MICRO and SME FINANCE MARKET OUTLOOK a Survey
Total Page：16
File Type：pdf, Size：1020Kb
MICRO AND SME FINANCE MARKET OUTLOOK A survey PUBLIC PAPER “Development investment is defi ned as capital mobilised to carry out for-profi t investment in developing countries and development-related sectors of society.” MARKET OUTLOOK GLOBAL GROWTH FORECAST FOR THE MSME FINANCE SECTOR THE EXPERTS SPEAK Survey highlights CONFIDENCE BAROMETER 70 The confi dence barometer is, like many 2012 sentiment indicators in fi nancial markets, 65 a visualization of interviewees’ responses 2014 2015 to the question “How do you expect the MSME market in your region / country to be 60 2013 2017 next year, compared to this year?” Those responding “better” are graded at 100, 55 2016 “similar” at 50 and “worse” at 0. Confidence level 50 45 40 Source: responsAbility survey As shown above, while confi dence levels are lower than in previous Outlook publications (2012–15), this year’s outlook shows a rebound from that of last year (which was still narrowly in positive territory). This coincides with the fi ndings from our experts, several of whom have experienced economic slowdowns in their markets and conse- quently expect a rebound next year. KEY RESULTS AT A GLANCE As last year, our experts forecast an average growth rate of 10–15 % for the market in 2017. OF OUR EXPERTS EXPECT THE SHARE OF SME FINANCING IN THEIR MARKETS TO INCREASE The majority of interviewees believe that OVER THE NEXT YEARS, WITH IN EXPECTING AN interest rates for the end client in their INCREASE OF MORE THAN . markets will decline in 2017. 65 % of those interviewed anticipate moderate or substantial OVER consolidation in their markets in the next twelve months. Although mobile payments are still seen as the most likely channel, OF OUR EXPERTS SEE THEIR MARKETS almost two thirds of those interviewed believe that deposits and AS MODERATELY OR NOT AT ALL SATURATED, WITH lending will be one of the areas that experiences a signifi cant impact SUBSTANTIAL OR VAST REMAINING POTENTIAL. from fi ntech in their markets. CONTENT Viewpoint 7 Micro and SME fi nance as an investment topic 8 Survey results 13 Developing markets march on – the macroeconomic outlook 14 The MSME fi nance growth map for 2017 16 Further results 18 Micro and SME fi nance: Opportunities and challenges for equity investors 23 Focus topic – Transformation 24 Case study – HKL, Cambodia 28 The return of growth – the responsAbility model portfolio 31 responsAbility profi le 35 List of experts interviewed 35 Publication team 36 RISING STANDARDS OF LIVING CORRELATION BETWEEN DOMESTIC CREDIT AND GDP PER CAPITA FOR SELECTED COUNTRIES, AND A properly functioning formal fi nancial sector is essential for economic development. In 1984, selected countries showed roughly similar levels of development. 21 years later, most countries with greater levels of domestic credit also report higher levels of GDP per capita. Turkey Egypt, 80 % Arab Rep. USD 9,130 India 26 % 52 % USD 3,614 Paraguay USD 1,581 57 % USD 4,160 Costa Rica 60 % USD 10,629 Ecuador Peru 26 % 36 % Bolivia USD 6,248 USD 6,121 57 % Kenya USD 3,095 34 % Domestic credit to private sector (% of GDP), 2015, (top value, y axis), GDP per capita (current USD), 2015, (bottom value, x axis) USD 1,376 Source: World Development Indicators, World Bank (2016) MOTIVES FOR BORROWING PERCENTAGE OF THE ADULT POPULATION WITH AN OUTSTANDING LOAN Along with housing fi nance, the three reasons mentioned below are the main motives in developing countries for taking out a new loan from any fi nancial institution. Aggregate values for the developing world. Adults originating a new loan HEALTH OR EDUCATION OR START, OPERATE OR for any of these three reasons in (%), 2014 MEDICAL PURPOSES SCHOOL FEES EXPAND A BUSINESS Source: The Global Findex Database 2014, World Bank (2015) VIEWPOINT For 2017, this publication has broadened its scope: for the banks – offer a broad range of fi nancial services that extend fi rst time since the launch of the Outlook seven years ago, we well beyond forms of credit. The growth of these fi nancial are looking not just at the landscape in key investment mar- services providers has enabled many of their customers to kets for microfi nance but also for the provision of fi nancial develop their businesses from what were often informal services to small and medium-sized enterprises (SMEs). With microenterprises into small and, at times, even medium-sized the support of 43 micro and SME fi nance experts, we analyse businesses. In turn, these businesses have bigger and more trends in the market, review this year’s major developments complex fi nancing requirements. and look ahead to 2017. This focus on a broader segment of the fi nancial sector is based on a shift taking place in our investment markets: microfi nance providers are extending their remit to new client segments, thanks to growth in, and SECTOR DEVELOPMENT IS A professionalisation of, their services. Increasingly, they are CENTRAL OBJECTIVE OF DEVELOPMENT extending their services towards SMEs. This maturing of INVESTMENT. institutions illustrates the successful development of local fi nancial markets – the central objective of development investments and clear proof of their success. ROCHUS MOMMARTZ THE DEVELOPMENT OF THE FINANCIAL SECTOR Development investments enable responsAbility to pursue its objective of contributing to sustainable development. While this progress is taking place at very different speeds Based on the principle of inclusivity, sustainable develop- across our investment countries (almost 100 in total), the ment aims to benefi t broad sections of the population. In direction of global development is consistent. This demon- particular, we want to offer opportunities to those who strates a development success: 10 to 15 years ago, the micro- remain cut off from rising global prosperity, or who have lending business was at best rudimentary in most of these insuffi cient access to it. As far as development investments countries – today, banks offering fi nancial services to micro are concerned, sustainability aims not to preserve existing and SME customers can be found in many markets. structures but to achieve lasting changes and progress. These are the conditions needed for the creation of new This trend has been apparent in the development of our opportunities. model portfolio over the past fi ve years (see page 31) and we are proud that, together with our investors, we have been Our success in the fi eld of development investment has been able to contribute to this development and will continue to refl ected over the years in the development of the invest- do so. ment sectors in our target countries, in the development of our investment partners and, not least, the development of their clients. The fi nancial sector is a prime example: In places where, twenty years ago, the large majority of people had no access to fi nancial services, we can today fi nd, in part, well-developed fi nancial sectors. One indicator of a functioning sector is the existence of ROCHUS MOMMARTZ specialised institutions that establish themselves as part CEO, responsAbility investments AG of the regulated fi nancial sector. These institutions – often [email protected] MICRO AND SME FINANCE AS AN INVESTMENT TOPIC Development investments are ideal for investors seeking long-term value creation. As the investments fl ow into real economies, they provide access to capital in underserved markets and benefi t micro, small and medium-sized enterprises (MSMEs), as well as low- and middle- income households. For development investments, fi nance is an important sector institutions into MSME banks. To operate successfully, these that has matured and attracted signifi cant volumes of cap- organisations require debt capital to refi nance their loans ital. The fi nancial sector is a critical component of any mod- and, increasingly, equity capital to support transformation ern economy, providing savings, loans and other fi nancial into more mature institutions and continued expansion. services that are vital to all areas of society. The expansion of the fi nancial sector therefore plays a key role in economic THE DEVELOPMENT development, driving private-sector growth while promoting OF THE MSME INVESTMENT SECTOR a culture of saving and investment. SMEs2 account for more than 90 % of the total number of Over the last three decades, investment infl ows into the formal fi rms worldwide,3 according to the World Bank, thus fi nancial sector in developing countries have been directed representing the backbone of an economy.4 Two out of three towards a broad landscape of specialised intermediaries full-time jobs in developing economies are provided by SMEs. that serve the vast number of unbanked market segments. The informal sector, which consists mostly of MSMEs, pro- Households and businesses in many countries still have vides jobs to more than half of the labour force in developing restricted access to fi nancial services, despite very positive economies. However, while SMEs account for, on average, outreach developments in recent decades. Studies show 51.5 % of GDP in high-income countries, they contribute only that more than 2.3 billion people are unbanked,1 meaning 15.6 % in low-income countries, according to the World Bank. they have no access to accounts, savings and payment This underlines how the SME sector in low-income econo- mechanisms. In response to this unmet demand, an ever- mies is lagging far behind higher-income economies. increasing number of fi nancial institutions are serving the needs of broad sections of the population in developing Access to fi nance plays a role in this gap. The International countries, often through the provision of microfi nance. As Finance Corporation (IFC) estimates a fi nancing gap of the micro fi nance market matures, many of these institutions USD 2.1–2.6 trillion for MSMEs in developing economies, are not only growing in size but are also widening their which is equivalent to a third of the current outstanding product offering as they develop from small microfi nance MSME credit gap.