innovative mechanisms for financing msmes: fintech ... · msme finance gap in developing economies...
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Innovative Mechanisms for Financing MSMEs:
FinTech Solutions and Policy Actions in Asia
ADBI-Bank of Thailand Conference on Innovative Finance for Future Growth: Session 4
6 August 2018, Bangkok, Thailand
Shigehiro Shinozaki
Financial Sector Specialist (SME Finance)
Sustainable Development and Climate Change Department
Asian Development Bank
This presentation was prepared under the author’s responsibility. The views expressed here do not necessarily reflect the views or policies of ADB, its Board of Directors, or the
governments they represent. ADB does not guarantee the accuracy of the data included in this presentation and accepts no responsibility for any consequences of their use.
MSMEs in developing Asia, especially women-led MSMEs, have faced the highest financing gap in the world.
MSME Finance Gap in Developing Economies
Source: Recomposed from IFC, 2017. MSME Finance Gap.
Women-led MSME Finance Gap in Developing Economies
2
278 140 111 57 46 86
2,110
636
1,098
138 291 245
-
500
1,000
1,500
2,000
2,500
East Asia &
Pacific
Europe &
Central Asia
Latin
America &
Caribbean
Middle East
& North
Africa
South Asia Sub-Saharan
Africa
Micro SME($ bi l lion)
103 36 5 16 4 8
1,236
67 93 22 23 42 -
500
1,000
1,500
East Asia &
Pacific
Europe &
Central Asia
Latin
America &
Caribbean
Middle East
& North
Africa
South Asia Sub-Saharan
Africa
Micro SME($ bi l lion)
0%
20%
40%
60%
80%
100%
Collateral/
guarantee
Lending
policy of FI
Complicated
procedures
Exclusive
lending
attitude of FI
High lending
rate
Short loan
term
SMEs' lack of
knowledge
No demand
on SMEs
SMEs'
insufficient
management
PHI KAZ PNG SRI
PRC MAL KOR IND
Both supply-side and demand-side factors constrain access to finance.
Barriers to Accessing Financial Institutions
Notes: Percentage as the share of SMEs that answered yes plus somewhat yes from five scale scores (yes, somewhat yes, neutral, somewhat no, and no) about barriers to access finance. Valid samples: the Philippines (PHI): 63; Kazakhstan (KAZ): 98; Papua New Guinea (PNG): 19; Sri Lanka (SRI): 15; People’s Republic of China (PRC): 303; Malaysia (MAL): 60; Republic of Korea (KOR): 28; India (IND):40.Source: Author’s compilation.
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� Basel III may negatively affect banks’ lending attitude to SMEs.
� Basel III requires banks to have tighter risk management as well as greater capital and liquidity.
� Resulting asset preference and deleveraging of banks could limit the availability of funding for SMEs.
o Capital requirements
o Liquidity framework
o Leverage ratio framework
Strict banking regulation may be a contributing factor.
4
5
MSMEs as main beneficiaries of FinTech.New players & alternative finance products have been emerging.
Traditional offerings
Digital offerings
Invoice discounting
Capital markets
VC/angel investment
Purchase order
finance
Leasing
FactoringCredit guarantee
Bank/non-bank credit
Payment/ remittance
Internet banking
Digital savings
P2P lending
Mobile banking
e-commerce
finance (B2B) Online
trade/SCF platform
Equity crowdfunding
Digital Insurance
E-wallet
Online payment
Trade finance
MSMEs
Digital finance highly contributes to reducing financing gap in developing Asia.
Potential Impact of Digital Finance on Access to Finance in Asia
Source: Recomposed from ADB, 2017. Accelerating Financial Inclusion in Southeast Asia with Digital Finance. INO=Indonesia, PHI=Philippines, CAM=Cambodia, MYA=Myanmar. 6
0% 20% 40% 60% 80% 100%
MYA - credit
MYA - payments/transfers
CAM - savings
CAM - credit
CAM - payments/transfers
PHI - savings
PHI - credit
PHI - payments/transfers
INO - savings
INO - credit
INO - payments/transfers
Gap to be reduced by digital finance (% of gap) Unmet demand (% of demand)
Digital finance can create $2.1 trillion in new credit and $4.2 trillion in new deposits globally.
South Asia has the highest potential of benefits from DFS.
Source: Recomposed from Mckinsey Global Institute, 2016. Digital Finance for All. DFS=digital financial services.
Digital channels are more actively utilized than bank branches for daily transactions in Asia.
7
753
448 455
295
197
1,111
758
535
368 376
-
200
400
600
800
1,000
1,200
South Asia Africa &
Middle East
Latin America Southeast
Asia
Eastern
Europe &
Central Asia
New credit New deposits($ bi l lion)
Digi tal
9.3
Digital
2.8Branch
1.8Bra nch
1.7
Developed Asia Emerging Asia
(a verage transactions per customer per month)
Source: Recomposed from Mckinsey&Co., 2018. Asia’s digital banking race: Giving customers what they want.
0%
20%
40%
60%
80%
100%
Digital
banking
Internet
banking
Smartphone Digital
banking
Internet
banking
Smartphone
2011
2014
Emerging AsiaDeveloped Asia
Digital banking has an increasing trend but still low penetration in developing Asia.
Digital Banking Channels
Digital Banking Penetration
8Source: Recomposed from Mckinsey&Co., 2015. Digital Banking in Asia: What do customers really want?.
96%
96%
94%
93%
92%
83%
57%
44%
41%
36%
19%
18%
13%
0% 50% 100%
Korea, Rep. of
Australia
Singapore
Hong Kong, China
Taipei,China
Japan
China, People's Rep. of
Viet Nam
Malaysia
Indonesia
Thailand
India
Philippines
0
100
200
300
400
500
600
700
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
East Asia & Pacific (excluding high income) East Asia & Pacific South Asia
($ bi l lion)
Business Opportunities for MSMEs
� Labor productivity growth is slowing in developing Asia and estimated to continue.
� FDI inflows to Asia create opportunities for MSMEs to increase productivity.
Labor Productivity Growth
Source: Calculated based on ILOSTAT database. Output per worker (GDP constant 2010 US $). ILO modelled estimates.
FDI Net Inflows in Asia and the Pacific
Source: Recomposed from World Development Indicators, The World Bank. BoP, current US$ billion.
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-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Asia & Pacific Asia & Pacific: High income
Asia & Pacific: Low income Asia & Pacific: Lower-middle income
Asia & Pacific: Upper-middle income World
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Tech-based MSMEs
� The Fourth Industrial Revolution can create more tech-based MSMEs with more jobs, while the potential of reducing workforces from large/established firms.
� Tech-based MSMEs play a critical role of increasing national productivity, benefitting from FDI and active participation in global value chains.
� MSMEs’ innovation capability requires investment in R&D, human capital, and technology transfer & commercialization, suggesting the need for more market-based financing options.
2.0 3.9
19.1
80.2
71.3 71.3
30.6
53.0
71.9
5.9
20.0
38.4
72.8
53.1
69.7
24.3
12.59.8
0
20
40
60
80
100
Small (5-19) Medium (20-29) Large (100+)
New product/service New to the main market
Process innovation Spend on R&D
Investments financed internally Investments financed by banks
(%)
28.4
39.7 38.9
65.5
56.7
62.5
30.9
56.0 56.0
18.9
25.0
31.8
85.1
75.6
85.4
3.5
16.8
11.6
0
20
40
60
80
100
Small (5-19) Medium (20-29) Large (100+)
New product/service New to the main market
Process innovation Spend on R&D
Investments financed internally Investments financed by banks
(%)
5.09.7
16.7
75.7
69.9
82.3
11.48.7
25.8
1.14.2
9.9
68.9
54.4
67.5
11.6
17.7
11.4
0
20
40
60
80
100
Small (5-19) Medium (20-29) Large (100+)
New product/service New to the main market
Process innovation Spend on R&D
Investments financed internally Investments financed by banks
(%)
6.910.2
12.9
84.1 85.0
97.9
10.0
15.3 16.5
0.2 0.8
9.8
86.088.9
72.7
6.89.8
14.9
0
20
40
60
80
100
Small (5-19) Medium (20-29) Large (100+)
New product/service New to the main market
Process innovation Spend on R&D
Investments financed internally Investments financed by banks
(%)
Low investment in R&D makes MSMEs’ innovation capability remain weak.
Philippines
Source: Recomposed from World Bank Enterprise Surveys Data. PHI (2015), INO (2015), MAL (2015), and THA (2016). First four items: % of firms; last two items: proportion of investments (%).
Indonesia
Malaysia Thailand
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12
Approaches to reduce supply-demand gap in MSME finance
Secured lending legal
reform
Credit guarantees
Financial education
Credit data infrastructure
Credit bureau data
Credit risk database
Cloud/online data
Telecom data
e-commerce data
Credit rating/ credit scoring
services
Online collateral registry
Pledgeable assets (movable assets)
Enforcement
Asset based finance
Optimal credit guarantee
ratio
MSMEs
Credit guarantee facility
Regional CGIs
Portfolio credit guarantees
Client data
OnlinePlatform
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Alternative MSME Finance Models: Online Supply Chain Finance
Supplier(MSME)
Buyer
Financier
Smart contract
①upload invoice ②approve invoice
③request finance
④provide finance
⑥payment at maturity⑤provide finance
Accountingsoftware
• Verification• Alternative data stock
B. SME incubation segment
A. Crowdfunding segment
Alternative MSME Finance Models: Public-Private Sector Collaboration and Digital Solution
Promising SME pool
Selected/Prioritized
Businesses (seed/start-
up/early-stage firms)
I. Growth capital financing to SMEs via partner
financial institutions & the Exercise Market
II. Capacity building programs via partner institutions
III. Connect SMEs with good business models to the
Exercise Market
Agri-business
Tech-based SMEs
Woman-led SMEInvestors (mainly
individuals/supporters
for the business)
- Funded by the govt., bi-or
multilateral donor(s)
Invest
Financial
return
III
I
Social enterprises
Invest
Financial
return Invest
Financial
return Invest
Financial
return
Fund 1
Fund 2
Fund 3
Fund 4
SME recruiters
Banks
Venture capital
Regional
incubation
center/BDS
I II
II
SRO-operated OTC
III Crowdfunding platform
management company
I
Exercise Market
Exchange market
III
Public APEX Fund
(SME Incubation Fund) Invest
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� Policy actions are required to encourage the shift to digital in MSME finance.
� Diverse financing options well fit to the demand on MSMEs, with use of digital technology.
� Develop infrastructure for DFS: a national payment switch, digital identity, and open API.
� Develop methodologies to secure quality & reliable data for analysis, product design, and risk management.
� Regulation as an enabler for innovative finance products & services.
� Strengthen financial integrity to keep a financial system transparent, given the AML-CFT.
� Address consumer protection and facilitate competition further.
� Enhance digital finance literacy among MSMEs.
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Policy Implications in Asia
Thank you for your attention.
For further questions:
Shigehiro Shinozaki
Financial Sector Specialist (SME Finance)
Sustainable Development and Climate Change Department
Asian Development Bank
Email: [email protected]
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