estimating funder support for small and medium enterprises (smes)
DESCRIPTION
Small businesses can be an important engine of growth and employment, but lack of access to finance prevents them from expanding and achieving their true potential. International donors and investors have been channeling public and private funds into emerging markets in support of small enterprises, and the G-20 commitment to improving access to finance for small and medium enterprise in developing countries have further enhanced these efforts. To better understand the cross-border funding landscape, CGAP conducted a scan of SME funding, reviewing the different types of cross-border support from official (government) and private channels to SMEs in emerging markets. The scan identifies the main funders that support SMEs either directly or through financial intermediaries, such as SME funds. The data was derived from several sources, including estimates provided by funders and other publicly available documents. While this research was not exhaustive, it provided a good overview of the scale of the issues facing donors and investors.TRANSCRIPT
Estimating Funder Support for Small and Medium Enterprises (SMEs)
December 2011
Peter Siegesmund and Jasmina Glisovic
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Methodology
This report considers several types of cross border support for small and medium enterprises: (1) funding that DFIs allocate to SME; (2) investment vehicles that specialize in cross-border debt and equity SME investments; (3) Official Development Assistance (ODA) to SME. We also analyzed commercial bank lending.
(1) Sizing Donor and Investor Support for Small & Medium Enterprises
Estimates of funder support for SME were derived from several sources:▫ Estimates provided by funders▫ Funder data published in annual reports, presentations and other publicly available documents ▫ Funder responses to the annual CGAP Funders’ Survey
(2) Estimating SME investment vehicles’ funding
(i) CGAP compiled a database of more than 340 investment vehicles that focus on SME. This list of funds was developed from:
▫ Websites and publicly available documents detailing the investment portfolios of major DFIs including the IFC, NORFUND, AFD Proparco and the Asian Development Bank.
▫ A list of SME investment vehicles prepared by the South African Chamber of Commerce and obtained via Symbiotics▫ Other publications and research material
(ii) CGAP used this data to develop a non-exhaustive estimate of the size of investment vehicle funding to SMEs▫ Using available data on investment vehicle size (available for 164 of 342 funds), average investment vehicle sizes were
calculated for each World Bank region, and for funds with a global/multi-region focus.*▫ The average fund size for each region was multiplied by the total number of funds identified in that region to produce an
estimate of the total amount of investment funds identified in that region.**
(3) Official Development Assistance to SME
Official Development Assistance to SME is based on data reported by governments and funders to OECD
*Fund size was typically reported as target fund size or assets under management, and no distinction was made between the two.** Funds of $300 million or larger were not included in the calculation of average fund size, but were added to the total individually
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Key Assumptions
• This work accepts each donor’s or investor’s definition of SME; no attempt is made to address the wide variety of SME definitions.
• Total funds from SME investment vehicles are calculated on the basis of a list of funds that are currently active, or were known to be active in the past five years. Investment funds therefore may or may not be invested and were committed in the past. In some cases, where target fund size was used, the funds may not yet have been raised.
• Some specialized SME funds are not limited to SME investments only. We assume that their total assets under management (AUM) are invested in small and medium enterprises.
• Funders reported data in several ways: assets under management and/or target size (for SME funds); we assume that all funds fully invest their target funding/size.
• DFIs report both committed and outstanding amounts; we use them interchangeably as a measure of SME support.
• The overall majority of equity SME investment funds included in the analysis was launched between 2000 and 2010.
Because of the long lifecycle of equity funds (e.g. 10 years) we believe this is an appropriate time frame over which to estimate equity support to SMEs.
• Relative shares of debt, equity and other instruments for SME investment vehicles for which we lack data mirror shares for those that we do.
• We do not consider supplier credit or factoring, both large suppliers of funding to SMEs.
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Does this matter?• The wide range of definitions make data collection and analysis difficult• A regional or global analysis of this data can therefore blur the lines of micro, SME and
large business finance.• It affects how donors, investors and policymakers view SME issues.
•Yet, there is not a statistically significant correlation between SME definition and SME lending volumes and it’s therefore unclear that these definitional issues impact the ability of SMEs to obtain funding.
There are many definitions of small and medium enterprise
IFC identified definitions for micro, small and medium enterprises in 131 countries. Definitions vary widely:• Some countries apply different definitions to different industrial sectors.• Others base it on revenue or capital invested.• Some include micro in their definition, creating the category MSME.
What is a Small and Medium Enterprise (SME)?
This report accepts each entity’s reported definition of SME
Cross-border funding flows
Retail Banks & NBFIs, SEFIs
Small and Medium Enterprises
Public Funders
• Multilaterals• Bilaterals• DFIs
Private Funders• Foundations• Institutional Investors• Individual Investors
MIVs
SME Investment Vehicles
Public donors and investors provide more than $24.5 billion in support to SMEs*
Source: Funder ranges are from the 2010 CGAP Funders’ Survey, funder annual reports and other documents; *data for 2010 only.
*Illustrative list, not exhaustive
• Citi Foundation• GTZ• Hivos• ILO
• MIF IADB• BIO• CAF• Cordaid• Finnfund• ICDF• Islamic
Development Bank
• Italy MoFA• MCC• AFD
Proparco
• EC• DFID• USAID• DANIDA
$10 or less $10 to $100 $100 to $500 $500 or more
Millions (committed amounts)
$1 $10 $100 $1,000 $10,000
EBRD
IIC
NORFUND
FMO
IFC
OPIC
World Bank
Asian Development Bank,
JICA
KfW
EIB
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More than 300 SME investment vehicles committed at least $20 billion to emerging markets
Source: fund estimates derived from CGAP fund data (see methodology)SME financing ; SME figures from McKinsey – Assessing & Mapping the MSME Financing Gap
Total In-vestment Vehicle Funds
Sub-Saharan Africa
South Asia Global/Multi-Regional
Eastern Eu-rope & Central
Asia
Latin America & Caribbean
East Asia & Pacific
Middle East & North Africa
$21,927,007,221.
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$5,263,547,950.5 $4,881,1
00,731.4 $3,201,530,538.7 $2,976,4
19,466.7 $2,762,417,391.3
$1,580,351,142.9
$1,261,640,000.0
Almost half of SME investment is in Sub-Saharan Africa and South Asia (billions US)
(24%)
(22%)(15%)
(15%) (13%) (7%) (6%)
East Asia and Pacific
South Asia Sub-Saharan Africa
Latin America & Caribbean
Middle East & North Africa
Eastern Europe and Central Asia
00.5
11.5
22.5
33.5
44.5
53.7 - 4.3
1.2 - 1.6 1.3 - 1.7
0.1- 0.40.5 - 0.8
0.1 - 0.3
Number of SMEs (millions)
Comparing SME Investment Vehicles and MIVs
MIV SME Investment Vehicle -
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
100,000,000
Average Investment Vehicle Size
SME Investment Vehicles MIV0
5
10
15
20
25
Total Assets
Bill
ions
Though both are pools of capital for investment, SME investment vehicles and MIVs are very different - SME Investment vehicles tend to be region specific (MIVs tend to invest across regions)- While MIVs favor debt investments (82%) SME Investment Vehicles favor equity (26% equity only, 67% mixed debt/equity)
Source: MIV figures derived from data provided by Symbiotics
Official Development Assistance to SME exceeded $1 billion in 2009
*2009 is the most recent year available. Data reported by OECD geographic areas; data has been organized to loosely correspond to World Bank geographic regions
Official Development Assistance (ODA)
- Loans not provided at market rates- Must contain a grant element of at least 25%- Only provided by governments or their executive agencies- Explicitly Intended to promote economic development and welfare
Total ODA South & Cen-tral Asia
East Asia & Pacific
Middle East & North Africa
Sub-Saharan Africa & Re-
gional
Latin America & Caribbean
Unspecified Developing Countries
Europe
$1,009
$263
$226
$194
$182 $61 $54 $28
Asia receives nearly half of all Official Development Assistance (millions US)
(26%)
(22%)
(19%)
(18%) (6%) (5%) (3%)
Total Commercial Bank Financing
East Asia & Pacific$225 billion
Sub-Saharan Africa$45 billion
Middle East & North Africa$43 billion
Eastern Europe & Central Asia$256 billion
Latin America & Caribbean$133 billion
South Asia$73 billion
$775 billion in lending to SME globally (excluding high-income countries & China)
Commercial Debt Financing
- Traditional loans given at market rates- Often, no direct development intent- Access varies widely and is related to factors that include the depth and technical sophistication of the local financial markets
Source: CGAP Financial Access 2010: The State of Financial Inclusion through the crisis
Summary & Key Points
1. Public Donors and Investors provide at least $24.5 billion in support to small & medium enterprises - The largest funders report investments over $500 million in small and medium enterprises- The largest funders include EIB, IFC, World Bank, FMO, EBRD, KfW, Asian Development Bank
2. SME investment vehicles committed at least $20 bn to SMEs in emerging markets- DFIs such as IFC, Asian Development Bank and NORFUND play a key role in providing capital to these funds.- Most investments are made through equity purchases: 7% of investment vehicles use only debt to support
SME. 26% use only equity and 67% us a mix of debt, equity and quasi-equity.- Almost half of total AUM are in Sub-Saharan Africa and South Asia (24% and 22% respectively)- Investment vehicles targeting SA tend to be the largest in average size ($64 million), and funds targeting
ECA tend to be the smallest ($19 million).
3. SMEs received $1bn in Official Development Assistance in 2009, with almost half going to Asia.
4. Combined, commitments of public and private funders were between $30-$40 billion
5. Despite identifying between $30-$40 billion in SME support globally, commercial bank lending still dwarfs support by public funders.
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Lessons Learned and Steps Forward
• Outstanding questions - what we’d like to know:▫ Who are the private sector players who fund SME investment vehicles?▫ What is the investment objective (e.g., financial returns, social returns) of private
funds who invest in SMEs in the developing world?▫ What share of businesses in each region are impacted by SME investment
vehicles?▫ What is the exit strategy of SME investment vehicles? I.e., public listing? Private
placement? Trends over time and what drives them?▫ How do SME investors differ from investors in MIVs?▫ Social impact for SME investments? E.g. job creation, capacity building etc.
Advancing financial access for the world’s poor
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