Loan Financing for Micro, Small and Medium sized Enterprises
Financing Small Enterprises: What Role for Microfinance Institutions?
-
Upload
cgap -
Category
Economy & Finance
-
view
2.297 -
download
0
description
Transcript of Financing Small Enterprises: What Role for Microfinance Institutions?
Role of MFIs in Serving Micro and Small Enterprises
Survey Results
May 2012
Publication
The survey results in this presentation are published in CGAP Focus Note 81: “Financing Small Enterprises: What Role for Microfinance Institutions?” by Jasmina Glisovic and Meritxell Martinez (July 2012).
For more information please visit: www.cgap.org/publications
2
Outline
Research objective, sample, and methodology▫ Objective▫ Regional distribution by institutional type
Understanding the difference between micro and small enterprises ▫ Informality levels of micro and small enterprises▫ Women-led micro and small enterprises▫ Growth from micro to small enterprises
Focus on serving small enterprises▫ MFIs strategies: Why serving small enterprises?▫ Growth trend of small enterprise portfolio▫ Growth trend by region▫ MFIs definition of small enterprises▫ MFIs product offering▫ Market segmentation of small enterprises▫ Competition for small enterprise clients▫ MFIs systems to serve small enterprises (staff/department/monitoring portfolio)▫ Main challenges faced by MFIs▫ Key success factors
3
1
2
3
4
RESEARCH OBJECTIVE, SAMPLE AND METHODOLOGY
1
Research objective
To better understand the current and potential
role of Microfinance Institutions (MFIs) with
regard to serving small enterprises
5
1
Sample and research methodology
• Industry survey with over 350 MFIs conducted in Nov-Dec 2011 in 3 languages (French, Spanish, English)
• Quantitative and qualitative analysis of responses• MFIs from 69 countries
6
EAP11%
ECA24%
LAC21%
MENA10%
SA13%
SSA21%
Sample distribution by region
Commercial bank5%
Credit union/Financial cooperative/SACCO
11%
Microfinance bank16%
NGO/Foundation33%
Non-bank financial institution
31%
Rural bank3%
Institutional type
1
NOTE: ECA: Eastern Europe and Central Asia; EAP: East Asia and Pacific; LAC: Latin America and the Caribbean; MENA: Middle East and North Africa; SA: South Asia; SSA: Sub-Saharan Africa.
Diverse regional distribution by institutional type
7
EAP ECA LAC MENA SA SSA0
5
10
15
20
25
30
35
Commercial Bank
Credit union/Coop
MF Bank
NGO/Foundation
NBFIs
Rural bank
1
NOTE: ECA: Eastern Europe and Central Asia; EAP: East Asia and Pacific; LAC: Latin America and the Caribbean; MENA: Middle East and North Africa; SA: South Asia; SSA: Sub-Saharan Africa.
8
UNDERSTANDING THE DIFFERENCES BETWEEN MICRO AND
SMALL ENTERPRISES
2
Informality levels of micro and small enterprises
9
While small enterprises are more formal than micro, informality is widespread in all regions with the exception of ECA.
N= 189
SA
EAP
LAC
MENA
SSA
ECA
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
81%
60%
44%
58%
50%
24%
SMALL
Up to 25% Between 25-50% More than 50%informal
EAP
ECA
LAC
MENA
SA
SSA
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
88%
57%
88%
85%
85%
82%
MICRO
Up to 25% informal Between 25-50% More than 50%
N= 206
2
informal informal informal informalinformal
(*) MFIs estimates
Women-led micro and small enterprises
10N=
Compared to micro enterprises, small enterprises are less often led by women, specially in MENA and ECA.
MENA
ECA
LAC
SSA
SA
EAP
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
SMALL
WOMEN
MEN
N= 209 N= 192
MENA
ECA
LAC
SSA
SA
EAP
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
MICRO
WOMEN
MEN
2
(*) MFIs estimates
Growth from micro to small enterprises
11
Less than 10% 10-20% 20-50% Over 50% Don't know
40%
28%
18%
7% 8%
% of enterprises that grow from micro to small
N= 213
40% of MFIs said that less than 10% of their microenterprise clients grow to become small.
2
SERVING SMALL ENTERPRISES: INSIGHTS FROM MFIs
12
3
For most MFIs, serving small enterprises is part of their business strategy
13
78%
6%
16%
Is serving small enterprises part of your strategy?Yes No Not yet
N= 186
3
Growth trend of MFIs’ small enterprise portfolio
14N=193
3
Increasing Stable Decreasing
69%
21%
9%
15N=193
Growth trend of MFIs’ small enterprise portfolio by region
3
EAP LAC SSA MENA SA ECA
79% 79% 78%
68%
55%50%
8%12%
18% 16%
23%
32%
13%9%
4%
16%
23%18%
IncreasingStableDecreasing
Why do MFIs serve small enterprises?
16
Incentives from governments
Incentives from funders
Disbursement targets/pressure
Higher profitability
Increased competitions for micro clients
Following micro clients over time
Business growth opportunities
15%
17%
21%
35%
37%
69%
85%
N= 150 Multiple answers
Main reasons to serve small enterprises
3
MFIs typically characterize small enterprises by loan size
Loan size Number of employees
Annual sales
54%
33%
13%
Criteria used to define small en-terprises (% of MFIs)
While “loan size” and “annual sales” differ by country/institution, “number of employees” typically ranges from 5 to 30 workers, outside household.
N = 114
3
Most MFIs offer small business loans
18N= 235 Multiple answers
85%
71%63%
49%
38% 37%33%
25%21%
17%
Types of services offered
3
Business Development
Services
Market segmentation of small enterprises
19
29%
27%
22%
18%
5%
How do MFIs sub-segment the small enterprise market?
Economic sector (e.g., agriculture, industry, ser-vices)Geographic area (rural, urban)
Business profitability of en-terprises
Revenue to the MFI
Other (e.g., gender)
N= 159 Multiple answers
3
Intense competition for small enterprise clients
20N= 197
Very in-tense44%
Somewhat intense
40%
Not intense16%
Level of competition among financial service
providers serving small enterprises (% of MFI)
3
MFI systems to serve small enterprises
21
49%51%
Do you have a separate method-ology for small enterprise risk
assessment? (% of MFIs)
Yes
No
Rural bank
NBFIs
NGO/Foundation
Microfinance bank
Credit unions
Commercial banks
0% 20% 40% 60% 80%100%
24%
43%
49%
60%
71%
72%
Separate risk methodology by institutional type
YesNo
N=190
3
44% of MFIs do not monitor micro and small enterprise portfolio separately
56%
44%
Do you monitor micro and small enterprise portfolio sep-arately?
Yes
No
N=225
3
23
Most MFIs do not have dedicated staff/department to serve small enterprises
N=201 N=202
3
39%61%
Do you have dedicated staff for small enterprise clients?
Yes
No
30%70%
Do you have a dedicated small enterprise department?
Yes
No
Main challenges faced by MFIs
Top three internal, external and enterprise-level challenges MFIs
face in serving small enterprises:
24
INTERNAL EXTERNAL ENTERPRISE-LEVEL
• Lack of appropriate risk assessment methodologies
• Management perceives segment as too risky
• Inadequate MFI products
• Lack of MFI staff capacity to analyze the business (e.g., loan officers)
• Lack of internal processes (i.e. MIS systems)
• High cost of operations
• High cost of operations
• Lack of demand for MFI products by enterprises
• Restrictive regulations (e.g., lending regulations, tax regime)
• Lack of credit registry (i.e., credit bureau)
• Judicial system (i.e., court system)
• High competition (e.g., from banks, other providers)
• Lack of basic infrastructure in the country (e.g., roads and electricity)
• Lack of financial statements
• Business are not registered
• Lack of collateral to secure the loan
• No clear separation between household and business accounts
3
Main challenges: What MFIs say…
25
“Financial statements of small business are often not actual.” NBFI Manager, Armenia
“The main challenge is the presence of competitors including government institutions.” NGO/MFI Chairman of Board and CEO, Iraq
“In most cases we are not able to serve small businesses as we cannot provide all services they need. Even in the case of loans, since small business need larger loans with longer terms” NBFI Credit Manager, Bosnia
3
Key success factors identified by MFIs
Client-focused approach Commitment from top management and dedicated staff Strong risk management Flexible products and delivery
26
Key success factors: What MFIs say…
“KYC approach is not enough, to successfully serve small enterprises you need to have a BWYC (Be With Your Clients)” NGO/MFI Manager, the Philippines
“Deep insights and strong relationship with the client” NGO/MFI Executive Director, Dominican Republic
“Having separate, dedicated units for serving micro and small enterprises” Commercial Bank Manager, Kenya
3
We welcome your comments, questions and examples.
CGAP contacts:▫ Jasmina Glisovic [email protected]▫ Meritxell Martinez [email protected]
27
Advancing financial access for the world’s poor
www.cgap.org
www.microfinancegateway.org