How to Scale Support for Small Businesses?

we have to be really, really careful here, because this is rarely done in a way that actually stimulates market movement...there are smart ways to blend public and private finance to do this, but they must be coupled with capacity to assess risk/reward balances on both sides, SME and financial institution...and this is almost never the case...we are doing more in this area now than the IFC ever used to do, but we have quite detailed review processes to try to avoid the moral hazard and other negative market distortion effects.

this is a great example of building on electronic knowledge of SMEs to bring down costs of financial services, making this business far more do-able...but note that Alibaba could only do this after first building many other businesses, such as B2B brokering, payments (Alipay), search (Weibo), etc, etc...and also, they only moved into this after getting very frustrated by trying to get the banks to do it with them!

Do you think that we can learn from some good examples, or are you more negative ?

The other structure that is growing and attract more attention in the area of SME finance is Supply Chain platforms. How can a small supplier raise funding against the approved payables from big corporates. Although this is not a new concept, it is reported that only SCF is a small part of receiveable finance market : 4% of global market value. Way to go to leverage this structure in SME financing.

yes, and rest assured they're going to take this business away from CCB and the other banks as soon as their licensing enables...just like Amazon, eBay and others are going to take bank business away in USA with their new financial services.

Hello. Iā€™m writing from Nigeria.

Just last week in a brain storm session about the challenges of SMEs in Nigeria we noticed that top on the list of challenges is the inability of SMEs to access funding that is said to be available to them from banks.

Bank policies were considered to be irrational and not conducive or supportive to SMEs as process to funding is only favorable to big business owners.

Most of the time SMEs are funded either by boots strapping or support from family and friends which usually takes a long time to start up or support the SME.

Fully agree. Guarantee schemes can be great, but need to be run privately. The nest contribution from the public sector is just provide some contribution, and second best is just to stay out of it..

and all this new competition from unconventional players is great news for SMEs...now we need more of these new players in the poorer countries..

There are some institutions in Nigeria that do finance SMEs. LAPO is one of them; there are others as well. select the right institution and it may work..

In developing countries P3s should focus on foundations: clean water, sanitation, reliable energy, and transport infrastructure. These will help trade in general and SMEs can reap opportunities for new business, international funds, etc. Collaboration could also help with removing regulatory barriers, although I do believe fragile economies should have barriers protecting them from "hot money", dumped goods, loan sharking, etc.

I agree - and both the large corporates and the banks have roles to play in this. It's interesting to note that large corporates are persuading their banks to bring more of the small farmers into the formal financial sector to cut cash handling costs and worries - we need to build on this by then getting supply chain financing to these smallholders

Yes, there are plenty of innovations out there, but in the Nigeria case, we have, what? 18 millions SMEs or sole entrepreneurs looking for finance and the banking sector is not responding at that scale.

this finding doesn't surprise me at all. as I noted in my opening comment, we don't lack capital. we lack institutions capable of serving SMEs properly, and profitably (and those two p's are related!)

the good news is that lending to spendthrift governments and a few corporates no longer pays off for emerging banks as it used to, so the smart ones realize they have to learn to serve the broader markets.

The data's maybe a bit old but it looks like access to finance is most serious for SMEs in Nigeria - more than almost anywhere else in the world: http://www.enterprisesurveys.org/data/exploreeconomies/2007/nigeria/#finance--size

In your Nigeria brainstorming, did people talk about better ways of accessing Diaspora finance?

P-P collaboration is increadibly important and can be very powerfull. We have been collaborating with government agencies and commercial banks in countries such as Botswana and Brazil. What this has allawed us is to give a range of support to many different types of SMEs. From the very small that would actually find a job to the ones with significant potnetial and requires support to export or diversify their offering (geographically/product). Support includes access ot finance coupled always with advisory, access to markets and mentorship. When strucutred well, P-P collaboration allows to spread riks to the right participants and allocate the right type of return (social vs commercial) to the right type of entity (government vs banks). We as a company support the linkages by providing access to our supply chains, contacts in our networks and experties in enteprise development (25 years) which further enhances the partnership.

and to get back to our moderator's question about public-private cooperation, to me the most important thing the public sector can do is to make the markets stay competitive, and better informed - the first through policies that encourage new institutions to be able to enter and shake things up, the latter through building better financial markets infrastructure: credit information systems, movable asset registries and electronic payments systems that work for the smaller ticket transactions. and then the financial sector needs to be helped (though not much, I'll bet) to adapt to the new opportunities created...

On the supply chain finance side, large international comapnies operate their own supply chain programs. However, they only capture big suppliers in their programs. A partnership with development agencies and multinational corporates may motivate these companies to go deeper in their progrms.

Nigeria is a big country. the public sector institutions (development finance institutions) may not have always had the epected outreach and successfully. But private financial institutions that are active in Abudja and Lagos are increasingly also covering other states. Credit culture, lack of clear SME identity (and location) and contract enforcement do provide constraints though for financial institutions.