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Financial Sector

India, Malaysia share experiences how to support start-up SMEs

Mihasonirina Andrianaivo's picture



Both Malaysia and India are countries steeped in innovation with a strong desire to foster new, innovative start-up enterprises. 
 
With a global focus on providing more support to Small and Medium Scale Enterprises (SMEs) – and recognizing that start-ups play a crucial role in creating jobs, growth, exports and innovation within most economies – Asian countries are keen to learn from each other’s experiences. These efforts have taken on a greater priority in India under the leadership of Prime Minister Modi and his “Make in India” and “Start-Up India” campaigns.
 
The World Bank has been supporting India for several years in the area of MSME finance, which is one of the most widely recognized impediments to SMEs, particularly for start-up enterprises.  Through the $500 million MSME Growth Innovation and Inclusive Finance Project, the World Bank supports MSMEs in the service and manufacturing sectors as well as start-up financing for early stage entrepreneurs.  The start-up support under this project ($150 million) is for early stage debt funding (venture debt) which isn’t well evolved. (Unlike India’s market for early stage equity which is considered to already be reasonably well developed.)
 
As part of this project, the World Bank and the Small Industries Development Bank of India (SIDBI), recently held a workshop in Mumbai to allow market participants to learn from one another, and particularly about Malaysia’s successful support for innovative start-up SMEs. The workshop’s participants included banks, venture capital companies, entrepreneurs, fintech companies, seed funders and representatives from the Malaysian Innovation Agency (Agensi Inovasi Malaysia – AIM).

More bank competition in Gulf countries could be a boon for small businesses

Pietro Calice's picture


Against the backdrop of low oil and gas prices and fiscal consolidation, economic diversification and private sector development is a top policy priority for the countries of the Gulf Cooperation Council (GCC).

 
Supporting small- and medium-sized enterprises (SMEs) is central to this agenda.
 
Formal SMEs in GCC countries account for 25% of jobs, which is significantly below the global average where SMEs account for 40% of employment.

Inadequate access to finance, especially bank lending, is constraining SMEs in GCC countries. Only 11% of SMEs have access to credit and some 40% of SMEs cite a lack of financial access as a major constraint.
 

Bank competition in the GCC is among the lowest in the world. Strict entry requirements, restrictions on bank activities, relatively weak credit information systems, and a lack of competition from foreign banks and nonbank financial institutions all contribute to weak competition in the banking sector.
 
By conducting fieldwork and reviewing available literature, we have analyzed what rules and regulations may be impeding bank competition in the GCC SME lending markets as well as the institutional framework for competition policy underpinning those rules and regulations.

The FinTech revolution: A perspective from Asia

José de Luna-Martínez's picture



Will cash and checks still exist 15 or 20 years from now given the increasing digitization of money? Is the smartphone our new bank? Will many people working in the financial sector industry lose their jobs due to growing use of technology, robots, algorithms, and online banking? Is financial technology (FinTech) the solution to providing financial services to the 2 billion people in the planet that still lack access to finance? Will digital currencies and other innovative FinTech products pose systemic risks in the future? What is the best approach to regulate FinTech companies?

A good diagnosis for the city economy?

Dmitry Sivaev's picture



One walks into a doctor’s office knowing what hurts but with little knowledge of what should be done to fix it. Identifying proper treatment requires sophisticated tests, participation of experts and, often, second opinions.

Cities, arguably, are as complicated as human bodies. Our knowledge of diagnosing cities, however, is far less advanced than in human biology and medicine.  Most mayors know very clearly what they want for their cities – jobs, economic growth, high incomes and a good quality of life for the people. But it is very difficult to identify what prevents private-sector firms, the agents that create jobs and provide incomes, from growing and delivering these benefits to a city. And we have no X-ray machine to aid in the effort.
 
As a part of the World Bank Group's Competitive Cities project, we thought hard about ways to help cities identify the roots of their problems and design interventions to address them. We set out on a journey to put together methodologies and guidelines for cities that want to figure out what they can do to help firms thrive and create jobs.  We learned from our own experience of working with cities, and from other urban practitioners. We reviewed many methodological and appraisal materials, and we trial-tested our ideas.

So what have we achieved? We certainly didn’t invent an X-ray machine, but we have developed “Growth Pathways” – a methodology and a decision-support system to help guide cities and practitioners through diagnostic exercises.

Competitive Cities: Bucaramanga, Colombia – An Andean Achiever

Z. Joe Kulenovic's picture


Modern business facilities, tourist attractions, and an expanding skyline: Bucaramanga, Colombia. 

When the World Bank’s Competitive Cities team set out to analyze what some of the world’s most successful cities have done to spur economic growth and job creation, the first one we visited was Bucaramanga, capital of Colombia’s Santander Department. Nestled in the country’s rugged Eastern Cordillera, landlocked and without railroad links, this metropolitan area of just over 1 million people has consistently had one of Latin America’s best-performing economies. Bucaramanga, with Colombia’s lowest unemployment rate and with per capita income at 170 percent of the national average, is on the threshold of attaining high-income status as defined by the World Bank.  

Bucaramanga and its surrounding region are rife with contrasts. On the one hand, it has a relatively less export-intensive economy and higher rates of informal business establishments and workers than Colombia as a whole. Indeed, informality has often been cited as a key constraint to firms’ ability to access support programs and to scale up. On the other, Santander’s rates of poverty and income inequality, and its gender gap in labor-force participation, are all better than the national average, and it has consistently led the country on a number of measures of economic growth, including aggregate output, job creation and consumption.   
 
But the numbers tell only part of the story. A qualitative transformation of Bucaramanga’s economy is under way. Once dominated by lower-value-added industries like clothing, footwear and poultry production, the city is now home to knowledge-intensive activities such as precision manufacturing, logistics, biomedical, R&D labs and business process outsourcing, as well as an ascendant tourism sector. Meanwhile, Santander’s oil industry, long a major employer in the region, has been a catalyst for developing and commercializing innovative technologies, rather than just drilling for, refining and shipping petroleum.

All these achievements are neither random nor accidental: They are the result of local stakeholders successfully working together to respond to the challenges of globalization and external competitive pressures.

Islamic finance: Strong standards of corporate governance are a 'sine qua non'

Nihat Gumus's picture



Proper corporate governance practices in financial institutions should provide added value by enhancing the protection of depositor and investor rights, facilitating access to finance, reducing the cost of capital, improving operational performance, and increasing institutions’ soundness against external shocks. Ensuring strong corporate governance standards is thus essential to the stability and health of all financial institutions, worldwide.
 
Good governance is an important priority for Islamic finance, an aspect of international finance that has enjoyed a stage of significant growth over the past decade. The volume of financial assets that are managed according to Islamic principles has a value of around $2 trillion, having experienced a cumulative average annual growth rate of about 16 percent since 2009 (Graph 1).

Graph 1: The Size of Islamic Finance Assets (USD Billion)


 
Banking has traditionally been the leading sector in the realm of Islamic finance, but the share of other products and institutions within the total realm of Islamic financial assets has been steadily increasing,  as well (Graph 2). For instance, the Sukuk sector – which focuses on securitized asset-based securities – has seen considerable growth over the past six years and, as of 2014, amounted to more than $300 billion. Similar momentum is driving the growth of the Islamic Funds and Takaful (Islamic insurance) sectors. From 2009 to 2014, the assets under management of Islamic Funds has increased from about $40 billion to about $60 billion, while the amount of total gross contribution to Islamic insurance has surged from $7 billion to more than $14 billion.

Graph 2: The Size of Islamic Finance Assets by Sector 2014 YE (%)


 

From Ronaldo and Buffon to teamwork: what finance ministries can learn from the beautiful game

Mario Marcel's picture
South Africa is steadily preparing for the 2010 Soccer World Cup while the enthusiasm at ground level builds. Photo: © John Hogg/World Bank

If you were a football (soccer) player, who would you be? Representatives of Ministries of Finance from 20 African countries were confronted with this question at a CABRI-sponsored conference in Johannesburg last April.