94871 IFC Financing to Micro, Small, and Medium Enterprises in Europe and Central Asia (ECA) Key Highlights IFC is working to develop solutions to close the micro, small, from $917 million in FY2013), $362 million of which was and medium enterprise (MSME1) financing gap, collaborating attributed to long-term financing. with 97 financial institutions across 20 countries in Europe and Central Asia. By the end of calendar year (CY) 2013, IFC’s MSME clients had 2.9 million micro loans outstanding in ECA (up 33.1 percent from As of June 2014, IFC committed a total of $3.1 billion to MSME 2.2 million in CY2012), totaling $5.7 billion (up 39.1 percent finance in ECA region2, $2.6 billion for long term finance, from $4.1 billion in CY2012). Similarly, IFC’s MSME clients $160.5 million for funds supporting MSMEs, and $333.1 million had over 1.5 million small and medium loans outstanding by the for trade finance. In fiscal year (FY) 2014 alone, IFC MSME end of CY2013 (up 14.4 percent from 1.3 million in CY2012), commitments in the region were $1.0 billion (up 11.7 percent totaling $64.6 billion in this region (up 10.8 percent from $58.3 billion in CY2012). MSME Financial Intermediary Portfolio, June 2014 IFC Committed Portfolio to MSMEs3 IFC Total Committed Portfolio to MSMEs ECA region ($ Million) (percent of Total Portfolio) 4,500 Growth of Committed Portfolio: 4,000 World => -17.3% drop in FY2014 YOY 2% 3,500 => 15.3% CAGR since 2000 MENA WORLD 3,000 $624 ECA 9% Millions 2,500 25% SA Middle East & North Africa (MENA) 11% South Asia (SA) 2,000 $1,474 1,500 Sub-Saharan Africa (SSA) 1,000 SSA Latin America & the Caribbeans (LAC) 13% 500 EAP East Asia & the Pacific (EAP) $520 0 23% LAC Europe & Central Asia (ECA) FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 17% Micro Enterprise Small Enterprise Medium Enterprise MSME Loans by type of IFC Clients in ECA Region, CY2013 MSME Loans by Microfinance Institutions MSME Loans by SME Financial Institutions IFC was able to survey or extrapolate outreach data from 22 IFC was able to survey or extrapolate outreach data from 75 SME microfinance clients in 12 countries, 36 percent of these clients FI clients in 20 countries, 36 percent of these clients received received advisory services from IFC. advisory services from IFC. Number of Outstanding Average Number of Outstanding NPL Average NPL Loans Loan Portfolio Loan Loans Loan Portfolio percent4 Loan Size percent4 Outstanding in ‘000 $ Size, $ Outstanding in ‘000 $ Micro Loans 1,393,554 $2,670,246 $1,916 2% Micro Loans 1,506,341 $3,060,032 $2,031 12% Small Loans 122,480 $3,139,042 $25,629 2% Small Loans 1,008,129 $15,750,804 $15,624 9% Medium Loans 16,912 $5,451,012 $322,316 6% Medium Loans 380,101 $40,303,505 $106,034 8% 1. MSME Firm Size Definitions: IFC’s Global Financial Markets categorizes its clients’ sub-borrowers according to the following definitions: (1) Microenteprises if loan < $10,000 at origination; (2) Small Business if loan < $100,000 at origination; (3) Medium Business if loan < $1 million at origination ($2 million for more advanced countries). 2. The share of committed loans to Micro Enterprises in MSME committed portfolio increased from 19.6 percent in FY 2013 to 19.9 percent in FY2014; Small Enterprises accounted for 56.3 percent in FY 2014 (62.4 percent in FY 2013); Medium Enterprises accounted for 23.8 percent in FY 2014 (18 percent in FY 2013). 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 ECA Region, CY2004-CY2013 Volume and Number of Micro Loans by MFIs Volume and Number of SME Loans by SME FIs 1,600 Number of SME Loans, Thousand 3,000 1,600 60,000 Number of Micro Loans, Thousand Volume of SME Loans, $ Millions Volume of Micro Loans, $ Millions 1,400 1,400 2,500 50,000 1,200 1,200 2,000 40,000 1,000 1,000 1,500 800 30,000 800 600 600 1,000 20,000 400 400 500 200 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 10 22 19 22 16 13 13 22 23 22 22 48 46 63 70 60 59 66 80 75 New Micro Clients, $ Existing Micro Clients, $ New SME Clients, $ Existing SME Clients, $ Reclassified Clients, $ Number of Micro Loans Reclassified SME Clients Number of SME Loans Historically micro loans provided by MFIs demonstrated upward Small and medium loans provided by SME FIs demonstrated sloping trend in ECA region except for the drop in CY2009: smooth growth during the last several years. The increase in portfolio of two clients in Serbia and Romania (accounted for number of loans in CY2011 (86 percent) was mainly attributed to 47 percent of CY2008 portfolio) scaled down from $370 million scaling up (10 times) of a Turkish client portfolio and acquisition to $120 million. Significant growth of micro loans portfolio in of a new client in Turkey. Number of loans increased by CY2011 was mainly fostered by acquiring a new client in Turkey. 56 percent in CY2012, which was mainly driven by fast growth It accounted for 43 percent of this segment’s volume of loans and of one of Turkish clients’ portfolio and also by expanding of 52 percent of this segment’s number of loans in CY2011 and IFC clientele. In CY2013 SME loan portfolio held by SME FIs continued expansion in CY2012. In 2013 the micro loan portfolio increased by 10 percent in volume terms, with 55 percent of this held by MFIs increased by 20 percent in volume terms, almost growth being attributed to the new business (8 new clients with 80 percent of this growth is attributed to the existing business. the largest residing in Turkey). MSME Portfolio by Loan Category in ECA Region, CY2013 Loan Portfolio of MFIs Loan Portfolio of SME FIs 1.1% 100% 100% 8.0% 13.1% 80% 80% 48.4% 34.8% 68.2% 60% 60% 90.9% 40% 40% 27.9% 52.0% 20% 20% 26.6% 23.7% 0% 0% 5.2% Number of Loans Volume of Loans Number of Loans Volume of Loans Micro Loans Small Loans Medium Loans Micro Loans Small Loans Medium Loans Total Portfolio composition by Loan Category in ECA Region, CY2004-CY2013 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 Change in Deposits Volume 2010-20135 The dynamic trends of IFC clients’ portfolios can be assessed over-weighted micro deposits mainly due to 30 percent decrease by comparing the loan and deposit portfolios of the sampled in the portfolio base of one of the MFI clients in Turkey. Deposits microfinance institutions and banks. Over the last several years held by SME focused clients grew 5 percent on the annual the deposits received by MFIs in ECA region demonstrated stable compounded basis since 2010. Both micro and SME deposits growth from $3.2 billion in CY2010 to $3.9 billion in CY2013 grew in CY2013 by 11 percent and 4 percent respectively in (7 percent compounded annual growth rate). In 2012 micro loans comparison with CY2012. Volume of Micro Loans and Deposits Volume of Small/Medium Loans and Deposits by MFIs in ECA Region ($ Billion) by MFIs in ECA Region ($ Billion) $0.5 $0.44 $0.44 $5.0 $0.41 $0.4 $0.36 $0.34 $0.35 $4.0 $3.51 $3.31 $3.58 $3.85 $0.34 $0.29 $2.90 $2.86 $0.3 $3.0 $2.50 $2.56 $0.2 $2.0 $0.1 $1.0 $0.0 $0.0 2010 2011 2012 2013 2010 2011 2012 2013 Micro Deposits Micro Loans Small/Medium Deposits Small/Medium Loans Volume of Micro Loans and Deposits Volume of Small/Medium Loans and Deposits by SME FIs in ECA Region ($ Billion) by SME FIs in ECA Region ($ Billion) $6.0 $40.0 $5.26 $33.83 $4.76 $32.47 $5.0 $4.16 $30.0 $4.0 $3.59 $24.78 $21.59 $3.0 $20.0 $17.01 $17.88 $1.82 $13.27 $2.0 $10.76 $1.23 $10.0 $0.78 $1.0 $0.50 $0.0 $0.0 2010 2011 2012 2013 2010 2011 2012 2013 Micro Deposits Micro Loans Small/Medium Deposits Small/Medium Loans 5. The deposits data includes retail, MSME and other commercial portfolio deposits. Micro and Small/Medium deposits classifications were done in accordance with definition of 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, 25 of such clients reside in ECA. Trend Analysis of Compounded Annual Growth Rate (CAGR)6 CAGR Trend – Micro Loans by MFIs in ECA Region CAGR Trend – SME Loans by SME FIs in ECA Region 60% 53.4% 50% 45.1% 44.8% 50% 40% 39.0% 40% 30% 24.7% 30% 21.2% 20% 20% 10.3% 11.2% 10% 10% 2.0% 0% 0% -10% -1.3% -10.3% -10% -6.5% -20% 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: Turan Bank – SME Banking, Azerbaijan About the client 2) Product Development. Advisory support from IFC Turan Bank (“the Bank”), was originally established as a helped the Bank to strengthen the SME business line with corporate bank in Azerbaijan in 1992, later downscaled to clear responsibilities and sales targets and a new product MSME and retail banking segments. Nowadays, the Bank bundle targeting SMEs; is expanding as a universal bank with foreign investment, serving individuals, micro, small and medium-sized 3) Credit and Risk Management Framework. IFC enterprises throughout the country with a sales network of assisted the Bank in restructuring its business model of the 15 branches and sub-bracnh, 8 of which are located in the risk assessment for a greater efficiency and stronger focus regions. on front office and sales, as well as streamlining credit process, and better managing portfolio and NPLs. Engagement with IFC IFC started to support Turan Bank in 2007, initially strengthening the bank’s corporate governance framework Development Results and later helping the Bank to upgrade its risk management IFC’s investment and support through advisory helped practices, which improved significantly the Bank’s Turan Bank build a sustainable and profitable SME Banking operational performance. To move forward to its goal of business, almost increased more than 2 time SME loan shifting the focus to the MSME segment, the Bank received portfolio from US$39 million at the end of 2011 to US$87.4 a US$7 million SME credit line from IFC in late 2011 and million by end June 2014. subsequent technical assistance to support the Bank in building SME banking capabilities. Moreover, the Bank was able to successfully increase their deposit base by 55.7% which amounted to US$83.1 million On the advisory side, IFC has helped Turan Bank to scale up from the end of 2011 to end of June, 2014 as a primary its SME business and increase efficiency of its operations. tool to fund the loan growth. The larger deposit volume in The three main modules for the advisory engagement include: fact had a larger impact on the bank’s performance than attracting outside financing, since it provided cheaper and 1) SME Strategy. With the guidance of IFC advisory team, more sustainable resources. the Bank developed and adopted an SME focused strategy document serving as a roadmap to build SME business; 6. Compounded annual growth rate (CAGR) from 16 reporting and repeated MSME focused clients in the 2004-2007 period, 40 reporting and repeated clients in the 2008-2010 period, 67 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