The rapidly changing

world of SME Finance

SME Finance Forum

Brings together financial institutions, technology companies

and development finance institutions to share knowledge, spur

innovation and promote growth of SMEs

2

Initiated by the G20 and managed by IFC

Growing Global Member Network

135 members

from 55 countries

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Financial Institution

49%

Fintech 26%

DFI13%

Association12%

Asia and Pacific39%

Africa13%

Americas28%

Europe20%

Member Benefits

4

Online library*

LinkedIn discussions*

Monthly webinars

Global/ regional and

partner events

Fintech expo/demo

Ask the expert

Publications*

SME data*

Communities of practice

Networking

Contacts brokering

Study tours

Marketplace

Mobile app

Connecting industry with

policy-makers

Voice in key policy bodies -

G20, AFI, APEC/ ABAC,

Basel institutions, OECD

LEARN LINK LEAD

You learn a lot of things. You get to know

what the rest of the world is doing. You

share experiences. Most importantly, you

get to find opportunities where you never

thought they existed.

Issac Awuondo, Group Managing

Director, Commercial Bank of Africa

High-income

OECD

South Asia

East Asia

Central Asia &

Eastern Europe

Middle East &

North Africa

5-6

11-1411-14

$600-700 Bn

1.9-2.42.5-3.13.1-3.7

$212-259 Bn

0.4-0.51.5-1.82.1-2.6

$13-16 Bn

2.0-2.4

6.0-7.3

11.2-13.7

$151-184 Bn

1.5-1.82.5-3.02.8-3.4

$153-187 Bn

0.8-1.01.5-1.81.9-2.3

$ 265-324 Bn

Total value of the gap in SME credit excluding high-income OECD:

$900-1,100 Bn

Total value of the gap in SME credit:

$1,500-1,800 Bn

1.0-1.23.1-3.73.5-4.3

$72-88 Bn

Latin AmericaSub-Saharan Africa

<20

20-39

40-59

>59

Value of SME

credit gap

Number of SMEs (Mn) % SMEs that need

but have neither a

loan nor a overdraft

$Bn

Total With

deposits

With loans

or overdraft

Formal SME Credit Gap remains large at $1+ tr i l l ion

36-44

13-1629-35 25-30

8-917-21

The MSME credit gap including informal MSME amounts to

$ 2.1 – 2.6 trillion

SOURCE: IFC/McKinsey MSME

database 2011

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WHY NOT SERVE SMMES?

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Too expensive to acquire

Too expensive to serve

OLD AND NEW APPROACHES

and

Global Trends:Shifting the Financial Inclusion frontier forward

INCREASING

ROLE OF

TECHNOLOGY

PRODUCT

DIVERSIFICATION

INCREASING

COMPETITIONDIVERSITY OF

INVESTORS

INCREASING

IMPORTANCE OF

NATIONAL POLICY

Mobile banking

Branchless banking

Use of non-financial retail outlets

Expand credit information systems

Create on-line movable asset registries

Beyond-credit only approach

Importance of cost-effective payments, savings, insurance

Customer relationship management the key

Commercialization of traditional NGO MFIs and move up-market

Importance of other commercial players (telcoms, supply chains, distribution chains, etc)

Proliferation and diversification of investors (e.g. private equity funds, peer-to-peer)

Importance of the regulatory environment for fostering innovation, sharing information, while ensuring stability/security, consumer protection

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New data sources, plummeting transaction costs

More digital data, more diverse data, and more real-time data means more data can be predictive data, provided you can find it and use it

Big data: what’s different today?

The digital universe is more than doubling every two years; emerging markets will surpass mature markets by 2017….

…only 1% of this data has been analyzed

How much data and where?

Failure to commit to MSMEs and innovation makes banks vulnerable to a new breed of digital competitors all along the credit and payments value chains

Online supply chain finance

Mobile micro-

lenders will graduate to

SMEs

M-POS acceptance/value add

Analytic firms aiming to

revolutionize credit models, drive growth

Invoice financing

Growing SMME finance from payments data

They have convenience, cost, speed, and new data competitive advantages over bank lenders; they can “out-FICO” FICO!

P2B lenders

“Best fit” MSME-lender matching

Online direct lenders

Alternative online lenders shaking up SMME credit

Fintech and banks 2017: more friend than foe?

Advantage: banks• Captive, large customer base/ positive selection

in applicant mix

• Brand

• Distribution coverage

• Valuable, “free” internal data (but underutilized)

• Low cost, stable source of funds

• Regulatory certainty (mostly)

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Advantage: fintechs

• Customer service oriented

• Simple and often friction-free applications

• More credit data sources

• Enhanced risk models

• Underwriting costs

• Pricing for risk

• Less regulation in many markets (but the

future is uncertain)

Partnerships -Licensing the plat form to scale global ly

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Licensing technology to lenders globally

• Turnkey platform, fully configurable

• Rapid global deployment

• Rapid processing and decision making can be fully automated

• Works across all channels

Banks

SME Solutions

Platform LendingPartners

Network Acquirers

Institutional Partners

• Short online applications; automatically, painlessly link data sources

• Uses power of SME’s own real-time, verified business data to get working capital

Big tech: picking up SME lending steam

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2 million third party sellers globally. Makes short term working capital loans to sellers on invite only basis (US, Japan, India, China, Canada, France, Germany, UK, Italy, Spain; consumer installment loans at checkout in the UK

8 million Chinese sellers, aims to connect with more than 10 million sellers abroad. $62 billion in loans to 1.6 million SMEs since 2010. Partnered with Lending Club in US, Capifyin Australia, iwoca and EZBOB in the UK, and ICICI Bank, Kotak Mahindra Bank, and Capital Float in India to finance domestic SME buyers (and in India, sellers) on its platform. Launched MYBank in 2015.

10 million merchants. As of November 2015, it had provided more than $1 billion in funding to more than 60,000 SMEs in the US, UK, and Australia. PayPal Credit, a reusable credit line available on purchases at thousands of stores (online and offline) that accept Paypal and on eBay surpassed $2 billion in volume in 4QTR 2015.

India case: e-commerce data fuels

SME lending

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Online SBI e-Smart SME e-Commerce

Online vehicle loans for Uber drivers

25 other bank and more traditional non-bank lending partners

09.09.15

Mobile data-based lending models

KCB M-PESA LOAN

Mobile data-based lending models:

• instant small mobile loans

• credit scores based on mobile

transactions, mobile e-money usage,

mobile e-money linked savings history

• third-party mobile-based lenders are

using data from apps running on

smartphones

The Rise of the Digital SME Bank/Lender

• New banks/NBFIs have built a “banking-as-a-platform”

(BaaP) model. This allows for improved cooperation with

alternative and third-party fintech models.

• Open APIs and support for integrating bank data with

online accounting platforms are also strengthening the

use of digital data to better enable banks to address

SME lending.

• Success for those in SME lending who embrace a

digital-first strategy.

Machines v People?

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