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Public Disclosure Authorized Creating Opportunities for Small Business Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized IFC, a member of the World Group, fosters sustainable economic growth in developing countries by fi nancing private sector investment, mobilizing private capital in local and international fi nancial markets, and providing advisory and risk mitigation services to businesses and governments. IFC’s vision is that poor people have the opportunity to escape poverty and improve their lives. In FY07, IFC committed $8.2 billion and mobilized an additional $3.9 billion through loan participation and structured fi nance for 299 investments in 69 developing countries. IFC also provided advisory services in 97 countries. For more information, visit www.ifc.org. Creating Opportunities for Small Business

Table of Contents

2 Foreword

3 Approach

5 IFC and SMEs

7 Improving the Business Environment

11 Improving Access to

15 Providing Access to Markets, Business Skills, and Information

19 Creating New Opportunities Through Innovation

21 Measuring Results

22 Frequently Asked Questions

23 Contact Details

24 Donor Partners

Creating Opportunities for Small Business 1 Foreword

IFC’s vision is for people in emerging markets to have opportunities IFC plays a catalytic and innovative role in developing small to escape poverty and improve their lives. This vision drives all of businesses. We can tap the policy experience of the World Bank our work to develop the private sector. These efforts range from and mobilize the resources of a wide range of partners, including investing directly in businesses, to mobilizing private fi nancing governments, other multilateral and bilateral agencies, academic from other investors, to advising companies, governments, and institutions, foundations, nongovernmental and civil society other stakeholders in private enterprises. organizations, as well as our client companies. In most countries and regions where IFC works, small This report illustrates some of the strategic methods IFC businesses generate the largest share of economic activity and employs to help SMEs. The larger framework includes broad employment. Starting and expanding a small business is one of interventions to strengthen and improve the business environment the most promising and sustainable routes out of poverty for as well as enhancements to the fi nancial system that expand access many millions of people. These entrepreneurs, and the people to credit. We have programs to improve business skills, enhance they hire, stand a better chance of providing for their families, access to markets, and encourage competitiveness. We pursue these sending their children to school, and leading a healthier life. A programs at a wholesale level, working with intermediaries that can vibrant small business sector also creates choices for consumers provide information, training, and services to the broad business and generates tax revenue that in turn improves public services. sector. This approach enables us to achieve a broader reach and When I meet small business clients, I am struck by their drive increase the effi ciency of our engagements. Where needed, however, and the impact that they have on their communities. Because IFC can also provide more targeted assistance to specifi c, strategic the benefi ts of small and medium enterprises (SMEs) are so far- sectors, so we can learn what works before launching a larger effort. reaching and powerful, we are targeting them as one of the most IFC’s work with SMEs has accelerated steadily since 2000, effective channels to help poor people in developing countries. both through our advisory programs and our investments in Our vision is broad, but so are the challenges. Poverty , leasing companies, other fi nancial intermediaries that on- remains widespread, and the fi nancing to fuel the growth lend to smaller businesses, and private equity funds with hands- of smaller enterprises is often out of reach. Frequently, the on managers who add value by applying lessons from experience business environment is confusing, with regulations posing and technology, not just capital. We refer continually to our numerous and costly hurdles to start, register, or operate a strategy and work to ensure that the essential building blocks business. Women and other underrepresented groups still face of private sector development are in place, especially a business many barriers that exclude them from participating fully in enabling environment and access to fi nance. their local economy. We have seen some encouraging results. In Lima, Peru, for example, IFC worked with the municipality to reduce the time to register a new business from two months to about six days. As a result, in 2006, 8,500 new businesses were registered in the city, a more than fi vefold increase over 2005. Each year we ask the banks to which we lend about their small business clients. In 2006, 180 of these fi nancial institutions disbursed $96 billion via 8.8 million loans to small businesses. This lending is growing rapidly: overall, for institutions that reported in both 2005 and 2006, the volume of small loans grew 72 percent. IFC’s work — including our efforts to measure results — is about ensuring that private capital is put to work for the benefi t of people. This report not only points out what needs to be done in developing countries, but also shows the many results that have been achieved. Our work in helping SMEs achieve their potential is steadily transforming from a long-term objective to a solid accomplishment.

Lars Thunell congratulates the Mayor of Metropolitan Municipality of Lima, Lars H. Thunell Dr. Luis Castañeda Lossio, on the city’s business registration simplifi cation program. Executive Vice President and CEO, IFC

2 Creating Opportunities for Small Business Introduction

In market economies, formal The practical consequences of an environment that treats and informal, small and SMEs fairly is that more young people fi nd jobs; women and medium enterprises (SMEs) other underrepresented groups in developing countries can account for more than 90 participate economically; rural and indigenous communities percent of all enterprises. are better integrated into the modern global economy; Typically, well over half the entrepreneurs have access to fi nancing and better business skills working population, especially and tools; and households, including the poorest, have better poorer people, rely on SMEs choices when they shop for goods and services. for employment and income. In addition, SMEs play a major role in serving the $5 trillion market for goods and services to the 4 billion people at the base of the economic pyramid. Michael Klein Firms that start small but do a good job of responding to Vice President, Financial and market demands become larger. With scale comes productivity, Private Sector Development bringing better salaries for workers. Larger fi rms tend to thrive Chief Economist, IFC for a longer period than smaller ones. The challenge, then, is to create an environment in which new entrants with drive and good ideas can get started in business, and good fi rms can grow. Economic progress is associated with increasing average fi rm size — a healthy, vibrant ecology of fi rms is needed, with fi rms of all sizes participating. In many emerging markets, small entrepreneurs face substantial barriers to entering the market and competing. As the World Bank Group’s Doing Business project documents, the time and cost associated with starting a business, registering property, or getting credit are onerous in many developing countries. These barriers drive many would-be entrepreneurs into the informal sector, where their chances of expanding their businesses are more limited, and their employees miss out on the protections and benefi ts of formal employment. In many developing countries, too, well-connected large fi rms dominate, insulated by government patronage. Productivity suffers as a result, and income growth is stunted: in large fi rms, because they are sheltered from competition, and in small fi rms, because they are held back. Effective competition — that is, the ability of fi rms to enter, grow, and challenge incumbents on a reasonably equal playing fi eld — is essential for progress. By the same token, failing incumbents must be able to exit quickly; they should not be subsidized to the detriment of new, better, and more innovative fi rms. The objective of any program of SME support, therefore, should not be to reward fi rms that happen to be small. Rather, the objective is to ensure a functioning ecology of fi rms, in which new ones can emerge, existing ones can grow, and large and small ones can contract and work together. This objective guides IFC in the design and implementation of its advisory and investment programs targeted at SMEs.

Creating Opportunities for Small Business 3 INTRODUCTION

Supporting small and medium enterprises (SMEs) is a key factor to alleviating poverty. To help countries spark sustainable growth in this vital area, IFC works with other groups to assist entrepreneurs, drawing on both its investment and advisory experience and the World Bank Group’s expertise. In addition, to monitor and gauge the success of its interventions, IFC consistently measures and evaluates its programs. The latest methodology is employed and the evaluation approach is constantly benchmarked against leaders in the fi eld.

Our work with SMEs falls into four broad themes:

1. Improving the business 2. Improving access to fi nance environment A signifi cant barrier to the growth of SMEs in IFC works with policy makers and other many developing countries is a lack of access stakeholders to improve the business to affordable credit. IFC provides fi nancing environment, infrastructure, and fi nancial and advice to banks and other lenders that systems to help small businesses grow assist SMEs, and supports programs that and prosper. target underserved markets and populations, such as women in business.

3. Improving access to markets, 4. Creating new opportunities business skills, and information through innovation

Working through intermediaries, IFC helps Unmet needs in the market provide SMEs acquire the skills and services they opportunities for innovation. IFC is involved need when dealing with local and in crafting and testing new products and international regulations and markets to services, and then transferring these achieve prosperity. Using intermediaries innovations to those who can deliver allows IFC to achieve scale and thus reach solutions for underserved SMEs. more small businesses.

4 Creating Opportunities for Small Business IFC AND SMEs

Support for SMEs includes financial investments and advisory services projects that provide information and training. As at July 2007, investment-related support for SMEs includes almost $7.5 billion invested in more than 600 projects. 189 780

Volume of SME Related Investments by Region 1729 (Disbursements $ million) 1229 Central and Eastern Europe Latin America and Caribbean South Asia Sub-Saharan Africa 689 East Asia and Pacific Middle East and North Africa 849 Southern Europe and Central Asia 582 World 1447

As at July 2007, SME-related advisory projects numbered over 1000, with a cumulative value in excess of $680 million. Each of these projects has been working to benefi t numerous SMEs, either directly or indirectly, in areas such as better access to fi nance or improving the business environment.

120 Dollar Value of SME Related Advisory Projects by Region Total Funding as of July 31, 2007 ($, millions) 182

Central and Eastern Europe Latin America and Caribbean 81 South Asia Sub-Saharan Africa East Asia and Pacific 63 Middle East and North Africa Southern Europe and Central Asia World 108 64 24 41

More than one-third of SME-related advisory services spending specifi cally targets “frontier countries”— that is, low-income countries or countries rated high risk by investors and to which private capital fl ows are limited.

Dollar Value of SME Related Advisory Projects in Frontier Countries Total Funding as of July 31, 2007 ($, millions) 265 251

Frontier Non-Frontier Regional Projects

166 Creating Opportunities for Small Business 5

Improving the Business Environment

mall fi rms face more obstacles than large fi rms and are not Sas well equipped to overcome them. The greatest challenges Understanding and simplifying regulatory that small businesses face are obtaining fi nancing and meeting obstacles—The Doing Business Report onerous regulatory mandates. Corruption and crime also IFC’s annual Doing Business report provides quantitative analyses adversely affect small businesses. of business regulation and documents improvements in surveyed To identify challenges in the business environment of a countries over time. The report ranks the ease of doing business in specifi c country or region, IFC assesses the investment climate; 178 countries. The database indicators can be used to analyze specifi c regulations that enhance or constrain investment, surveys SME policies; and collates data on regulatory burdens, productivity, and growth. transaction costs, governance, and productivity. IFC then Doing Business has shown that poorer countries impose makes specifi c recommendations — often in collaboration with heavier regulatory burdens than wealthier countries. Burdensome other agencies of the World Bank Group — to improve the regulations and weak property rights prevent poor people from business environment for SMEs. entering the business sector. Reports have also shown, however, IFC’s work tends to focus specifi cally on the cost of setting that the benefi ts of reform are quite substantial, which gives up and running a business and includes regulatory simplifi cation IFC and its partners the incentive to continue the push for such (for example, business registration, licensing, taxation, collateral, reform. Since its launch in 2004, the report has been credited access to land, and trade facilitation), alternative dispute with inspiring more than 100 reforms around the world. resolution, and investment policy and promotion.

Case Study: Making it easier to start and register a business in Lima, Peru Obtaining an operating license to start a business was a highly bureaucratic process in Peru, accounting for more than 60 percent of the time it took to legally register a fi rm.

In January 2006, IFC worked with the central district in the city of Lima to streamline business licensing.

Results • In the fi rst year after the reform was introduced, the municipality registered more than 8,500 small businesses, more than in the previous fi ve years combined. • The time to obtain a license was reduced from two months to six days. • The number of inspections was reduced from fi ve to one. • License costs for small fi rms were cut in half.

Because of the increase in informal economic activities in Lima, simplifying administrative procedures was an urgent priority to enable all entrepreneurs to have easier access to formalization and to generate formal employment in this economically important city. — Dr. Luis Castañeda Lossio, mayor of the Metropolitan Municipality of Lima

Creating Opportunities for Small Business 7 the Business Environment Improving Improving the Business Environment

Regulatory Reform Alternative Dispute Resolution

Establishing business forums and other stakeholder groups For a small business, resolving a commercial dispute quickly and enables the private sector to play a more active role in fairly can mean the difference between growth and going out of infl uencing policy and legislative reform. In addition, such business. In southern Europe, for instance, resolving a commercial engagement helps governments identify problems in the dispute can take up to 500 days. Such delays cost time and money investment climate and design workable policy solutions to that businesses could use to run their operations. improve the business environment. Involving the private sector The Alternative Dispute Resolution Program focuses on at the start makes policy reforms easier to implement. mediation rather than lawsuits to resolve commercial disputes. A neutral third party (the mediator) helps the disputing parties to negotiate a solution. Because the agreement is negotiated, it Case Study: Working can be more creative than a court-imposed judgment, and thus with the private is more likely to result in a win-win resolution. sector in Tajikistan to lobby government for a more transparent business inspection process Malika Kalandarova is a small-business owner in Dushanbe. Since her mini-market opened in the Tajik capital two years ago, it has undergone numerous inspections by various authorities — almost all of which ended with unoffi cial payments. It was easier for me just to pay, because of my own lack of legal knowledge…. None of the inspectors provided me with information about the inspection procedure or my rights. — Malika Kalandarova In Tajikistan, a typical entrepreneur endured more than a dozen inspections in 2005, at a cost of approximately seven business days and 9 percent of Saving small businesses time and money through mediation annual profi ts in fi nes and unoffi cial payments. Using mediation to resolve disputes has benefi ted companies In discussions, entrepreneurs, business throughout southern Europe. Since its introduction in late 2003, associations, inspecting agencies, government the Alternative Dispute Resolution Program is credited with the offi cials, and donors voiced their views about following achievements: the inspection process. • Nine mediation centers have been established in Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, The Results and Serbia and Montenegro • The discussions resulted in widespread • Sixty-two trained mediators have resolved more than 2,700 cases agreement on the need for reform and • $60 million in assets have been released defi ned the key areas to be addressed. Because of its success, the program is being replicated across • A new law on inspections was adopted in July 2006. the region. • The new inspections law will free up more than All four of the disputes concerning my company were $7 million per year for Tajikistan’s SME sector. resolved in less than three hours. The mediation process resulted For Kalandarova, the new law means that in nearly $2 million being freed up for my business — so, in my “the unoffi cial payments, which unfortunately case, this quick turnaround time literally translated into millions became standard practice, will disappear from of dollars, which I am now able to reinvest in my business. my fi nancial plan.” — A businessman taking part in a focus group in southern Europe

Creating Opportunities for Small Business Improving the Business Environment Improving 8 infrastructure deals worth nearly$4.8billioninmoreinfrastructure dealsworth than outtheiroperations. restricted intheirabilitytocarry andotherinfrastructure, smallbusinessesaretransport, In theabsenceofadequatetelecommunications,electricity, Poor forallbusinesses. infrastructure constrainsopportunities Improving theLocalInfrastructure Creating Opportunities forSmall Business Since theearly1990s,IFChasarrangedprivate SMEs togrow. enhancing theenvironment forbusinessandallowing gas, water, andtelecommunicationsinfrastructure, further improved networks, road andelectricity, andtransportation 46 developing countries.Many oftheseinvestments have 9

Improving the Business Environment

Improving Access to Finance

ccessing credit is a make-or-break issue for many SMEs fi nancial products to setting up full SME banking operations in Ain the developing world. SMEs are major contributors commercial banks. Nearly half of 178 FIs surveyed had received to the gross domestic product and employment in economies advisory services from IFC. around the world, yet their fi nancial needs are underserved, which holds back their growth. Where fi nancing is available, Volume of Micro Small and Medium Enterprise it is usually out of reach because of short payback periods Disbursements = $96.4 Billion (Chart in Millions) and excessive collateral requirements. Nonbank fi nancing options, such as leasing, are not always available. In many 66,181 developing economies, certain segments of the population, 21,484 primarily women, are excluded from business activity, because Micro Loans ($) traditionally they do not own land, which is often the preferred Small Loans ($) collateral for loans. Medium Loans ($)

8,813 Increasing Lending to Small Businesses

IFC primarily fi nances small businesses indirectly, through fi nancial intermediaries, such as investment funds and local Number of Micro Small and Medium Enterprise fi nancial institutions (FIs). FIs include commercial banks, Disbursements = 8.8 Million (Chart in Thousands) microfi nance institutions, and leasing providers. Over the past

fi ve years, IFC’s investment commitment has increased fi vefold 7,930 — to nearly $2 billion in fi scal year 2007, with an outstanding 752 portfolio of almost $4 billion. Micro Loans (#) 184 Small Loans (#) IFC’s Micro and SME Commitments in FIs Medium Loans (#)

1,958 2,000

1,600 1,416

1,200 1,086 Identifying and Sharing Global Best Practices in SME Banking IFC is reviewing how banks service SMEs. This review identifi es 721 800 key success factors in SME banking; examines the relationships

US$ Millions 509 among the business models, processes, and tools used; and 400 identifi es how the relationships affect the performance of these banks and their SME clients. The review has shown that fi erce 0 competition and declining margins in the corporate and retail FY03 FY04 FY05 FY06 FY07 banking sectors have been key considerations in banks’ decisions to enter the SME market. In addition, despite its challenges, The FIs use these funds to help many small businesses. SME banking is considered a high-margin business with strong In 2006, these institutions disbursed almost 9 million loans potential for profi tability, cross-selling, and risk diversifi cation totaling more than $96 billion. opportunities. The next phase of the review will develop a set of IFC provides advice to strengthen the capacity of FIs benchmarks to help FIs in emerging markets further expand to provide lending, leasing, and related fi nancial services to into SME banking. small businesses. Advisory projects range from developing new

Creating Opportunities for Small Business 11 Access to Finance Improving Improving Access to Finance

Case Study: Improving access to fi nance for women entrepreneurs in Africa Women entrepreneurs represent a large, untapped market for African banks. Financing them is good for business — and good for long-term sustainable development. Yet, most African banks are reluctant to provide fi nance to women. In Africa, IFC has promoted several programs to ensure that women entrepreneurs have better access to capital. In , dfcu Group commercial bank is supported by a $6 million IFC credit line, of which at least $2 million is dedicated to the women’s program. The program was launched in February 2007, and the entire credit line was disbursed within three months. Thirty percent of dfcu loans now go to women, compared with 10 percent before the program was launched. The lending program is supplemented by expert advisory services and training for women entrepreneurs. In Nigeria, a $30 million IFC credit line for Access Bank for on-lending to women entrepreneurs has resulted in more woman-friendly internal credit ratings and more fl exible collateral options. Additionally, more than 350 women have been trained in business management skills, and more than 100 woman-owned businesses have received nearly $11 million. Access Bank is replicating this program in The Gambia. In Tanzania, is the fi rst fi nancial institution in the country to dedicate a line of credit to women entrepreneurs who run midsize companies. IFC has provided advisory services and a $5 million credit line to fi nance the program and increase structured fi nancing offered to women entrepreneurs. The program trains women in application processes, business planning, and management. In the short time since its launch in early 2007, the program has • disbursed $800,000 to 10 woman-owned SMEs; • committed $1 million to a woman-owned microfi nance institution targeting 30,000 women; • begun training women owners of SMEs; and • promoted greater fl exibility in collateral requirements through emphasis on structured fi nancing.

Women-owned SMEs contribute jobs to our communities, and women have shown themselves to be good payers in many countries. Yet the banking sector has done little to help them in Tanzania. Our Women Entrepreneurs Finance Program is more than just good business — it’s a chance to show our innovative approach to the market. — R.R. Chandramouli, general manager, Exim Bank Tanzania

Building Financial Infrastructure to Benefi t SMEs

Collateral requirements and credit ratings are key elements of collateral laws and asset registries improves the functioning of of the fi nancial infrastructure needed for SMEs to effi ciently credit markets, particularly for SMEs. IFC is undertaking this work receive fi nancing. In the developing world, land is often the in China, Vietnam, and elsewhere in Asia, and will expand into only acceptable form of collateral, whereas in other markets, new regions, such as Africa. about 70 percent of SME lending is secured by assets such as Credit bureaus compile and distribute credit rating information cars or business equipment. on borrowers, which makes lending to small businesses less risky. To IFC is working to improve this aspect of fi nancial date, IFC has helped create credit bureaus in 6 countries; Romania, infrastructure in emerging markets. The reform and development Costa Rica, Nicaragua, Guatemala, Honduras, and South Africa.

Creating Opportunities for Small Business Improving Access to Finance Improving 12 Leveraging IFC Capital through Funds

In addition to providing broad-based loan fi nancing to small In Africa, IFC works through Business Partners International business through local FIs, IFC provides direct equity to fi nance (BPI), a fund management group with a business model adapted SMEs through private equity funds. Groups that specialize in to smaller SMEs. The BPI model provides SMEs with integrated guiding and advising SMEs manage many of these funds. IFC’s packages of fi nancing, advisory services, and market information. commitments through these private equity funds currently total $1.7 The fi nancing comes in a variety of forms best suited to the billion, which includes some $90 million in SME specialist funds. requirements of those small businesses. Each investment is structured The IFC portfolio contains more than 100 funds that have to meet the fi nancing needs of the entrepreneur, the risk profi le of SMEs as a signifi cant part of their portfolio. In addition, 20 of the investment, and the cash fl ows of the business. these funds also specialize in SMEs.

Case Study: Madagascar: an integrated approach to developing small businesses Assistance to smaller businesses in Madagascar shows the potential gains when fi nancial products and advisory services combine in support of the SME sector. • The IFC SME Solution Center teamed up with South African fund managers Business Partners Interna- tional to set up the BPI risk capital fund. The $10 million fund for Madagascar (to which IFC contributed more than $3 million) has already made eight investments averaging $125,000 each. • In May 2007, equity investments of more than $1 million each were made in two new microfi nance institutions. • The project includes advisory support. So far, IFC has provided advice to more than 80 companies and has trained 350 entrepreneurs. • A joint International Development Association (IDA) and IFC fi nancing model that mobilizes local currency lending for SMEs launched its fi rst project in Madagascar in June 2006. The project is a partnership between two local banks, IDA, IFC, and the Government of Madagascar. Under this program, the two banks receive credit risk coverage on their portfolios of new SME loans, as well as advice and training to ensure sustainability of the program. The banks have already disbursed $11 million in local currency loans to about 475 small businesses through the program. • The IFC World Bank Investment Climate team for Africa recently launched a comprehensive reform program in Madagascar to make it easier for small businesses to operate. The program will initially focus on reforming the country’s licensing and tax laws, with a special emphasis on the tourism sector.

Creating Opportunities for Small Business 13 Access to Finance Improving

Providing Access to Markets, Business Skills, and Information

reasonable business environment and access to fi nancing IFC has partnered with A are not enough. Small business owners just starting out fi rms in extractive industries Achievements of the IFC Linkages Program as of need advice on running a business and information about local to establish linkage programs December 2006: regulations and potential new markets. around the world — from BP • Almost 1,300 new small in Azerbaijan and Georgia, to business contracts Linking Small Businesses to Markets ExxonMobil in Chad, Cairn had been awarded, in India, and Newmont in with a total value of Linkage programs are designed around selected IFC investments Peru and Ghana. close to $1 billion to increase the participation of local small businesses in the project • Some 170 small and to bring additional benefi ts to surrounding communities. At Providing Information businesses had received the same time, these programs may reduce costs to investors and and Training for SMEs fi nancing totaling enhance their ability to be responsible corporate citizens. over $20 million IFC linkage programs achieve these objectives by Many small business owners • More than 500 the following: in developing countries need small businesses had received advice • Improving the technical and business skills of SMEs advice on managing and • More than 7,000 small to help them qualify for new contracts (selling higher- expanding their business. business owners and quality goods and services) to generate new sources These needs include writing their staff had received of income a business plan, assisting with training • Facilitating access to fi nance for local suppliers marketing and bookkeeping, • Strengthening local supply and distribution networks managing cash fl ow and • Supporting community development projects with employees, and exporting. health, education, and infrastructure programs Business owners need this information in their local languages, • Focusing on frontier countries and regions where tailored to local conditions. To meet this need, the SME Toolkit, fewer options exist for local enterprises a free online program, provides information and communication

Case Study: Helping small businesses access new procurement opportunities In December 2005, ExxonMobil turned to IFC for support in extending its e-procurement system. E-procurement is a Web- based initiative to reach local suppliers through IFC’s Global Linkage Program. IFC used its enterprise center in Chad (in partnership with the local chamber of commerce) to address limited Internet accessibility, low computer literacy, and language barriers between potential SME suppliers. To date, 16 contracts worth more than $30 million have been awarded to local fi rms. This e-procurement effort is part of a larger local business opportunity project that includes assessing potential suppliers, training, and mentorship. The results of this partnership look promising: the average local contract has grown from $100,000 in 2004 to $800,000 in 2007.

Creating Opportunities for Small Business 15 Access to Markets. Business Skills, and Information Providing Providing Access to Markets, Business Skills, and Information

technologies to help owners of small businesses in emerging IFC has partnered with IBM to bring state-of-the-art markets learn and implement sustainable business management business information, tools, and training services to small practices. businesses. IBM has dedicated more than $1.6 million Since setting up the Toolkit in 2002, IFC has rolled it to transform the Toolkit and rebuild it on an innovative out in 22 countries, in 13 languages — in each case with local open-source platform. The Toolkit will soon include features partners. Usage has grown rapidly and has reached 2.5 million such as live chat, online forums, directories, and survey visits a year. Participating countries include Nepal, Madagascar, capabilities. Zambia, Mongolia, Bhutan, Belarus, Ukraine, and Indonesia, as well as regional sites in the Caribbean and Latin America.

Case Study: IFC creates an internet information resource for Belarusian entrepreneurs According to a recent IFC survey of Belarusian enterprises, 90 percent of respondents considered a lack of information one of the greatest barriers to private business development in the country, and 70 percent of polled SMEs had internet access. Using IFC’s global SME Toolkit (www.smetoolkit.org) as a model, IFC designed a Russian-language Web portal — BEL.BIZ (www.bel.biz) — to meet SME information needs in Belarus. BEL.BIZ provides up-to-date legal and regulatory information and practical advice on creating and operating a business. The portal holds online forums and runs a large-scale question-and-answer service with the help of 60 partners, including government institutions, business associations, legal and consulting fi rms, banks, and media. Inna Titenkova is a BEL.BIZ user who received assistance through the portal. Titenkova had dreamed of opening a video production studio but was reluctant to take the plunge in such a diffi cult business environment. Today, she runs a fl ourishing video studio and is grateful to BEL.BIZ for providing the information she needed to start and run a business.

I have more information and confi dence. The legal updates are particularly useful. The decision to start up a business was a diffi cult one for me, but now I know that I can always turn to BEL.BIZ for help. — Inna Titenkova, BEL.BIZ user

Creating Opportunities for Small Business Providing Access to Markets. Business Skills, and Information Providing 16 defi program focusing oncommonfunctionalandoperational Business Edge Business Edge Creating Opportunities forSmall Business fi (marketing, humanresources, production andoperations, nance and accounting, and productivity skills), a delivery nance andaccounting,productivity skills),adelivery ciencies. It consistsof36managementcoursesonfi of good practice. of goodpractice. international cooperation. We lookforward This hasbeenoneofthemostsuccessfulprogramsat Kabul Four trainingcourseswere conductedbetweenJulyandNovember2006. Results and aplanforcontinuingthepr involvement of ment and main objectives: Skills Project wasdesignedwithtwo and course inbasicbusinessskillsusingthe has partnered withKabulUniversitytointroduce a enterprise, largelybecauseofthelacktraining.IFC to basicbusinessskillsneededrunaprofi Many Afghanentrepreneurs havenotbeenexposed Case Study:BusinesstraininginKabul,Afghanistan — ChancellorAbdulHaiNazifi • More than80percent ofthetraineessaidtrainingtopicswere highlyrelevant anduseful • 16 instructorswere trainedtoprovide additionalbusinesscapacitybuildinginthecountry • 35 womentookpartinthetraining • 260 Afghanswere trained,including110students, • The project includedatrainingneedsassessmentsurvey, contentdevelop- 2) To buildthecapacityofKabulUniversitytoprovide 1) Tofor, demonstratetheviability of,anddemand Business Edge 30 representatives from thegovernment 120 representatives from localbusinesses,and business trainingonasustainablebasis local businesstraining isacomprehensive SMEmanagementtraining translation, fourthree-week trainingcourseswithprogressive Kabul University professors as trainers, Kabul Universityprofessors astrainers, . TheKabulUniversityBusiness , headofKabulUniversity ogram after SME Toolkit IFC’s involvementends. table ve topics to working with IFC to produce more such examples to working withIFCtoproducemore suchexamples

Delta, China, andtheMiddle EastandNorth Africa. 800 managementtrainingcoursesdelivered intheMekong has reached more through more than28,000participants than methodology, component. andabusinessadvisory University. It is also a best practice for is alsoabestpracticefor Business Edge 17

Providing Access to Markets. Business Skills, and Information

Creating New Opportunities Through Innovation

key role of IFC in developing SMEs is to support innovation. Using IFC advice and loans from fi nancial intermediaries, the A This includes determining unmet needs in the market, program develops sustainable market opportunities for small crafting and testing new products and services, and transferring businesses whose activities benefi t the global environment. these innovations to others who can deliver them to the wider Since its inception in 1996, the program has committed SME community. more than $18 million to 24 intermediaries that have on-lent Successful innovation requires knowledge of local markets, or supported SMEs in 25 countries. These SMEs have reduced global expertise, and a strong network of partners that can their consumption of fossil fuels, thereby mitigating climate complement IFC’s efforts and extend its reach. These partners share change, or have conserved biodiversity by using natural resources valuable knowledge of “what works” in many specialized areas. sustainably. The program provides innovative fi nancing for SMEs in sectors that local banks typically perceive as too risky, 1. Going Green — Financing Businesses That such as renewable energy (including solar, hydro, and biomass), Benefi t the Environment energy effi ciency, sustainable timber harvesting, sustainable agriculture, sustainable coffee cultivation, and ecotourism. The Environmental Business Finance Program is an innovative Sustainable coffee and organic fruit projects fall under model of SME fi nancing that focuses on the environment. this program.

Case Study: Energy effi ciency in Russia Innovative approaches to linking energy effi ciency with fi nance have helped Kazan-based sewing factory Adonis compete against rival suit manufacturers. The company’s pressing machines had become more expensive to use as electricity costs in Russia rose, increasing the company’s energy costs and, as a result, its production costs. Through its Russia Sustainable Energy Finance Program, IFC identifi ed Tatfondbank as an intermediary to provide fi nancing and advice for companies like Adonis that were looking to reduce costs through energy-effi cient modernization. Experts from IFC and the regional government’s Center for Energy Saving Technologies conducted an express energy audit at Adonis. The auditors found that the company could save $50,000 a year in energy costs by transitioning to a centralized, fully automated steam power system based on gas, and save an additional $7,000 by overhauling its lighting system. In total, the company’s electricity bills could decrease from around $115,000 to $65,000 a year — a 43 percent reduction. Before the energy audit, we never even thought that replacing energy equipment or the lighting system could save us so much money. But when we saw the auditors’ calculations, we knew we had to do it. — Rinat Galeyev, director, Adonis Tatfondbank gave Adonis the fi nancing to modernize both its lighting and steam-generating systems. The investment for this energy-effi cient project amounted to less than $60,000, and the company expects to recoup that investment in less than two years. Across Russia, regional banks like Tatfondbank have fi nanced 14 other energy-effi ciency projects through IFC’s program. Reductions in total energy costs per year for SMEs are expected to reach almost $4 million; nonenergy cost reductions (such as material use cost savings) will amount to an additional $1 million or more per year. The bank’s program with IFC was a great way for us to optimize our expenses. We are very satisfi ed with the results. — Rinat Galeyev, director, Adonis

Creating Opportunities for Small Business 19 Innovation New Opportunities Through Creating Creating New Opportunities Through Innovation

Sustainable coffee: IFC provided fi nancing to Conservation the poor in hard-to-reach regions and population segments. International for on-lending to Mexican coffee growers who GBI’s strategy revolves around key areas identifi ed as requiring meet the international franchise Starbucks’ stringent C.A.F.E. special attention: (coffee and farmer equity) practices for coffee cultivation. • Strengthen agribusiness and crafts organizations/partnerships, Starbucks, in turn, signed agreements committing to buy this as these industries are the primary sources of income for many sustainably grown coffee at a price premium. The farmers of the world’s poor, particularly in rural areas. CraftNetwork who delivered their coffee to Starbucks earned signifi cantly has been created to facilitate trade, ensure quality, and train more than conventional growers. crafts retailers in Indonesia and Cambodia. CraftNetwork is Organic fruit: Symbio Polska is an SME processor and expanding in Asia and is being replicated in Africa. exporter of organic fruit grown by Polish family farmers • Develop youth and informal enterprise to stimulate local (themselves SMEs). The IFC loan enabled a gradually increasing economies from the bottom up. The Youth and Informal credit line from a local bank to Symbio. With this capital, Enterprise Initiative was created to give marginalized Symbio has quadrupled its sales in the past four years, creating African youth the training, mentoring, and access to jobs for 700 farmers and 1,500 more people in its supply chain. fi nancing needed to foster viable businesses. Angel Investor Energy effi ciency: IFC has been innovative in the area of Clubs, run by prominent local businesspeople, provide energy effi ciency. Energy effi ciency saves costs for businesses, improves fi nancial support to local youths starting new businesses. performance and profi tability, and reduces resource usage and waste, • Build a network of grassroots business organizations to thereby contributing to the protection of the environment. support collaboration and knowledge sharing for common initiatives and learning. 2. The Grassroots Business Initiative — extending the reach to small businesses In its three years of operation, GBI has produced solid results: More than 40 projects impacting the lives of nearly 2 million IFC is looking at innovative ways to help the disadvantaged people living at the bottom of the economic and social pyramid. even further by strengthening and scaling up grassroots business More than 54,000 jobs have been created and almost $7 million organizations — that is, commercially oriented organizations disbursed in grants or investments in retail and wholesale projects. with a marked social mission to create sustainable economic Eighty-fi ve percent of this portfolio has been committed to frontier opportunities for the poor. This Grassroots Business Initiative countries, with a growing share being devoted to sub-Saharan Africa. (GBI) works to expand market access and business support to

Case Study: Community health care in Kenya Joseph Kariuki is trained as a community health worker and is now an entrepreneur. Joseph is one of the pioneers of the CFW Kenya Network of microfranchise clinics. A part of the Sustainable Healthcare Enterprise Foundation, this network offers affordable quality drugs and basic health care. Franchisees receive training and are required to carry out preventive outreach in their communities. In 2002, Kariuki moved to Kibingoti market and opened Joskar Clinic with the assistance of a nurse. Joskar Clinic has consistently been one of the top performers in the CFW franchise network. In 2006, Joskar Clinic served more than 17,500 patients. Thanks to the success of Joskar Clinic, Kariuki generated enough income to pay for his children’s education through high school.

Creating Opportunities for Small Business Creating New Opportunities Through Innovation New Opportunities Through Creating 20 Measuring Results

IFC’s commitment to measuring the results of its Continuous Learning and Sharing Knowledge advisory services and investment projects is driven with Other Development Partners by its long-standing commitment to continuous IFC uses the fi ndings from its reviews and evaluations quality improvement. In 2005, IFC launched the to improve future program design. For instance, an Development Outcome Tracking System (DOTS) to evaluation of two agribusiness projects — a farm allow regular monitoring of the development results forestry program in India and a seaweed farming of all ongoing projects and to provide early feedback program in Indonesia — demonstrated the diffi culty of of IFC’s operations and advisory work. changing individual farming practices, as well as the high costs of discovering specifi c market information, DOTS makes it possible to systematically measure job which often cannot be applied across industries and creation, investment, and increased effi ciency and locations, or even from farm to farm. These lessons productivity results of projects. have since been used to improve these and similar programs across regions. Enhancing Results Measurement over Time For both investments and advisory services, IFC is Outside its own programs, IFC facilitates the exchange working to standardize its performance measures — by of ideas and good practice in the evaluation of industry for investment projects, and by business line for advisory services among the donor community, advisory services projects. This standardization will foundations, and multilateral and bilateral agencies. enable comparisons across projects and aggregation of results.

Reach indicators show the numbers of people touched by IFC’s activities.

Investments, 2006 Advisory services, 2003-2006

Hospital patients treated: 4 million Banks: 1,768

Entrepreneurs: 40,000 Microfi nance clients: 11.5 million

Electricity customers served: 9.5 million Farmers: 50,000

Water customers served: 15.3 million SMEs: 2.5 million

Creating Opportunities for Small Business 21 Frequently Asked Questions

How does IFC defi ne small and medium Where do I get more information on the enterprises (SMEs)? SME Toolkit and Business Edge? SMEs are formal enterprises whose fi nancial needs go Information on the SME Toolkit can be found at beyond simple microcredit. www.smetoolkit.org.

MICROENTERPRISES Business Edge has been rolled out in the Asian Pacifi c, Employ fewer than 10 people Mekong, and Middle East and North Africa regions. Total assets/turnover less than $100,000 per year For more information, contact your local IFC offi ce or go to www.ifc.org. SMALL ENTERPRISES Employ 10 to 50 people Does IFC provide consulting opportunities for Total assets and/or annual sales between small businesses? $100,000 and $3 million IFC uses a combination of in-house expertise and local and international consultants for its projects. MEDIUM ENTERPRISES Information on World Bank Group opportunities for Employ between 50 and 300 people consultants can be found at www.worldbank.org Total assets and/or annual sales between under Procurement. $3 million and $15 million

IFC uses the following defi nition as a proxy for SMEs when working with fi nancial institutions: • SMALL ENTERPRISES: loan size of $10,000 to $100,000 • MEDIUM ENTERPRISES: loan size of $100,000 to $1 million in most countries and $2 million in more developed countries

Does IFC lend directly to small businesses, and if so, what criteria does it use? IFC does not generally lend directly to SMEs. IFC primarily fi nances SMEs through fi nancial intermediaries, including investment funds and local fi nancial institutions (FIs). Most IFC lending is through FIs, which consist of commercial banks, microfi nance institutions, and nonbank FIs such as leasing providers. This approach enables IFC to assist many more businesses than it could by lending on a one-to-one basis.

22 Creating Opportunities for Small Business Contact Details

Sub-Saharan Africa East Asia and Pacifi c 14 Fricker Road 14th Floor, One Pacifi c Place Illovo 2196 88 Queensway, Admiralty Johannesburg Hong Kong South Africa Tel: (852) 2509 8100 Tel: (27-11) 731-3000 Fax: (852) 2509 9363 AfricaFax: (27-11) 268-0074 Latin America and Caribbean Middle East and North Africa Rua Redentor, 14-Ipanema Nile City Towers Rio de Janeiro 22421-030 2005 Corniche El Nil, North Tower, 24th Floor Brazil Boulac, Cairo Tel: (5521) 2525-5850 Egypt Fax: (5521) 2525-5879 Tel: (20-2) 461-9161/62/63/64/65 Fax: (20-2) 461-9130/60 South Asia 50-M, Shanti Path, Gate no. 3 Europe and Central Asia Niti Marg, Chanakyapuri Buyukdere Cad. No: 185 New Delhi 110 021 Kanyon Ofi s Blogu Kat 10, Tel: (91-11) 4111-1000 Levent, 34394 Fax: (91-11) 4111-1001, 4111 1002 Istanbul, Turkey Tel: (90-212) 385-3000 Fax: (90-212) 385-3001

Central and Eastern Europe 36, Bldg. 1 Bolshaya Molchanovka Street 3rd Floor, Moscow 121069 Russian Federation Tel: (7-495) 411-7555 Fax: (7-495) 411-7556

For more information about IFC and its work with SMEs, please e-mail [email protected]

Creating Opportunities for Small Business 23 Donor Partners

Donors are vital partners for IFC in delivering its broader mission of reducing poverty and improving people’s lives. The support of donors not only leverages IFC’s own contributions to Advisory Services programs but also enhances the impact of IFC’s operations through strengthened collaboration.

IFC would like to acknowledge the following donor countries:

• Austrailia • Slovenia • Austria • South Africa • Belgium • Spain • Canada • Sweden • Cape Verde • Switzerland • Denmark • United Kingdom • Finland • United States • France • Germany Other Partners • Greece • Iceland • GEF • India • African Development Bank (AfDB) • Ireland • Asian Development Bank (ADB) • Israel • European Commission • Italy • IBM Foundation • Japan • Inter-American Development (IADB) • Kuwait • Islamic Development Bank (IDB) • Luxembourg • KfW Development Bank (KfW) • The Netherlands • Bill and Melinda Gates Foundation • New Zealand • The Case Foundation • Nigeria • Visa International Foundation • Norway

24 Creating Opportunities for Small Business