Presentation access bank

1. The Role of Commercial Banks in Addressing the Financing Gap
9 July 2011

2. Our Philosophy
M I S S I O N
V I S I O N
To go beyond the ordinary,
to deliver the perceived impossible,
in the Quest for Excellence
To transform our bank
into a world-class financial
services provider.
BRAND DRIVER
The Quest For Excellence
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The Role of Commercial Banks in Addressing the Financing Gap
3. Our Core Values
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4. 9 July 2011
Outline
Background
Challenges of Financing SME Market
Actions Required
Gender Empowerment Programme
Conclusion
5. Background
Africas GDP has grown from $461 billion in 1970 to $1.6 trillion in 2008
GDP growth rates have averaged greater than 5.0% annually
Africas SME sector accounts for over 90% of private enterprises
SME institutions are the main employers of people after subsistence agriculture
Between 36 million and 44 million SMEs in Africa
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6. Background
SME financing gap of between US$140 and 170 billion
This means that 30 and 37 million small and medium enterprises (SMEs) in Africa that are financially unserved and underserved
Less than 20% of sub-Saharan African SMEs have access to formal credit from the banking system, resulting in lower growth in income and employment generation
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7. Background
A significant amount of liquidity sits on the balance sheets of banks and other financial institutions in Africa
The ratio of private credit to GDP averages 18 percent in Africa compared with 30 percent in South Asia and 107 percent in high-income countries
In low-income countries, the ratio of private credit to GDP averages 11 percent in Africa but 21 percent outside Africa.
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8. Challenges of SME Market
SMEs are regarded by creditors and investors as high-risk borrowers due to insufficient assets and low capitalization, vulnerability to market fluctuations and high mortality rates;
Information asymmetry arising from SMEs lack of accounting records, inadequate financial statements or business plans makes it difficult for creditors and investors to assess the creditworthiness of potential SME proposals; and
High administrative/transaction costs of lending or investing small amounts do not make SME financing a profitable business.
As a result, commercial banks continue to bebiased toward large corporate borrowers, who provide better business plans, have credit ratings, more reliable financial information, better chances of success and higher profitability for the banks.
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Commercial banks avoid lending to SMEs through a combination ofthe following challenges:
Poorly compiled records and accounts, especially audited accounts;
Low level of technical and management skills;
Outdated technologies with few economies of scale and unacceptable rates of return;
Lack of professionalism and networking;
Lack of collateral;
Lack of market outlets due to poor quality and non-standardized products;
Poor linkages with large scale enterprises; and
SMEs' limited knowledge of business opportunities.
When banks do lend to SMEs, they tend to charge them a high premium for assuming risk and apply tougher screening measures, which drives up costs on all sides.
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In general terms, SME financing gaps can be explained by three factors.
The first is the merit-based explanation that many SMEs lack the requisite collateral and other risk protection in order to effectively access available loans at competitive prices.
The second explanation is the lack of management and absorptive capacities on the part of African SMEs to profitably utilize available capital.
The third is that there are extraneous factors that tend to discriminate against SMEs with certain attributes, the main factors being the gender of owners (women-owned enterprises are typically disadvantaged), the age of the firm (newer SMEs with no track record receive little or no financing), the location of firms (rural enterprises, for example, have restricted access to financing), and lack of political (patronage) connections.
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11. Actions Required
Through innovation based on a thorough knowledge of the SME segment and the SME banking value chain:
It is possible to reduce the high perceived risks of lending to SMEs;
It is possible to develop more appropriate loan products that are cost effective and serve the needs of the SME segment; and
It is also possible to build the capacity of SME entrepreneurs to run their enterprises in a more sustainable manner.
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12. Actions Required
Understanding the opportunity in the SME market - Develop a clear, quantifiable view of the SME market size, segmentation, growth trajectory, defining characteristics, needs, and preferences.
Survey the Competitive Landscape - Before target segments can be identified, informed intelligence regarding the competitive landscape should be overlaid on the SME market data.
Assess Own Capabilities and Competitive Advantage - Turn the critical lens on its own operations and assess its capabilities with regards to its competitors. Awareness of where the bank excels not simply does well but truly excels will be important for prioritizing which SME segments to target, which products to offer, and how to provide them.
Identify External Barriers, Risks, and Key Success Factors - Explore exogenous factors (i.e. financial, regulatory, and legislative environments) and understand how they might impact success.
Develop a Strategic Implementation Plan - Development of an actionable plan to execute upon entry or expansion in the SME market. Three aspects of this plan are particularly salient: resource requirements, timing, and sequencing. Success requires recognition that not everything can be undertaken simultaneously and that a phased approach is often the best for enabling real-time learning and course correction.
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13. The Gender Empowerment Programme (GEM)
The Gender Empowerment Programme (GEM) is a scheme developed by Access Bank in conjunction with the IFC, which utilizes developing an innovative financing program for women entrepreneurs in Nigeria
Starting pool of funds of $15 million
Because of our risk focused implementation, our NPLs have been in very low single digits,
Our GEM program has given us strong inroads to serve women-led businesses
Access Bank have won several awards both locally and internationally for this scheme.
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14. Conclusion
The Guardian Angels: Major Corporates in economic value chains currently play a key role in supporting economic agents within each value chain. They should enter into win-win partnerships with lenders to leverage the value chain through the extension of credit to SME participants.
Entrepreneurs must be ready to show greater desire to institutionalize and separate the company from self, and be ready to be helped.
Government also has important part to play in assuring a conducive environment, infrastructure, and a catalytic SME leaning regulatory environment.
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15. Thank You

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Economy & Finance

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