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SMEs

Improving access to finance for SMEs in Tanzania: Learning from Malaysia’s experience

Djauhari Sitorus's picture
Shops lining Petaling Street, Kuala Lumpur. Malaysia’s experience in addressing access to finance for SMEs has been successful, serving as a learning point for countries like Tanzania. Photo: Samuel Goh/World Bank
Tanzania is set towards becoming a middle-income country as the economy grew by an average of 6.5% per year in the past decade. The “Tanzania Development Vision (TDV) 2025” highlighted small and medium-sized enterprises (SME) sector as one important contributor to the country’s long-term development. It is estimated that Tanzania’s SME sector consists of more than 3 million enterprises which contribute to 27% of overall GDP.  Most of them are in the agricultural sector, and more than half are owned by women.  

India: Digital finance models for lending to small businesses

Mihasonirina Andrianaivo's picture
Economic analysis suggests that the next impetus for growth in India's economy will come from micro, small, medium-size enterprises (MSMEs) and startups.

A slew of programs announced in recent years have fostered a more favorable business environment for financial technology – or fintech – models to emerge in the MSME lending space – in India. 

Chocolate innovation: Sweet tooth hackers solve cocoa farmers’ challenges

Katie Nunner's picture

While chocolate is a sweet treat for consumers around the world, its producers face many challenges. Every year, more than five million family farmers in countries like Côte d’Ivoire, Cameroon, Indonesia and Brazil produce about four and a half million tons of cocoa beans, according to the World Cocoa Foundation. Farm-level input providers, financial institutions, chocolate manufacturers, development organizations and more are coming together to create digital solutions to improve access to finance and boost agricultural productivity for a sustainable and climate smart cocoa supply chain. 

Last week, the World Cocoa Foundation’s partnership meeting brought together key stakeholders from small scale farmers to large multinationals including Cargill, Nestle, and Mars, under the theme “Accelerating Sustainability Through Technology and Innovation.”

To spark the industry into further innovation and collaboration, infoDev partnered with the WCF to sponsor the second annual Chocothon, a two-day hackathon where three teams came together to “hack” the cocoa supply chain and generate new creative solutions to the common challenges cocoa farmers and suppliers face. The Future Food Institute, the International Trade Center, and Valrhona, a premium chocolate manufacturer, were all heavily involved in the Chocothon as mentors and a number of us from infoDev joined in the excitement. Given their experience with cocoa supply chain partners, Valrhona’s co-sponsorship and engagement provided valuable insights to guide the ‘choco-hackers.’  
 

The Geo Cocoa, Kejetia, and Cocoa Run teams pose together with some of the Chocothon mentors.
Photo Credit: World Cocoa Foundation

Rethinking saving practices in the digital era

Margaret Miller's picture



3-1-0 Three minutes to complete the online loan application, one second for approval and with zero human touch for SME loans. This is the marketing slogan used by Ant Financial, one of China’s largest online lenders with more than 400 million active users.

Digital finance is a cost-effective route to financial inclusion for many unbanked and underserved consumers in emerging markets. But digital finance is also still developing and maturing, with many open questions on the impact it will have. One of the most important of these is whether digital finance will ultimately help consumers to make better financial decisions over time.

October 31 is World Savings Day, a day which emphasizes the importance of savings to economic development, and provides a good occasion to look at how fintech may help solve the challenge of savings.

How to foster a more inclusive environment for SMEs in PPPs?

Jenny Chao's picture


Photo: Lufa Farms | Flickr Creative Commons

Have you ever walked around a megastore, lost in the aisles of choices, only to go home without the one item you set out for? Conversely, have you ever wandered into a much smaller “mom and pop” shop and found everything you need?

Many reasons compel us to support small and medium businesses: tailored knowledge, personalized service, and the satisfaction of contributing directly to the local economy. 

The benefits of supporting such small and medium-sized enterprises, or SMEs, carry over into Public-Private Partnerships (PPPs). But often, these enterprises find themselves “crowded out” by the bigger players in infrastructure. SMEs in developing countries may find it particularly costly and time consuming to comply with complex pre-qualification criteria or bidding documents, leaving them unable to compete with market leaders. This is unfortunate, because SMEs participating in PPPs can build local capacity and expertise, decrease costs, facilitate logistics, encourage increased competition, and create broader opportunities for economic development.

These vital and homegrown engines of growth are the focus of a new section on the PPP in Infrastructure Resource Center (PPPIRC) that links the policies, laws, and contractual clauses that can foster a more inclusive approach to SMEs in PPPs.

Re-igniting SME development in Zimbabwe

Simon Bell's picture


Zimbabwe is not known as an economic dynamo in Africa.  In fact, most people who know anything about the country probably have the opposite impression.  Yet not so long ago, Zimbabwe was the bread basket of Africa – endowed with amazingly fertile land, abundant mineral resources, and one of the best educated populations on the continent.
 

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).

How to make grants a better match for private sector development

Cecile Fruman's picture



From the Yemen Enterprise Reviltalization and Employment Pilot Project.

In December 2016, the 18th  replenishment of the International Development Association, the World Bank’s fund for the poorest countries, put private sector development squarely at the heart of our organization’s commitment to end extreme poverty and boost shared prosperity. In addition, the Internal Finance Corporation’s 3.0 strategy placed new emphasis on creating and catalyzing markets and scaled up the role of advisory services in providing firm-level support.

This new focus makes it even more important to answer the following question: Do we have sufficient evidence about the efficiency and effectiveness of the tools used by the World Bank Group to help firms grow in our client countries?

Building on a broad evaluation of the Bank Group’s support to small and medium-sized enterprises (SMEs), published in 2014, a recent report by the Trade & Competitiveness Global Practice, supported by the Competitive Industries and Innovation Program, reviews the experience to date of supporting SMEs through matching grant schemes. The report looks at the how and why of an instrument that has been used in more than 100 Bank Group projects since the 1990s.

Matching grants are short-term, temporary subsidies, provided to the private sector on a cost-sharing basis (typically 50 percent). The grants generally aim at building firms’ capacity and knowledge through the procurement of business development services (BDS), which include a wide variety of non-financial services such as employee and management training; consultancy and advisory; marketing and information services; and technology development and diffusion. For example, a matching grant initiative in Uganda targets businesses in priority sectors such as tourism, agribusiness and fisheries with the goal of diversifying their products and increasing exports. A similar facility in Afghanistan operates in four cities – Kabul, Mazar-e-Sharif, Jalalabad and Herat – and helps SMEs and business associations to improve product quality and processing technologies, and to gain market knowledge in order to expand their presence in domestic and international markets.

The economic rationale for subsidies to private firms is usually a perceived underinvestment in BDS. This could be due to market failures preventing a profitable investment in such services (e.g., lack of financing for intangible activities, insufficient awareness of the potential benefits or perceived high risk), or to positive externalities from an otherwise unprofitable private investment (e.g., knowledge spillovers). If these conditions are not present, however, matching grants could create distortions in resource allocation, could have limited additionality and spillovers, or could have non-durable impacts if they fail to address the underlying market failure.

The Trade & Competitiveness report reviewed virtually all matching grant projects financed by the Bank Group over the last two decades. Most of these have focused on SME development while some have also supported rural development. Over half of the reviewed projects are in Africa, followed by Latin America and the Caribbean. The average size of matching grant schemes is $11.5 million, with grants for agriculture projects typically being significantly larger than for SME development. The average number of beneficiaries per project is 450 and the average maximum cumulative funding going to a single beneficiary is $112,000, although this amount is much lower in many projects.

In terms of how, the report examines a number of common variables of matching grant projects, such as type of implementing agency and eligibility criteria. A key conclusion is that there appears to be no obvious correlation between the design features of matching grants and either positive or negative outcomes. Rather, matching grants need to be tailored to local circumstances and capacities.

The report does find that personalized technical assistance to beneficiary firms can increase the odds of success. In addition, contrary to perceptions, public implementing agencies generally outperform private consulting firms. Public agencies do particularly well in lower income countries where procuring large international contracts can be difficult and where the agencies know the local context. Whether public or private, strengthening of local capacities, broad stakeholder engagement, and transparent communication increase the chances that a matching grant will achieve its goals.

In terms of why, the report also examines how projects define what constitutes a successful outcome.  About three quarters of the reviewed projects received a positive outcome rating. However, the definition of success varied widely, and rarely reflected measures of broad and sustainable economic benefit. Projects should articulate a sound economic rationale identifying a specific market failure. Otherwise, the benefits of a grant may not extend beyond the recipient firm or be sustainable in the long term.

For this reason, the report recommends that, when considering the use of matching grants, development practitioners identify a clear economic rationale, consider alternative instruments, carry out an economic analysis, assess the potential for additionality and spillovers, and establish a realistic exit strategy that would leave sustainable benefits. A strong monitoring and evaluation system is an equally important requirement and an essential tool for real-time assessment of impact, potential course corrections and learning. Strengthening these elements could help development practitioners and their clients maximize the benefits of this potentially powerful tool for private sector development and competitiveness.

To gain access to the full report, click here.

A new role for development banks?

Ceyla Pazarbasioglu's picture



Earlier this month, development banks from around the world took stock of where they stand and where they see their efforts having the greatest impact at a meeting organized by the World Bank and Brazil’s development bank, BNDES.

As the world struggles to find funds to meet the Sustainable Development Goals, development banks can be instrumental in narrowing that gap. They can help to crowd-in the private sector and anchor private-public sector partnerships, particularly for infrastructure financing.

However, misusing development banks can lead to fiscal risks and credit market distortions. To avoid these potential pitfalls, development banks need a well-defined mandate, operate without political influence, focus on addressing significant market failures, concentrate on areas where the private sector is not present, monitor and evaluate interventions and adjust as necessary to ensure impact, and, finally, be transparent and accountable.

Two themes characterized the discussion at the meeting: how to leverage private capital and create new markets. To support Small and Medium Enterprises (SME) finance, development banks use partial credit guarantees while letting private lenders originate, fund, and collect on credit. In markets with limited competition, development banks support the creation of an ecosystem of specialized Micro, Small, and Medium Enterprises (MSME) lenders to which they provide a stable funding source. 


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