Your Partner in Growth and Development 1 © Copyright FINA Bank Ltd. 2007 SME Banking: FINA GROUP...

Your Partner in Growth and Development

1© Copyright FINA Bank Ltd. 2007

SME Banking:FINA GROUP

Presentation by Frank Griffiths, FINA Group CEO

World Bank Workshop on SME FinancingDar es Salaam, Tanzania

June 26-27, 2007



SME Banking: FINA Group

• Economy Overview

• State Policy Overview

• FINA Group and FINA Bank Ltd. Kenya

• Technical Assistance on Bank Downscaling

• Principles and Approach

• Lessons and Examples



Economy Overview: Kenya

• Population 36.9 million• Median Age: 18.6 years• Inflation: 9.7% Feb. 07, expected to continue moderating in 2007

• GDP +6.0% (2006) vs. +5.8% (2005)– forecast 2007: IMF +5.7%

• GDP per capita USD 1,200 (2006)• USD/KES 66.96 (31/05/07)

Kenyan Shilling grows stronger due to FCY inflows from Kenyan Diaspora, agriculture, tourism, S. Sudan reconstruction. Expected moderate depreciation closer to elections

• Unemployment rate 40% (2001 estimate)• Population below the poverty line 50% (2000 est.)



Economy Overview: Banking Sector, Kenya 2006

• Current min core capital requirement Kes250m /USD 3.7mlnRecent budget increasing to Kes1bln /USD 14.7mln by 2010

• 44 banks, total banking assets Kes751bn / USD 11bn (2006)

• Multinational Banks (Barclays, Standard Chartered, Citibank, Stanbic) - 35% of market share

• Next 5 biggest local banks (by asset size) – 33% of market share

• 34 remaining banks – 21% of market share

• T-bill yield: 91-d 6.487% (auction Jun18’07) 182-d 7.028% (‘’)

• Access to SME finance



State Policy Overview, Kenya

• Government slow to modernize

• Petty bureaucracy

• Licensing requirements

• Out dated legal framework– Land registry– Company law– Judicial system



State Policy Overview, Rwanda

• Membership of EAC

• Move to anglophile legal system

• Desire to modernize

• Corruption dealt with swiftly

• Permits easy to obtain

• Embrace investors



FINA Group Snapshot

• Group achieves returns equal or superior to banks of comparable size that do not have an SME focus

• Social Corporate Responsibility Projects & Community Development

•FINA Bank Kenya & Rwanda: Regional SME focus

Total staff 268: 5 branches in Kenya, 5 branches in Rwanda.

Total Group Assets: USD 147mln

By 2010: 4 countries, 30 – 35 branches



FINA Bank Kenya:background

• Small private bank, historically focused on larger, Asian-owned businesses

• New shareholder repositioning bank to address the broader SME sector

• Multi national & experienced Board of Directors

• Multicultural and diverse senior management

• 20th bank in Kenya by asset size (2006)

• Increasingly competitive banking market

• Poor skills of lending staff and legacy credit culture

• Underdeveloped SME borrowers’ finance skills, reporting standards and legal framework for lending



Technical Assistance

Donor: Financial Sector Deepening Trust Kenya

Technical Assistance Provider: ShoreBank International Ltd.

Donor “testing” the approach (TA only; no loan funds)• Donor support in steps:

–Began with one month feasibility study–Followed (after a pause) with 4 months “pilot”–Followed (after a pause) by 5 months extension–Followed (after 3 months) by 11 months extension

• Polices, procedures and products developed • All new staff, including departmental management, hired and trained• No lending took place during “pilot”; lending started during extension phase• Loan closing process proved to be very lengthy



Resources

Staff- Department Structure: Head of SME, 3 Team Leaders, 3 Relationship

Managers, 6 Relationship Officers, 5 Junior Relationship Officers, 1 Screener

- High Turnover- Total # of staff trained: 31

External Resources- Technical Assistance: on-site full-time Advisor - FMO Loan: €3mln for 7 years- USAID DCA Facility: USD 5mln, 50% guarantee

Jul’05 Jul’06 Jul’07

SME Staff 7 7 19



SME profile: Nairobi & Mombasa

• Financing needs:

Kes0.3– 10mln

(USD 4,400 – 147,000):

Working capital, Asset Finance, Trade Finance, Forex

• Formally registered business

Sole Proprietors, Partnerships, LLCs• Up to 100 employees• Up to Kes 50mln

(USD 735,000) in annual turnover

• Average borrower’s age:

41 years• 60% of customers

new relationships with Bank• 44% of borrowers

no prior credit history• 18% female borrowers

• 1,465 jobs sustained• 324 jobs created



SME Portfolio

• Amount Disbursed: Kes 335mln / USD 5mln (171 loans)

• Amount outstanding (31/05/07): Kes 308mln / USD 4.5mln (165 loans, 144 active borrowers)

• PAR > 30 days: 2.2% (8 borrowers)

Approval & Disbursement on Accrual Basis

-

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

1/3/

2006

3/3/

2006

5/3/

2006

7/3/

2006

9/3/

2006

11/3

/200

6

1/3/

2007

3/3/

2007

5/3/

2007

Aproval

Disbursement

• Ave loan size: ≈ USD 29,200

• Ave term: 30 months

• Ave Interest Rate:18.96% p.a.

• Break Even: Dec’06(14 months after roll out)



Projected Growth

-

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

700,000,000

800,000,000

Jan-

07

Feb

-07

Mar

-07

Apr

-07

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Projected growth: disburse Kes761mln/USD11mln by Dec’07

SME Portfolio

≈ 15% of total bank portfolio



Principles and Approach: Cash Flow based Lending

Core Principles of SBI SME Credit Methodology:

• Cash flow-based – Attempt to measure the client’s real capacity to generate future cash flow for servicing debt (not always evident in “official” historical accounting)

– Develop lender skills in the construction of well-founded and defensible cash flow projections

– Cash flow model – Sensitivity and breakeven analysis

• Character based – Quality and experience of management

• Interviewing and due diligence skills



Principles and Approach: Human Resources; Sales & Marketing

Transforming function-oriented analysts into client-oriented relationship managers

• Proactive approach to sales

• Training in selling (cross-selling) skills and customer service

• Educating Customers

• Performance Incentive Schemes



Lessons

Strengths

• Shareholders’ and top management support

• Ability to hire and train new staff

• Successful repositioning & re-branding of the bank and launch of SME products

• Donor prepared to provide long term commitment

Weaknesses

• Initial donor hesitancy

– Limited consultant resources

– Disrupted implementation effort

• Lack of skilled human resources in the field

• Cultural resistance to sales approach

• Weak original bank image in the marketplace

• Inefficient security perfection system leading to an extended turn-around time



Summary: Lessons for Successful TA

• Long-term, “embedded” approach

• Alignment of goals (bank, donor and consultant)

– Patient shareholders

– Commitment & buy in of senior management

– Collaborative approach

– Adapting methods to existing structures & country context

• Design program for long term sustainability and profitability from outset

• Incentive systems for staff

• Technical Assistance designed and delivered in line with:

– Local market conditions; Maturity of financial institution; Receptiveness of senior management

• Local staff development as an aspect of sustainability



For More Information

FINA Bank Ltd. Kenya

Frank Griffiths, Group CEOP.O. Box 20613, 00200Kimathi Street, FINA HouseNairobi, KenyaEmail: [email protected]

FINA Bank Rwanda

Steve Caley, Managing DirectorAddress: 20, Bld de RevolutionP.O. Box 331Kigali, RwandaEmail: [email protected]

www.finabank.com

Your Partner in Growth and Development 1 © Copyright FINA Bank Ltd. 2007 SME Banking: FINA GROUP...

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Transcript of Your Partner in Growth and Development 1 © Copyright FINA Bank Ltd. 2007 SME Banking: FINA GROUP...