The Voice of Savings and Retail Banking

retail - regional - responsible ￭ retail - regional - responsible ￭ retail - regional - responsible

EBI 9th Annual Conference Cairo, 8 May 2017

« Promoting Financial Inclusion in the banking sector

Session 3: Enhancing Financial Inclusion through new and

vulnerable consumers /M&SME’s

By Laurie Dufays, WSBI

World Savings and Retail banking Institute –Federation of 100 Institutions in 83 countries worldwide

We are :

RETAIL

REGIONAL

RESPONSIBLE

We focus on

RETAIL BANKING

ACCESS TO FINANCE

DIGITIZATION

We do :

LOBBY

EXCHANGE OF BEST PRACTICES

TRAINING AND CONSULTANCY

CONTENT

SME Overview (Africa, MENA, Egypt)

Obstacles to SMEs’ growth

Policy in favor of SMEs

Taping the opportunity for banks

Action at Government level

To conclude: the way forward

SME’s global view (1)–

The driving force behind economic

development

Europe: 22.3 million MSMEs, 99.8% of all

companies and 67% of total employment.

In Africa: 50 million MSMEs, 69% in the informal

sector. 58% of employment and 33% of the

continent’s GDP

SME’s global view (2)–

SMEs : The driving force behind economic development

Neighbourhood South (Algeria, Egypt, Israel, Jordan, Lebanon,

Libya, Morocco, Palestine*, Syria and Tunisia) : 6 million

MSMEs

IN EGYPT : 2.5 Million SMEs representing 75% of the

total employed workforce and 99% of non-agricultural

private sector establishments.

SME productions account about 80% of the GDP and

contribute to 75% of exports, more than 50% of industrial

production in Egypt.

Their main issue ?

SME’s global view (2)– global, Africa(with sources)

SME’s global view– MENA, Egypt (1)

SME’s global view (3)– global, Africa

Financing the growth in Africa: 84% of investments of SMEs are financed through internal funds compared with 70% in other developing economies. The share of bank financing in Africa is 8%

SME’s global view (4)– The credit gap !

CONTENT

SME Overview (Africa, MENA, Egypt)

Obstacles to SMEs’ growth

Policy in favor of SMEs

Tapping the opportunity for banks

Action at Government level

To conclude: the way forward

SMEs in MENA: Obstacles to SMEs’

growth(source IFC)

Bank lending, the main source of formal finance,

constrained by the relatively poor quality of the legal and regulatory environment,

the limited depth of financial markets and

Lack of competition among banking and financial institutions.

Alternative sources of finance, such as leasing, factoring, mezzanine financing or the provision of equity capital, remain marginal.

Missing the ecosystem

Obstacles to SME growth : from a supply point of view

Most banks are becoming more risk averse /SMEs,

Lack of transparency

Lack of Information /asymmetry/Uncertainty over

creditor rights

Lack of collaterals

High administration costs of small scale lending

Inadequate banking skills for dealing with SME’s

Banks finance the government debt instead

Obstacles to SME growth: from SME side

Belong to the informal sector =>Underutilised financial

services: only 50% of the SMEs deal with formal banks

Incapacity to provide the required information

Low financial literacy and business competence

Incapacity to deal with intricate government regulations

(linked to the fact that many of them are still part of the

informal sector).

SMEs’ projects inability to compete with imported

products and the products of large enterprises.

CONTENT

SME Overview (Africa, MENA, Egypt)

Obstacles to SMEs’ growth

Policy in favor of SMEs

Taping the opportunity for banks

Action at Government level

To conclude: the way forward

Policy in favor of Micro and SME’s: the right steps

The Central Bank of Egypt (CBE) initiative in January 2016

to increase funds directed to MSMEs to EGP 200bn over the

next four years at interest rates not exceeding 5 %.

The CBE obliges to direct 20% or more of Bank loans to

MSMEs.

The CBE establishes a database for SMEs to serve

bankers as well as policy makers.

The CBE requires the banks to start preparing the

financial infrastructure for MSMEs: Specialization in

financing MSME projects, risk calculation, marketing and

debt collection.

CONTENT

SME Overview (Africa, MENA, Egypt)

Obstacles to SMEs’ growth

Policy in favor of SMEs

Taping the opportunity for banks

Action at Government level

To conclude: the way forward

Taping the opportunity as a bank

SME Banking is very profitable business. Returns are often some of the best on a risk-return basis with attractive yields.

SME banking is much more than SME lending: Deposit & transactional banking services are equally important.

Tapping the opportunity as a bank

1. To improve access to finance

2. To use international funds

3. To improve customer journey

4. Go digital

Taping the opportunity as a bank (1)

1) To improve access to finance/ reduce supply –

demand gap in SME lending

Objective : help customers moving from start ups to

established businesses with growth potential

1. Establish a special department dedicated to Micro banking

and for SMEs

2. Improve staff skills and competence

3. Better segment the entrepreneur customer base

4. Improve communication with SMEs in the lending

application process

5. Educate the customers

6. Diversify the offer of P&S based on SMEs’ cashflow

Public Stock Markets

SM

E C

ash

Flo

ws

SME Development Stages

HIGHER RISK

Seed Phase Start-up Phase

LOWER RISK

Emerging Growth Development

Portfolio Guarantees & Credit Enhancement

Formal VC Funds & Mezzanine Funds

VC Seed & Early Stage

Business Angels, TT

Microcredit

EIF Tool Kit for SMEs

Taping the opportunity as a bank (1)

CUSTOMISED

PACKAGES

Risk Sharing

Instruments

Start-up Finance

Market Outreach

Financial Inclusion

BRANCHBUSINESS CENTRE

CORPORATE CENTRE

Relationship Banking

Advisory

Services

Rehab

Credit / Risk

Expertise

Busi

ness

Gro

wth

Time

Start-up Overdraft

Start-up Financing Package

SMEG

Risk Sharing Instruments

Bridge Financing

Structured SME Financing

Export Guarantee

Financing

Business OverdraftBusiness Loan

Business Property LoanGeneral Banking Facility

Tapping the opportunity as a bank

1. To improve access to finance

2. To use international funds

3. To improve customer journey

4. Go digital

Taping the opportunity as a bank (2)

Take advantage of the International /European /national

5 EU facility programmes for Financial Inclusion:

1. SANAD: MF through local financial institutions and capcitybuilding

2. SEMED Advisory services to SME through grants

3. FEMIP : support to risk capital/venture capital

4. MENA SME : guarantee funds tocover losses of local banks lending new funds to SMEs

5. SEMED MSME : SME credit lines and capacity building to local financial institutions

6. Financing by EIB, EBRD, EC, KFW, Afd

NEAR-B2@ec.Europe.eu

Tapping the opportunity as a bank (3)

1. To improve access to finance

2. To use international funds

3. To improve customer journey

4. Go digital

Taping the opportunity as a bank (3) :

To improve the customer journey

Taping the opportunity as a bank (3) :

To improve the customer journey

Make their business easierHelp them to manage the day to day

How ? Ex. • Info on their markets, competitors, • Help them access their treasury all

the time• Help them build & manage their

client database• Share your IT platform for managing

their database

Taping the opportunity as a bank (4)

Go digital

Egypt, Nigeria, and South Africa accounted for about a third of Africa’s total mobile subscriber base at the end of 2015, (GSMA)

Taping the opportunity as a bank (4)

To improve customer journey and become more digital

Examples: starting from … to

- pre-paid cards allowing transfers and remittances, and savings

- App to access information on the account

- App to access information on local businesses’ figures and position = Benchmarking

- App that facilitates daily management : accountancy, permanent view on treasury with projections, access customer data

DATA & TRANSACTIINS ANYTIME ANYWHERE

CONTENT

SME Overview (Africa, MENA, Egypt)

Obstacles to SMEs’ growth

Policy in favor of SMEs

Taping the opportunity for banks

Action at Government level

To conclude: the way forward

Action at government level

Better legislative infrastructure : Bankrupcy rules; possibility for creditors to use collaterals

Encourage banks to build on their expertise in matching their clients in different stages of the value chain

Make rules more easy to apply thanks to (standardized template to update financial methods for financial reporting )

Build an ecosystem with all the actors including the new entrants and Fintechsbut also the educational system.

TO CONCLUDE

Being a bank is no longer enough and banks should definitely look beyond theirtraditional banking products and services

Define your business model

Develop a brand

Access to finance

Strengthen your risk assessment policy

Train your staff

Become a partner of your client

Help him/her to manage their business

Diversify your offer

Build partnerships