94873 IFC Financing to Micro, Small, and Medium Enterprises in East Asia and the Pacific Key Highlights IFC is working to develop solutions to close the micro, small, were $1.5 million (up 2.2 percent from the level in FY2013), and medium enterprise (MSME1) financing gap, collaborating $626 million of which was attributed to long-term financing. with 43 financial institutions (FIs) across 12 countries in the East Asia and the Pacific (EAP) region. By the end of calendar year (CY) 2013, IFC’s MSME clients had 4.6 million micro loans outstanding in the East Asia and Pacific As of June 2014, IFC committed a total of $3.0 billion to (up 39.0 percent from 3.3 million in CY2012), totaling $5.2 MSME finance in the EAP region2, $2.4 billion for long billion (up 7.1 percent from $4.5 billion in CY2012). Similarly, term finance (including $156.9 million for funds supporting IFC’s MSME clients had over 1.8 million small and medium MSMEs), and $402.1 million for trade finance. In fiscal year loans outstanding by the end of CY2013 (up 55.8 percent from (FY) 2014 alone, IFC MSME commitments in the region 1.1 million previous year), totaling $100.9 billion in this region (up 38.1 percent from $73.1 billion in CY2012). MSME Financial Intermediary Portfolio, FY2014 (as of June 2014) IFC Committed Portfolio to MSMEs3 IFC Total Committed Portfolio to MSMEs EAP region ($ Million) (percent of Total Portfolio) 2,500 World Growth of Committed Portfolio: 2% => 11.8% growth in FY 2014 YOY 2,000 $921 => 18.7% CAGR since 2000 MENA WORLD Millions 1,500 ECA 9% SA 25% 11% Middle East & North Africa (MENA) $953 1,000 South Asia (SA) SSA Sub-Saharan Africa (SSA) 500 13% Latin America & the Caribbeans (LAC) $531 0 EAP East Asia & the Pacific (EAP) FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 23% LAC 17% Europe & Central Asia (ECA) Micro Enterprise Small Enterprise Medium Enterprise MSME Loans by Type of IFC Clients in EAP Region, CY2013 MSME Loans by Microfinance Institutions MSME Loans by SME Financial Institutions IFC was able to survey or extrapolate outreach data from IFC was able to survey or extrapolate outreach data from 20 23 clients - microfinance institutions (MFI) in 8 countries, clients - small and medium enterprises (SME) FIs in 8 countries, 52 percent of these clients received advisory services from IFC. 60 percent of these clients received advisory services from IFC. Number of Outstanding Number of Outstanding Average NPL Average NPL Loans Loan Portfolio Loans Loan Portfolio Loan Size percent4 Loan Size percent4 Outstanding in ‘000 $ Outstanding in ‘000 $ Micro Loans 4,212,462 $4,708,617 $1,118 1% Micro Loans 402,699 $470,767 $1,169 9% Small Loans 101,784 $1,978,228 $19,436 2% Small Loans 1,104,536 $29,149,551 $26,391 5% Medium Loans 3,357 $683,906 $203,725 2% Medium Loans 576,827 $69,084,535 $119,766 5% 1. MSME firm size definitions: IFC’s Global Financial Markets categorizes its clients’ sub-borrowers according to the following definitions: (1) microfinance institution if loan < $10,000 at origination; (2) small enterprise if loan < $100,000 at origination; (3) medium enterprise if loan < $1 million at origination ($2 million for advanced countries). 2. The share of committed loans to microfinance institutions in the MSME regional committed portfolio increased from 21.5 percent in FY2013 to 22.1 percent in FY2014; small enterprises accounted for 39.6 percent in FY2014 (47.6 percent in FY2013); medium enterprises accounted for 38.3 percent in FY2014 (30.9 percent in FY2013). 3. The committed portfolio in MSME FIs below does not include commitments for commercial banking trade finance and collective investment vehicles. 4. Nonperforming Loan (NPL) = > 90 days past due loans. Growth Trends of Loan Volume by Type of Institution in EAP Region, CY2006-CY2013 Volume and Number of Micro Loans by MFIs Volume and Number of SME Loans by SME FIs 5,000 4,500 100,000 1,800 Number of SME Loans, Thousand Number of Micor Loans, Thousand Volume of SME Loans, $ Millions Volume of Micro Loans, $ Millions 4,500 4,000 90,000 1,600 4,000 80,000 1,400 3,500 3,500 70,000 1,200 3,000 3,000 60,000 2,500 1,000 2,500 50,000 2,000 800 2,000 40,000 1,500 600 1,500 30,000 1,000 1,000 20,000 400 500 500 10,000 200 0 0 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Number of MFI clients reported Number of SME clients reported 3 5 3 5 7 10 11 11 14 23 9 13 9 13 18 15 14 17 20 20 New Micro Clients, $ Existing Micro Clients, $ Number of Micro Loans New SME Clients, $ Existing SME Clients, $ Number of SME Loans Micro loans portfolio demonstrated smooth growth over the last The major driver of significant growth in number (8.7 times) several years. Large swing in number and volume of micro loans and volume (76 percent) of small and medium loans provided in CY2011 was fostered by acquiring new clients in Indonesia, by SME FIs in CY2011 was the acquisition of new large clients which accounted for 55 percent of MFI regional portfolio in China, Vietnam and Philippines, which jointly accounted for in CY2011. The drop in number of micro loans in CY2010, 53 percent of SME portfolio in CY2011. Less steep but still fast followed by the terminating business with a large Indonesian growth in CY2012 was attributed to significant growth in volume client which accounted for 30 percent of CY2009 micro loans (3 times) and number of loans (2.7 times) of one of IFC partners volume in the region, was partially compensated by new entrants in China. This client accounted for 53 percent of this segment in IFC portfolio and scaling up of existing clients’ portfolios. portfolio in CY2012. SME loan portfolio by SME focused IFC In CY2013 the micro loan portfolio of MFIs increased by clients grew by 64 percent in number and 40 percent in volume 31 percent in number and 3 percent in volume terms. This growth terms in CY2013. Of this growth, 84 percent was dedicated to was driven by growing the existing portfolio and adding 6 new the growth of existing portfolio and remaining 16 percent to the clients in China, 3 new clients in Indonesia and large client in new clients acquired during the year. Vietnam. MSME Portfolio Composition by Loan Category in EAP Region, CY2013 Loan Portfolio of MFIs Loan Portfolio of SME FIs 0.1% 100% 100% 2.4% 9.3% 27.7% 80% 26.8% 80% 70.0% 60% 60% 97.6% 53.0% 40% 40% 63.9% 20% 20% 29.5% 19.3% 0% 0% 0.5% Number of Loans Volume of Loans Number of Loans Volume of Loans Micro Loans Small Loans Medium Loans Micro Loans Small Loans Medium Loans Portfolio Composition by Loan Category in EAP Region, CY2004-2013 MFI Portfolio Composition: Volume of Loans SME FIs Portfolio Composition: Volume of Loans 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Retail Micro Small Medium Corporate Retail Micro Small Medium Corporate Deposits versus Loans Comparison CY2010-CY20135 In order to understand the strengths of the IFC clients’ portfolios with MFIs (small and medium sized deposits) demonstrated it is important to analyze the trends in assets and liabilities of the steady growth over the last 4 years, resulting in 20 percent client financial institutions. The dynamic trends can be assessed compounded annual rate since 2010. The deposits held by SME by comparing the loan and deposit portfolios of the sampled FIs had an inconsistent trend over the last four years with the microfinance institutions and banks. Over the last several years slight drop in 2011, followed by significant decrease in deposits the deposits received by MFIs in EAP region demonstrated stable volume held by one of the clients in Papua New Guinea from growth, with a slight decrease in 2013 by 18 percent followed by $1 bln in 2010 to $4 mln. In 2013 both micro and small/medium decrease in deposits volume of one of the clients in Cambodia deposits grew by 21 percent and 26 percent respectively, largely (by 37 percent). This resulted in the smaller, but still strong funding overweighting the loan portfolio by $5.9 billion. base of the sampled institutions. Larger in size deposits placed Volume of Micro Loans and Deposits Volume of Small/Medium Loans and Deposits by MFIs in EAP Region ($ Billion) by MFIs in EAP Region ($ Billion) $1.0 $0.91 $2.0 $1.80 $0.9 $1.8 $1.65 $0.8 $0.75 $1.6 $0.7 $0.67 $1.31 $1.4 $1.21 $0.6 $0.55 $1.2 $0.49 $1.04 $0.96 $0.5 $0.43 $1.0 $0.34 $0.36 $0.76 $0.4 $0.8 $0.3 $0.6 $0.54 $0.2 $0.4 $0.1 $0.2 $0.0 $0.0 2010 2011 2012 2013 2010 2011 2012 2013 Micro Deposits Micro Loans Small/Medium Deposits Small/Medium Loans Volume of Micro Loans and Deposits Volume of Small/Medium Loans and Deposits by SME FIs in EAP Region ($ Billion) by SME FIs in EAP Region ($ Billion) $1.4 $8.0 $1.20 $1.20 $6.77 $1.2 $0.99 $6.0 $5.35 $1.0 $0.85 $4.40 $0.8 $4.0 $3.43 $0.6 $2.37 $2.01 $0.4 $2.0 $1.74 $1.32 $0.2 $0.05 $0.02 $0.03 $0.03 $0.0 $0.0 2010 2011 2012 2013 2010 2011 2012 2013 Micro Deposits Micro Loans Small/Medium Deposits Small/Medium Loans 5. Micro and Small/Medium deposits classification is based on the deposit size and irrespective of the recipient (retail/commercial). The classification was done in accordance with definition of the relevant loan size noted in footnote 1. Loan-Deposit analysis are done on the basis of repeated clients, which means that the data used for comparison of Micro/SME loans and deposits are comprised only of those clients that reported each of the last 4 years all 4 data series (Micro deposits, SME deposits, Micro Loans, SME Loans). Globally IFC had 72 such clients, 31 of which are in IDA countries, 7 of such clients reside in EAP. Trend Analysis of Compounded Annual Growth Rate (CAGR)6 CAGR Trend – Micro Loans by MFIs in EAP Region CAGR Trend – SME Loans by SME FIs in EAP Region 80% 50% 43.7% 42.2% 70% 67.1% 56.5% 40% 60% 34.3% 50% 29.1% 30% 25.3% 24.2% 40% 30% 20% 18.5% 20% 14.8% 10.8% 10% 10% 4.3% 0% 0% 2004-2007 2008-2010 2011-2013 2004-2007 2008-2010 2011-2013 Number of Micro Loans Volume of Micro Loans Number of SME Loans Volume of SME Loans Client Highlight: The CARD SME Bank, Philippines About the client IFC recommended CARD to start financing sectors Started in 1986, CARD MRI is a group of 11 mutually evaluated as low risk, namely piggeries pig farms and egg reinforcing development institutions committed to alleviating layerslaying chickens. As CARD builds expertise, they can poverty in the Philippines and empower economically expand their lending appetite to other sectors. challenged Filipinos to become responsible citizens for their Implementation of the CARD SME project continued with community. As of July 2014, CARD MRI had 2.5 million a 3-week training in February 2014 for agri loan and credit clients served, among which 1.3 million are the clients officers on crop and livestock production, finance & risk with loans. CARD MRI provides services through its 205 analysis including the use of risk assessment and cash branches and 1,263 office units in 71 provinces. As of July flow tools for agri lending and field coaching designed 2014, total asset of CARD MRI were more than US$410 to start farmer visits to kick off the pilot program. Also a million with a total staff complement of 7,247. 2-day training on agri risk assessment and cash flow tools The CARD SME Bank Inc. (the Bank) was incorporated in was provided to the SME team in June. The entire SME the Philippines on October 4, 1961. In 2011 The Bank was team participated to allow all loan officers to be exposed to converted into a regular thrift bank and changed its major agri finance and understand the entire process. The IFC team purpose from that of rural banking to thrift banking with emphasized the need to implement standard processing focus on SMEs. The Bank offers a wide range of products times and strategic marketing strategies for agri lending. and services such as deposit and loan products mainly to IFC also provided inputs in drafting the lending policy and the consumer and SME markets, using appropriate credit operational manuals for agri lending. evaluation methodology and cash flow based lending so that CARD SME Bank started the pilot of agri lending in April borrowers are not necessarily required to have hard collateral. 2014 and is currently in negotiations with IFC for IFC As of October 2014 Card SME Bank had 219 thousand to provide technical assistance for the full roll-out of the clients served, 134 thousand of which are borrowers with agrifinance program. US$25.7 million loans outstanding. Development Results Engagement with IFC The engagement with IFC on SME development helped In 2009, CARD SME Bank engaged IFC to provide CARD SME to scale up its portfolio of outstanding loans assistance in developing their SME business segment. from US$1 million in 2011 to US$21 million by the end of The SME project concluded in June 2011, and as of 2013. December 2013, total loans of CARD SME Bank amounted to US$21 million. CARD SME’s partnership with IFC in agrifinance space will allow agribusiness players, especially farmers, to grow IFC has started the agrifinance project (capacity building) their businesses and pursue other opportunities that would with CARD SME in July 2013, making it the first project normally be beyond their reach. Farmers can have better partner within the regional Philippine AgriFinance program. access to resources and agricultural inputs, which will IFC conducted value chain studies in the regions covered improve their productivity and profitability, and increase by CARD SME’s branches to assess the key crop sectors their participation in the country’s economic development. and the related farmer risk profiles. Based on these studies, 6. Compounded annual growth rate (CAGR) from 6 reporting and repeated clients in the 2004-2007 period, 7 reporting and repeated clients in the 2008-2010 period, 17 reporting and repeated clients in the 2011-2013 period, excluding greenfield institutions and FIs that are closing their operations. Martin Hommes | Mhommes@ifc.org Aksinya Sorokina | ASorokina1@ifc.org