Visioning the Strategic Role of Development Finance Institutions34th ADFIAP Annual Meeting, Kyrenia, North Cyprus20th - 23rd April 2011

DFIs and SME Finance:Building Capacity for SME Development and Innovative Financing Mechanisms

DFIs Challenges: Past, Present and Future...

1. Balancing Act2. Evolving in Nature3. Keeping Abreast4. Staying Relevant5. Target Market6. Making the Difference

Balancing Act...

Developmental Role

Financing & Profit Making

Merit Based

Need Based

High Utilization of Open Market

Funds

High Interventions i.e. Business

Advisory Supports

Evolving in Nature...

A sound development bank is one that is changing and living up to its underlying goals, both financial and economic, seeking continually to regenerate itself in the light of the changing circumstances

Each development bank is unique to the environment and there is no single solution applicable to all

Each institution must be self-reliant and capable of using its resources efficiently

It cannot do so if it relies on procedures automatically and repetitiously satisfying yesterday’s standards

Keeping Abreast...

Market & Industry

Requirement (Domestic &

Global)

Rapid Technology

Advancement (Efficiency; Greater Market

Outreach)

In-House Knowledge &

Capacity Building; i.e.

Internal Expertise

(Human Capital Development &

Resources)

SME Customer’s Business &

Financial Needs

(Products & Services)

Socio-Economic

Requirement (Government Aspirations &

Developmental Policies)

Economy; Industry; Market;

Technology; & Knowledge

Progressions

Staying Relevant...

The Tenth Malaysia

Plan

New Economic Model

New Key Results Area

Government Transformation

Plan

Effective Integrations and Implementations at the SME Bank

1. SME Bank’s Evolving Role as a DFI

2. Promoted Growth Areas3. Strategic Initiatives

4. Effective Implementation5. Key Performance Indicators

Stakeholders Engagement - Maintain a mutually beneficial relationship with the individuals and institutions on whom its effectiveness depends

The Concept of Change, Transformation, Innovation and the Culture of Nurturing - Requires that its staff and training programs be oriented towards inculcating in everyone - staff as well as management

Developmental - Never end the process of reviewing its own experience and of society’s changing needs

Dynamic - Requires that its own policies be renowned and marked to market

Target Market...

Making the Difference...

Turning and Changing From:

1. Impossible to Possible2. Dreams to Reality3. Design to Redesign4. Synergy to Energy5. Domestic to Global6. Interventions to Inventions7. Ideas to Bankable Businesses

Quick Take: SMEs Development in Malaysia

1. Malaysian Shores2. SME Significant Contribution to the Economy3. Shifting Traditional Economy to an Innovation Based Economy4. SME Significant Contributions to the Economy5. Important Driver to Achieve a Developed Nation and High Income Status6. Multi-Facet Challenges and Limitations7. DFIs: An Integral Component in Executing Government’s Agenda in SME Development

Malaysian Shores...

SMEs constitute 99.2% of total business establishments in Malaysia

In line with the New Economic Model (NEM), with the exponential annual growth of 6.5%, the GDP value will be around RM900 billion by 2020

It is targeted that the SMEs’ contribution towards GDP will stand at 50% - 60% which will be around RM450 bill - RM540 bill by 2010

Characteristics of Malaysia in 2020

Market LedWell-Governed

Regionally IntegratedEntrepreneurial

Innovative

LeadershipLeadership GovernanceGovernance

PlanetPlanetProfits/ProductivityProfits/Productivity

PeoplePeople

The Five (5) Dimensions of Global Changes

2010 2020

Value Drivers

8 Strategic Reforms Initiatives

Average Annual

Growth of 6.5%

Current Income

High Income

Economies

Lower Income

Economies

Investment

Labour

Efficiency

Per Capita Income

USD

$17,500

$15,500

$7,000

Unlocking the Value Drivers

Source: New Economic Model for Malaysia Part 1

SME Significant Contributions to the Economy

Shifting Traditional Economy to an Innovation Based Economy

Important Driver to Achieve a Developed Nation and High Income Status

Multi-Facet Challenges and Limitations

DFIs: An Integral Component in Executing Government’s Agenda in SME Development

Visioning SME Bank: Building Tomorrow’s Future Today

1. Vision & Mission 2. Raising the Bar3. IQ-Dagang4. Moving Forward: - The Importance of SME - Moving from funding standpoint, rather than outcome based - New Business Model: Focused on financing the ecosystem, driven by desired outcomes (i) & (ii)

Vision

Mission To support Government’s

Economic Agenda in developing SMEs as an engine of growth

To be fully-fledged specialized financial institution to nurture the small medium industry and enterprise for Nation building

Raising the Bar Launched in August 2010

The Objectives:

To enhance the Bank’s services via unique partnership with recognized external service providers, a partnership that is constantly developing in line with the economy

As at December 2010: A total of 104 professionals and industry experts have registered with the Bank

IQ-Dagang Officially introduced in

October 2010

Approaches: i) To turn viable business ideas to be credit worthy ii) To help and guide entrepreneurs to secure funding iii) To nurture entrepreneurs towards sustainable success iv) To have more business partners (including SME Bank) to play roles as investors in business matching v) To simplify and clarify the loan application process

As at April 2011: i) 129 ideas registered ii) 19 ideas accepted iii) 1 idea has secured fundings from SME Bank

DFI’s who’s socio economic

targets are realized, have

poor commercial results

DFI’s with strong commercial results, no

longer focus on the socio economic agenda

Based on the initial

understanding, socio economic and commercial

goals are deemed to be mutually

exclusive

How then do we measure the

success of SME Bank?

“Taking everything into

account, what is the appropriate

business operating model moving forward?

Moving Forward...

The Importance of SME

YEAR 2010 (GDP VALUE: RM540 bill)

Contribution by SMEs (37%): RM200 bill

YEAR 2010 (FINANCING REQUIRED)Expected Needs of SMEs: RM120 bill

Expected Contribution by SMEs (50%): RM300 bill

YEAR 2015 (GDP VALUE: RM740 bill)

YEAR 2015 (FINANCING REQUIRED)Expected Needs of SMEs: RM180 bill

The needs of SMEs are growing over the years and SME Bank should assume a

significant role in meeting the requirement

Moving from funding standpoint, rather than outcome based

New Business Model: Focused on financing the ecosystem, driven by desired outcomes(i)

New Business Model: Focused on financing the ecosystem, driven by desired outcomes (ii)

Thank YouTogether we create

Value towards sustainable

Success