development in

emerging markets through:

• Increased business productivity

• Use and promotion of more advanced technologies

• Economies of scale

• Employment creation



III. Limited Financing: Obstacle to SME Growth

• SMEs worldwide named financing constraints as the second biggest obstacle to their growth, while large firms placed financing constraints fourth*

• Many SMEs do not qualify at commercial banks– Weak collateral, unaudited financials, and higher perceived

risk and cost

• SME financing needs surpass MFI lending capabilities – Inadequate underwriting methodologies

– Inexperience with individual-based lending

– Inexperience with collateral

– Limited funding sources

*World Bank’s “World Business Environment Survey” 2008



III. Current SME Lending Sources

• Banks: Commercial banks moving down-market – ACBA Credit Agricole Bank in Armenia– Banco Pichincha in Ecuador (CrediFé)

• MFIs: MFIs moving up-market– Mibanco in Peru– XacBank in Mongolia

• SME FIs– ProCredit Bank

• Capital Markets: Domestic and international structured debt transactions

• Venture Capital and Angel Investors

Deb

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IV: DWM and SME Financing

• DWM has provided over $100MM in senior and subordinated debt to SME FIs including:

• 25% Equity stake in leading Bolivian SME FI

• DWM arranged:

– $25MM Bond issuance for AccessBank, Azerbaijan

– €34MM Private placement for SME Bank Network

•Holding Co. of Int’l SME Bank Network •6 Affiliates of SME Bank Network

•2 Azeri MSME banks •1 Mongolian MSME bank

For DWM, investing in SME FIs is a natural extension of microfinance investing



V: SMEs: Attractive Investment Space

• Strong growth potential – less saturated market than microfinance

• Good credit quality – DWM shows PAR>30 for SME banks ~1.5% less than pure microfinance institutions

• Impact investment – like microfinance, provides a private-sector approach to emerging markets economic development



V. Moving Forward in the SME Space

• Public-private partnerships (e.g. multilaterals)

• Guarantee programs

• Direct investments through domestic and international SME-focused funds

• Capital markets transactions

• Increase liquidity for SME investment securities

• Advisory services

• Equity investments in MFIs

• Promote better business environment for SMEs

– Lower barriers to entry for small businesses

– Improve quality of financial information for lenders (e.g. credit bureaus)



Contact Information

DWM Asset Management LLC

800 Post Road, Darien, Connecticut 06820, USA

www.dwmarkets.com

Tel: 1 203 655 5453 Fax: 1 203 656 9528

Peter Johnson Simone Balch Kari Filerman

[email protected] [email protected] [email protected]

12

mailto:[email protected]





Risks and DisclosuresOpinion

Any statements of opinion constitute only current opinions of DWM Asset Management, LLC, which are subject to change and which DWM

Asset Management, LLC does not undertake to update.

Unaudited Information Subject to Change

Some information in this report is based on unaudited information and is subject to change.

Third Party Information

Some information contained herein has been obtained from DWM Finance, LLC and other third party sources and has not been

independently verified by DWM Asset Management, LLC. DWM Asset Management, LLC makes no representations as to the accuracy or the

completeness of any of the information herein.

Strategy/Process Risk Disclaimer

No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.

THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY AN

INTEREST IN DWM INVESTMENT PRODUCTS. NO SUCH OFFER OR SOLICITATION WILL BE MADE PRIOR TO

THE DELIVERY OF AN OFFERING MEMORANDUM AND OTHER MATERIALS RELATING TO THE MATTERS

MENTIONED HEREIN.

NO REPRESENTATION OR WARRANTY IS MADE BY DEVELOPING WORLD MARKETS OR ANY OF ITS

AFFLIATES (COLLECTIVELY, DWM), INCLUDING ANY OF ITS AGENTS OR OTHER REPRESENTATIVES, AS TO

THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN.

COPYRIGHT 2010.

Peter johnson

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