1

Financing the SME Value Chains

Dr Asad AtaAssistant Professor, Malaysia Institute for Supply China Innovation ResearchAffiliate Massachusetts Institute of Technology (MIT)

Power Point template - You can edit footer content by going into 'Insert' tab > 'Header & Footer' 2

The research is built upon case studies from Malaysia and India, and surveys conducted on the supply and demand of SME finance in Malaysia

LITERATURE REVIEW

CASE STUDIES

NEEDS FOR SME FINANCE

SOURCES OFSME FINANCE

SURVEY ON SUPPLY OF SME FINANCE

SURVEY ON DEMAND OF SME FINANCE

PRODUCTS TO COMPETE WITH TRADITIOANAL

SOURCES OF SME FINANCEINNOVATION

Power Point template - You can edit footer content by going into 'Insert' tab > 'Header & Footer' 3

The Supply & Demand Challenge

• Formal financial lending organizations represent a weak link in the financial supply chain for SMEs in the region

• SMEs turn to raise money from unsustainable sources• Big Gap in Supply & Demand for SME Lending with

innovation taking a back seat• SME lending portfolios to be designed to manage the

their need for finance with two prime factors – speed and ease

Power Point template - You can edit footer content by going into 'Insert' tab > 'Header & Footer' 4

Financing the SMEs – The ChallengeThe need for Viable Market for SME financing driven by • Mass Customization• Fragmentation of manufacturing

Demand side (SME) Challenges• A lack of collateral and limited access to venture and growth capital• Cash flow shortages from long and delayed payments cycles

Supply Side (Banks) Challenges• High transactions costs• Inadequate information about borrowers• Weak governance

Power Point template - You can edit footer content by going into 'Insert' tab > 'Header & Footer' 5

Matching Demand with SupplySME NEEDS

SME SOURCES OF FINANCE

1 ADVANCE (BUYERS/ CUSTOMERS) ▲ ▲ ▼ ▲ ▲ ▲2 CREDIT (SUPPLIERS) ▲ ▲3 FACTORING ▲ ▲ ▼ ▲4 FAMILY AND FRIENDS ▲ ▼ ▼ ▲ ▲ ▲ ▼ ▼5 FINANCIAL INSTITUTIONS ▲ ▼ ▼ ▲ ▼ ▼ ▼ ▼ ▲6 IPO/SHARES ▲7 MICRO FINANCE INSTITUTIONS ▲ ▼8 OWNER’S EQUITY ▲ ▼ ▼ ▲ ▲ ▲ ▲ ▲9 REGISTERED MONEY LENDERS ▲ ▲ ▼ ▼

10 UNREGISTERED MONEY LENDERS ▼ ▲ ▲ ▼ ▼11 VENTURE CAPITALISTS ▲ ▲12 SALES/REVENUE ▲ ▲ ▲ ▼ ▲ ▲

SMEs turn to various sources of funding some of which may not be the ideal match given a specific SME need

A preferred matching is indicated by a “▲” and “▼” indicates an un-preferred match.

Power Point template - You can edit footer content by going into 'Insert' tab > 'Header & Footer' 6

Template for SME Lending Portfolio Comparison with Traditional Financing on 5 Cs & and Leveraging with Key Tools

Power Point template - You can edit footer content by going into 'Insert' tab > 'Header & Footer' 7

Portfolios for SME LendingTraditional credit scoring models may not provide the best solutions to the divergent needs for the SME supply chains

< Design witho Understanding of the SME business model – in Time & Spaceo Penetrate the SME Supply Chaino Leverage the traditional techniques – Innovatively

< Design foro speedo easeo Flexibility

Power Point template - You can edit footer content by going into 'Insert' tab > 'Header & Footer' 8

Malaysia Institute for Supply Chain InnovationLocated in Shah Alam, Malaysia near Kuala Lumpur, the Malaysia Institute for Supply Chain Innovation (MISI) is the fourth center in the MIT Global SCALE (Supply Chain and Logistics Excellence) Network. The institute was launched as a joint initiative between the Massachusetts Institute of Technology (MIT) and the government of Malaysia in March 2011

The MIT Global Supply Chain and Logistics Excellence(SCALE) Network: The MIT Global SCALE Network is an international alliance of leading edge research and educational organizations, dedicated to the development and dissemination of global innovation in supply chain and logistics.

Power Point template - You can edit footer content by going into 'Insert' tab > 'Header & Footer' 9

www.swift.com