holger rothenbusch
DESCRIPTION
Senior Vice President - DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH - GermanyNobody Likes To Hug a TractorTRANSCRIPT
Our business is developing.
Nobody Likes to Hug a Tractor
TBLI Conference Europe 2010
12 November 2010
Holger Rothenbusch
Senior Vice President
DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH
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DEG at a glance
Mandate and working method
● German development finance institution for the private sector
● Specialist for entrepreneurial development in all sectors● Long-term investment capital for private enterprises● Financing of investments with a positive developmental impact
● Market-oriented conditions
● Ecological and social standards according to international guidelines
● Contributions to sustainable economic growth and poverty reduction
What´s the challenge?
FX effects
Africa
Climatechange
Globalization/outscorcing
Environment
Taxeffects
Socialeffects / CSRInfra-
structuresmall and medium
enterpriseMarketeffects
Equity
Financial Return /RAROC
TrainingSupport ofEuropean Investors
HIV/Aids
Health&
Safetygender
ILO-Stand./child labor
Employment& Poverty
Reduction / MDG
Motivated by the mission challenges, DEG has developed a rating approach to cover
financial and non-financial issues that are of concern to our stakeholders
DEG´s rating approach - What do we measure?
2. Development effects/ sustainability
• eg. tax revenue, jobs,training, ES-standards, CSR
3. Role of DEG• eg. long-term debt/ equity
financier (additionality),promotor of Corporate Governance
1. Long-term profitability/ default probability
• eg. Rating of sponsors, market, financial ratios, country risk
Rating Tool
• risik-adjusted return
4. DEG´s return on equity
Development effects- What do we measure?
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Socially Responsible InvestmentsAssets under ManagementWorld & regional
38%
2.500 bn EUR
6%
400
bn EUR
4%
230
bn EUR
52%
3.400 bn EUR
USA Developed Asia/Oceania
EMWestern Europe
SRI GLOBAL : 6.530 bn EUR*
About 230 billion Euro are already invested in accordance with ESG-criteria. Growth up to 40 % p.a.
•Assets under Management (AuM), own estimation based on Eurosif, Booz & Company, IFC/Mercer. Data and definitions are heterogeneous.
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Equity (Public)
50%Bonds 39%
Other 11%
Products: 50% is invested in equity, growing role of investment funds; mostly negative/positive selection investment approaches.
Need for actively managed portfolios instead of pure negative-screening!
Themes: Sustainability in general, „Climate Change“/ Renewables, Water, Health
In Emerging Markets: Microfinance is Sexy!
SRI Products
…but, no one likes to hug
a tractor
100
SME Financing One of DEG´s core strategic priorities is to promote financing to the SME sector
Quelle: Thierry Sanders and Carolien Wegener. 2006. “Meso-Finance: Filling the Financial Service Gap for Small Businesses in Developing Countries.”
NCDO. Die Grafik wurde leicht angepasst.
101010
SME FinancingGrowth initiative for small and medium-sized enterprises
Aim:● Provide SMEs in developing countries with risk capital and long-term investment
capital at matching maturities● Mobilise additional private capital from external sources in the finance sector (crowding
in) for SME financing● Target commitment volume by 2011: EUR 1 billion● Development and implementation of innovative financial instruments for SME financing
Development constraint:
Shortage of long-term finance and risk capital for small and medium-sized enterprises (SMEs) in developing countries
Implementation:
● Direct SME financing in manufacturing/services and infrastructure
● Indirect SME financing via financial institutions or private equity funds, complementary allocation of funds for accompanying measures
SME FinancingInnovative Instrument: SME Credit Finance Facility
Financing bottleneck I: Lack of long-term finance via local banks
Reason:
The root of the „missing middle“ is the lack of profitability of SME lending.
demand for refinancing SME loans
DEG´s solution:
- Separation of credit risks and bank risks
- Improve underwriting standards
- Transfer of credit risks from SME financing to a fund, which acts as „SME promotion institute“
- raise private capital from SRI related investors at lower cost of capital
Earnings Opex RiskCost
CoE NetProfit
100 45
41
35
-21
Components of net profitability in SME lending*
* Source: Central and Eastern European Banking Study 2009 published by zeb/; page 19
Financial bottleneck II: Lack of Risk Capital
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Indirect SME Financing Innovative Instruments: Equity Finance Facility
Reason:
● Small investment size and less institutional setup of SME lead to relatively high costs.
● Difficulty of obtaining sufficient and good quality data about SME in emerging markets makes investment decisions more uncertain.
● Owner-managed businesses with information asymmetry and misalignment among shareholders increase potential conflicts of interest.
● The risk-return-ratio in SME financing is relatively unsatisfying compared to other emerging markets investment opportunities.
DEG´s solution:
● Founding of a structured fund of funds for SME equity funds
● First-loss tranche by German government to compensate for increased risk and attract private SRI investors
● DEG acts as a co-investor with the fund of funds and investment advisor
● implementation of ESG standards according to international criteria.
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Get in touch!
Holger Rothenbusch
DEG – Deutsche Investitions- undEntwicklungsgesellschaft mbHKämmergasse 22
50676 Köln
Germany
Phone: ++49 (0) 2 21 / 49 86 - 1372 E-mail: [email protected] Telefax: ++49 (0) 2 21 / 49 86 - 1290 Internet: www.deginvest.de