DRAFT MARCH 3 rd Enhancing the contribution of MSMEs to economic development: main barriers and possible interventions Discussion document Tunis, 9 March 2011 CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited
MIL-VAD001-02032011-32272/MC Objectives of the meeting Recall the role of MSMEs in economic development, the main barriers to their development and the spectrum of possible interventions Describe concrete areas of intervention to enhance MSMEs contribution to economic development Discuss the relevance of the interventions described for AfDB in Africa and the Bank’s possible role | McKinsey & Company 1
MIL-VAD001-02032011-32272/MC MSMEs contribute significantly to economic development in emerging countries Estimated number Contribution to the economy Formal SMEs, micro and informal MSMEs by region Percent of all MSMEs 66 East Asia 81 12 7 170-205 37 29 Latin America 71 236 47-57 Share of GDP Sub-Saharan Africa 69 21 10 36-44 Central Asia & 45 40 15 18-22 Eastern Europe 93 South Asia 89 8 75-90 3 48 Mena 68 22 19-23 10 45 High-income 28 21 56-67 52 Share of OECD employment Total 74 17 420-510 9 Total (excluding Formal Informal Total 78 16 365-445 high-income OECD) 7 | SOURCE: G20 - G20 - Financial Inclusion Expert Group (2010) McKinsey & Company 2
MIL-VAD001-02032011-32272/MC However, many barriers to MSMEs are limiting their full development potential Detailed in the following pages Main barriers � Regulatory and legal frameworks (e.g. heavy regulations, cost of registering companies and properties, policy environment, . . .) Non Financial � Infrastructures (energy, transports) � Tax system (heavy taxes on formal MSMEs) � Corruption � Limited access to bank financing: – Absence or insufficient credit information systems (e.g. Financial credit bureaus) – Weak protection of creditors’ rights (e.g. loan financing legal frameworks, security laws, insolvency laws) – Inadequate product offer (mainly focused on short term loans) � Insufficient (or unavailable) equity financing | SOURCE: IFC, McKinsey McKinsey & Company 3
MIL-VAD001-02032011-32272/MC There are ~400 Million MSMEs in emerging markets with a total credit gap $2.2-2.7 Trillions Number of MSMEs in emerging markets Value of MSMEs’ credit gap in emerging markets Millions $ Trillions � Of which $385-455bn in Africa 365-445 2.2-2.7 � ~70% of MSMEs in Africa are Of which 55-67 underserved 3 million in Africa 1.1-1.4 285-345 ~0.3 0.8-1.0 55-70 25-30 Formal Formal Informal Total Formal Formal Informal Total SMEs micro enterprises & SMEs micro enterprises & enterprises 2 enterprises 2 (incl. very nonemployer (incl. very nonemployer small firms small firms enterprises) 1 enterprises) 1 Increasing level of uncertainty in estimates Increasing level of uncertainty in estimates 1 Registered enterprises typically with 5 or more employees 2 Registered enterprises with 1-4 employees 3 Do not have neither a loan nor an overdraft facility altough they need it | McKinsey & Company 4
MIL-VAD001-02032011-32272/MC A spectrum of possible interventions can be implemented to foster MSMEs development Focus of today‘s discussion Possible interventions � Launch infrastructure-building programs � Review legal and regulatory frameworks Remove non � Create Special Economic Zones providing specific facilitations to SMEs financial barriers (logistics and infrastructure, tax system, legal frameworks . . .) � Establish financial information infrastructure (public credit registers Create a more and Credit Bureau) supportive � Review legal frameworks to protect creditors (e.g. collateral and environment insolvency regimes, creditor rights, . . .) for funding � Review regulation to favor MSMEs-targeted financial products (e.g. value chain financing, leasing, reverse factoring) � Micro “Finance up-scaling” to address SME segment � Launch capability building efforts for Financial Institutions � Provide direct financing � Create credit facilities for banks (e.g. lines of credit to finance MSMEs Provide direct or co-financing initiatives) support from � Create partial credit guarantees and risk sharing facilities on MSMEs Public Sector financing � Equity financing funds SOURCE: IFC, McKinsey | McKinsey & Company 5
MIL-VAD001-02032011-32272/MC Four examples of concrete programs to overcome the main barriers against MSMEs development Example of program Concept description Comments � Centralized data repository providing � Strong potential contribution Establishment of “positive” and “negative” credit information on towards the objective to Credit Bureau borrowers (individuals, SME) allowing “more remove “Financial Barriers” informed credit decisions” and thus via the creation of increasing access to credit appropriate infrastructure � Market-oriented guarantee mechanisms � Very effective tool to boost Set-up a risk aimed at reducing the risk of private-sector banks’ lending to specific sharing facility lending to specific sectors/segments sectors, reduce price of loans and unlock sectors’ credit potential � Dedicated industrial complex , with ad hoc � Important impact in terms of Creation of infrastructure and logistic facilities avoiding most limitations to Special Economic � Potential to include specific facilitations (e.g. MSME development resulting Zones special custom region, tax exemptions, …) from “Infrastructure” and “Legal Environment” � Microfinance Institutions up-scale their � MFI up-scaling relies often Micro Finance models to increase their reach and serve SMEs on external financial support Institutions up- by multilateral or scaling development institutions in the start-up | McKinsey & Company 6
MIL-VAD001-02032011-32272/MC Objectives of the meeting Recall the role of MSMEs in economic development, the main barriers to their development and the spectrum of possible interventions Describe concrete areas of intervention to enhance MSMEs contribution to economic development: � Establishment of a Credit Bureau � Set-up of a Risk Sharing facility � Creation of Special Economic Zones � Up scaling of Micro Finance Institutions Discuss the relevance of the interventions described for AfDB in Africa and the Bank’s possible role | McKinsey & Company 7
MIL-VAD001-02032011-32272/MC Credit Bureaus: key messages A Credit Bureau allows to increase significantly the information 1 dataset which could be used to facilitate MSME lending A well structured Credit Bureau improves effectiveness and efficiency throughout all the phases of the Bank’s credit 2 processes, and makes it possible to reinforce supervision functions at Central Bank level A comprehensive program for establishing a full-fledged Credit 3 Bureau can be structured in 3 sequential phases | McKinsey & Company 8
MIL-VAD001-02032011-32272/MC A Credit Bureau collects and provides credit-related information 1 on borrowers to support banks on credit decisions Input Information Credit information � Customer data providers Objective � Banks � Facility data Main Credit Bureau activities � Other institutions � Repayment data Increase the � Gathering information on information set available for borrowers from both private banks when and public sources � Analysis and processing adopting credit Credit decisions and information on borrowers Bureau � Redistribution of raw and Central Bank’s Supervision processed credit information visibility on to credit granting Information users Consolidated overall banking � Banks organizations and other credit history system � Other institutions stakeholders | McKinsey & Company 9
MIL-VAD001-02032011-32272/MC Credit Bureau: why it represents a priority in Africa 1 Credit Bureau allows significant impact on SME lending … … but it’s currently highly under exploited in Africa Example 1 – effect on SME SAMPLE OF Credit information infrastructure by region credit market 51 COUNTRIES Percent of adults Percent Without Credit Bureau Public Registry Coverage Private Bureau Coverage With Credit Bureau -45% Sub-Saharian Africa 2.4 4.5 +43% 49 40 28 27 South Asia 0.8 3.3 Percentage of SME Probability of loan OECD 8.8 59.6 reporting financial granting to a SME constraints Middle East and 5.0 10.9 Example 2 – effect of default rates North Africa at country level ARGENTINA Percent Latin America 10.0 33.2 and Caribbean -41% -79% Eastern Europe 9.7 19.4 2.42 2.22 and Central Asia 1.31 0.52 East Asia and Pacific 7.2 14.4 Large banks Small banks | SOURCE: G20 - Financial Inclusion Expert Group, World Bank - doing business McKinsey & Company 10
Recommend
More recommend
