1、,ADFIAP International CEO Forum VII- “Sustainable SMEs through Value Chain Financing” “SME Best Practices & Financing Models” -Equity Financing Mr. B.P. Singh, Dy. MD, IDBI Bank Ltd., India,Structure Of PresentationImportance of SME- Banking & Economy SME Financing Issues Participation in SME Equity
2、 Initiatives in India,Importance of SMEs Banking & Economy,Importance of SMEsSmall and Medium Enterprises (SMEs) are vital for development of a countryHelps reshaping the productive sectorsGenerates employment Creating an environment for entrepreneurship Promotes innovationGlobally, SMEs contribute
3、over 90% of Business Enterprises and 50-60% of Total Employment. (UNIDO Report 2009-10),Importance of SMEsIn Europe, Japan and the USA, 99% of the enterprises belong to the small business segmentEmployment generated through Small businesses is more than 50% in the EU and approximately 40% in the USA
4、 (World Retail Banking Report 2010),Importance of SMEsIn Europe (2002-2007), number of SMEs grew by 11%, and number of employees went up by 9% vis-vis 4% and 3% respectively for the larger enterprisesGlobally, SME business accounts almost one-third of retail Net Banking Income (NBI), though it compr
5、ises less than 10% of total retail banking portfolio.(World Retail Banking Report 2009-10),SME Financing - Issues,SME Financing - Issues Approx. 85% of SMEs in emerging markets suffer from credit constraintsApprox. 70% of all emerging-market SMEs do not use any formal creditThis means informal secto
6、r meets their financial requirements, though at times with stringent conditionsNearly 23.7% of SMEs disappear in two years and nearly 52.7% of SMEs exit the market in four years due to business failure, bankruptcy, or other reasons (Estimates IFC 2010),SME Financing - Issues Recent global economic d
7、ownturn has further aggravated the problems that already existedSome of the key issues are: Financing assumes material role in SMEs experiencing high growth prospects including opportunities for takeoverVery few SMEs are able to finance their expansion through their Cash Flow and have to explore ext
8、ernal sources of fundingIn credit filtration process SMEs are at a disadvantage,SME Financing - Issues Lack of successful track record of SMEs creates a perception of greater credit risk among the banksSMEs lack the substantial asset base (collateral) to provide as security against bank loans More p
9、ronounced for SMEs in the services sectorLimited exposure to Direct Equity financing sources Paucity of private equity investors for SMEs Reluctance by SME to dilute their share holding,Participation in SME Equity,Participation in SME EquityEquity financing for SMEs is a complex issueSMEs need a ran
10、ge of financing vehicles at different stages of their development Seed Money to start up the company generally comes from friends, professional contacts and family,Participation in SME EquityRole of BanksBanks are redefining SME financing by engaging in equity and quasi-equity investments Leveraging
11、 on their understanding of the SME sector and their access to capitalBanks are attempting to carve out profitable roles for themselves in the rapidly growing emerging markets by directly taking equity exposure,Participation in SME EquityRole of BanksBanks are also passively participating as investor
12、s in SME equity funds Some banks also; Provide Advisory Services Act as meeting point for overseas investors Banks need to acquire & develop skill sets to understand the SME sector, particularly in the area of risk assessment These risks may be addressed through partnerships that leverage the comple
13、mentary strengths of the bank and its partners A number of models that take these strengths into account have emerged around the world,Participation in SME EquityExit Mechanism IssuesLike any investment, liquidity of the investment for both buying and selling is crucial Due to certain underlying ris
14、ks and less number of investors, SME equity is relatively illiquidTraditional stock exchange platforms and trading mechanisms are not suitable to promote trading,Participation in SME EquityExit Mechanism Probable SolutionsDedicated SME stock exchanges, or at least separate trading windows with diffe
15、rent rules Suitable mechanisms would be required for exit from stressed entities Possibly under the ambit of specialized SME Asset Reconstruction Companies (ARCs),Initiatives in India,Initiatives in India Government has initiated a National Equity Fund (NEF) NEF provides equity support to entreprene
16、urs (Tiny & Small Scale Industries) for: Setting up new projects Undertaking Expansion, Modernization, Technology upgradation, Diversification Rehabilitation of viable sick units Assistance from NEF helps SSIs Strengthens their equity base Improves their eligibility for receiving term financing,Init
17、iatives in India Public Sector Banks have been advised to achieve a minimum 20% y-o-y growth in credit to the SME sector Capacity-building programs are offered with an objective of developing competitive small business practices, policies and strategies. This includes Training initiatives to achieve
18、 the competitiveness of SMEs through innovation, technology transfer, etc. Business incubation efforts to encourage the spirit of entreprenuership,Initiatives in IndiaPrime Ministers MSME Task Force Constituted in September 2009 by Prime Minister of IndiaPurpose: To highlight the concerns and issues
19、 relating to MSMEs To suggest relief and stability measures for MSMEs, especially in the aftermath of the recent economic downturn,Initiatives in IndiaInitiatives by Govt. of IndiaFew note worthy measures include:Extension of stimulus package, for a further period of one year, beyond March 31, 2010Creation of a Special fund to be utilized exclusively for lending to the micro enterprisesProviding collateral free loans upto Rs. 100 lakhs under Credit Guarantee Scheme,THANK YOU,
