Transcript Promoting Competition and Entrepreneurship

Promoting Competition and
Entrepreneurship
Role of National Development Banks
Dr. Sailendra Narain
Chairman
Centre for SME Growth and Development Finance (Mumbai, India)
United Nations – New York
1 – 2 December 2005
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Entrepreneurship & Competitiveness
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Entrepreneurship
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nAch (need for
achievement)
Risk taking ability
Innovative attitude
Open to changes
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Competitiveness
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First among equals
Face challenges and
fluctuations
Sustain development
R&D
Mindset
Technology
Integration into Regional
/Global value chain
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Entrepreneurship & Competitiveness
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Competitiveness grows out of Entrepreneurship
Entrepreneurship can be created
Entrepreneurship vital for economic
development, particularly industry/SMEs
SMEs – backbone of all developing economies
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Entrepreneurship & Competitiveness
Entrepreneurship & Competitiveness can be achieved through:
Innovative Finance
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Equity
Venture Capital
Risk Capital
R&D support
Micro-finance
Business Development
Services (BDS)
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HRD
Capacity Building
EDPs
Cluster Development
Technology Upgrading
Market Development
Infomatics
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Development Finance Matrix: India
AII-India Dev. Banks
(IDBI, IFCI,ICICI,IIBI,IDFC,SIDBI)
Specialized Financial
Institutions
(Exim Bank, & NABARD)
State Level Institutions
-State Financial CorporationsSFCs- 18)
- State Industrial Development
Corporations- SIDCs- 28)
Investment Institutions
(LIC,GIC,NIC,NIA,OIC,UII,UTI)
-State Small Industries
Development CorporationsSSIDCs-17)
Others:
(NEDFi, NSIC, KVIC,TFCI,
ICICIVenture,IVCF)
-Technical Consultancy
Organisations –TCOs-18)
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Institutional Network: Finance and Credit in India
Long-term
Short-term &
-All India Financial Medium-term
Agriculture Credit
-Cooperative
Banks
Institutions
(AIFIs)
-Regional DFIs
-Commercial
Banks -NABARD
--Regional Rural
Banks ( RRBs)
Non-banking
Finance
Companies
(NBFCs)
Government owned Non-Govt.
Institutions/
Organisations
(NGOs) & Micro
Corporations
Finance
Institutions
(MFIs)
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All India Financial Institutions
Financial Assistance
250000
RS IN MILLION
200000
150000
Sanctions
Disbursements
100000
50000
0
2003-2004
2004-2005
YEAR (April - Septem ber)
(Data Relate to All India Development Banks and Investment Institutions only)
Viz. IDBI, IFCI, SIDBI, IIBI, IDFC and LIC, GIC, National Insurance Co. Ltd,
New India Ass. Co. Ltd , Oriental Insurance Co. Ltd., United India Insurance Co. Ltd.
Source : Reserve Bank of India
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ALL FINANCIAL INSTITUTIONS
1400000
1200000
RS IN MILLION
1000000
800000
Sanctions
Disbursements
600000
400000
200000
0
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
YEAR
Source : Report on Development Banking in India 2003-04
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Long Term Loans by Commercial Banks
Amt (in Crs)
160,000
% of Tot. Credit
35.00%
140,000
30.00%
120,000
25.00%
100,000
20.00%
80,000
15.00%
60,000
10.00%
40,000
5.00%
20,000
-
0.00%
Mar-90
Source : RBI Website
Mar-95
Mar-00
Year
Mar-02
Amt(Crs)
9 Credit
% of Tot.
Long Term Loans by AIFIs
140,000
90.0%
80.0%
120,000
70.0%
100,000
60.0%
80,000
50.0%
60,000
40.0%
30.0%
40,000
20.0%
20,000
10.0%
0
0.0%
Mar-90
Mar-95
Mar-00
Mar-02
Source: RBI website
LT Credit
% to totalcredit
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Comparative Chart – in Rs cr
Rs in crores
180,000
160,000
Banks
AIFI
140,000
120,000
100,000
80,000
60,000
40,000
20,000
Mar-90
Source: RBI website
Mar-95
Mar-00
Mar-02
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Comparative Chart - in %
90%
80%
Banks
AIFI
70%
60%
50%
40%
30%
20%
10%
0%
Mar-90
Mar-95
Mar-00
Mar-02
Source: RBI website
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FICCI STUDY ON
LONG TERM FINANCING NEEDS OF THE INDIAN
INDUSTRY AND THE ROLE OF DEVELOPMENT
FINANCIAL INSTITUTIONS
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Survey conducted Feb – March 2004, elicited response
from 248 companies with a wide geographical and
sectoral spread
The companies which participated in the survey ranged
from Rs. 1 million to 5000 million
The Survey represents a wide array of activities and
includes sectors such as paper, cement, automobiles
and auto ancillary, consumer electronics, electrical
machinery, textile, wires and cables, petrochemicals,
iron and steel, real estate and pharmaceuticals.
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PLANS FOR FRESH INVESTMENTS IN NEAR FUTURE
No
11%
Yes
89%
Yes
Source : FICCI Study – March 04
No
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SOURCE OF FINANCE
PROPORTION OF
RESPONDENTS*
EQUITY CAPITAL
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DEBENTURES AND BONDS
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TERM LOANS FROM FIs
46
TERM LOANS FROM BANKS
59
ANY OTHER (MAINLY INTERNAL)
ACCRUALS & ECBs
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(* Figures will not add up to 100 as multiple responses were allowed)
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PROPORTION OF PROJECT COST TO BE MET FROM DEBT FINANCE
PROPORTION OF RESPONDENTS
30
24
25
22
20
20
15
10
9
10
7
7
5
1
0
less than
20
20-40
40-50
50-60
60-70
70-80
80-90
90-100
PROPORTION OF DEBT FINANCE
Source : FICCI Study – March 04
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DFIs NOT ACTIVE IN THE LAST FIVE YEARS
Can't Say
19%
Yes
No
Can't Say
No
8%
Yes
73%
Source : FICCI Study – March 04
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ARE DFIs USEFUL FOR RAISING LOW COST LONG TERM DEBT FUNDS
Can't say
25%
Yes
31%
No
44%
Yes
Source : FICCI Study – March 04
No
Can't say
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EMERGENCE OF ALTERNATE FUNDING STRUCTURES
IN THE LAST FIVE YEARS
No
48%
Yes
52%
Yes
Source : FICCI Study – March 04
No
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SIZE DISTRIBUTION OF RESPONDENTS WHO FEEL THAT
ALTERNATE FUNDING STRUCTURES FOR RAISING DEBT FINANCE
HAVE NOT EMERGED IN THE LAST FIVE YEARS
14%
5%
7%
50%
10%
14%
less than 1000 Million
1000-2000 Million
2000-3000 Million
Source : FICCI Study – March 04
3000-4000 Million
4000-5000 Million
5000 Million & above
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SIZE DISTRIBUTION OF RESPONDENTS WHO FEEL THAT
ALTERNATE FUNDING STRUCTURES FOR RAISING DEBT FINANCE
HAVE EMERGED IN THE LAST FIVE YEARS
25%
46%
13%
2%
less than 1000 Million
3000-4000 Million
8%
1000-2000 Million
4000-5000 Million
Source : FICCI Study – March 04
6%
2000-3000 Million
5000 Million & above
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ARE UNIVERSAL BANKS OF ADEQUATE HELP IN RAISING
LONG-TERM PROJECT FINANCE?
Yes
20%
Cannot Evaluate
40%
No
40%
Yes
No
Cannot Evaluate
Source : FICCI Study – March 04
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SHOULD DFIs BE REVIVED
No
10%
Can't say
10%
Yes
80%
Yes
No
Source : FICCI Study – March 04
Can't say
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FICCI STUDY ON
LONG TERM FINANCING NEEDS OF THE INDIAN
INDUSTRY AND THE ROLE OF DEVELOPMENT
FINANCIAL INSTITUTIONS
HIGHLIGHTS
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The economy today stands at the beginning of an
investment cycle
A whopping 80% of the respondents are of the opinion
that revival and strengthening of DFIs is extremely
important
Corporate India’s heavy dependence of debt financing for
fresh investments continues
Respondents have voiced concerns about the low levels of
activity of the DFIs
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Cont…
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The Industry is divided in its opinion on the emergence of
alternative structures for raising debt finance
An important finding in the above context is the skewness,
in terms of turnover, that emerges
The participants in the present survey have expressed
apprehensions about the role Universal Banks can pay
Revival and Strengthening of DFIs would go a long way in
ensuring that fresh investments in the economy are not
hampered
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Evaluation of DFIs in Select Asian
Countries
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Findings based on research conducted by Japan
Economic Development Institute in 1999
Extracted from “Development Banking in the New
Millenium” published by Development bank of Japan
and presented at the World Bank in 1999
DFIs selected in Japan, East Asia (Singapore, Korea,
Malaysia, Thailand, Phillippines, and Indonesia), and
China
Study also included DFIs in Europe, namely KfW and
European Investment Bank
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Evaluation of DFIs in Select Asian
Countries (Continued)
Findings of this study:
 Basic rule of DFIs
 Relation with private financial sector
 Priority sectors & DFIs
 Sources of funds
 Economic liberalisation and deregulation
 Financial crisis in East Asia
 Expanded rule of DFIs in financial crisis
 Changing rules of DFIs
“The history of development banks teaches some important lessons. They need to be
dynamic, financially viable, independent with respect to their management and
resource mobilization, adaptable to changing business environment, and, above all
highly professionally managed as a business entity.” – Khalid Siraj, The World Bank
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Challenges for SMEs in Latin America
 Archaic
policy created obstacles
for inputs, products & financing
 Policy
reforms at slow pace
 World
Business Economic
Survey
“lack of finance - the leading
obstacle to growth for SMEs in
Latin America”
 Only
few banks have links with
SME community and low SME
portfolio
 World
Bank estimates $ 35bn.
deficit in financing SMEs
30% of micro and 17% of
SMEs use personal credit
cards to finance their business
Lack of services from large
banks opening doors for new
players
Personal savings are still the SME
mainstay
 IDB study,”fewer than 10% of
SMEs are able to secure bank
finance”and “70% are obliged to
offer credit to their clients”
 SMEs generally depend on three
“Fs”:
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Family, Friends and Fools
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Reasons SMEs Did Not Apply or Get Credit
Latin American Countries
Others - DNA/REF
Outstanding Debt REF
5%
4%
Growing Competition
REF
5%
Falling Demand REF
6%
High Interest Rates
(DNA)
31%
DNA: Did Not Apply
Financial
Restructuring REF
8%
Economic Risk REF
19%
REF: Refused Credit
Turned Down by
Bank REF
22%
Source: InfoAmericas
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b li
er
dr
aft
)
cI
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ti
tut
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s
it C
ard
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(o
v
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en
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(lo
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pa
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Ba
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Re
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av
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na
lS
me
rso
rs
(C
om
Pe
nts
(ad
v
lie
Cl
ie
Su
pp
Sources for Start-Up Financing for SMEs
100
90
80
70
60
50
40
30
20
10
0
Source: InfoAmericas
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m
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ice ts
sP
m
ts
Co
m
Financing Cash Flow After Start-Up
100
90
80
70
60
50
40
30
20
10
0
Source: InfoAmericas
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New Forms of BDS for Regional Integration and Replication
Management
Financial
Marketing
Institutional
Training &
Capacity
building
Credit scoring
Market
intelligence &
forecasts
Developing
Trainers
Technology in
financial
management
Regional markets Regional
networking
Pub.Pvt.
Partnerships
Exchange
programmes
Indo-ASEAN
Fund for BDS
Indo-ASEAN
Market Dev.
Fund
Regional Centers
of excellence
Institutional/
Associations
level networking
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Promoting Entrepreneurship and Competitiveness
Small Industries Development Bank of India’s (SIDBI) Initiatives
Micro Finance
Marketing
Assistance
Cluster
Development
Women’s
Empowerment
SIDBI
Rural
Industrialisation
Capacity
Building
Environmental
Initiatives
Information
Dissemination &
Credit Rating
Technology
Upgrading
Entrepreneurship
Promotion
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Problems of DFIs
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Liberalised economic
policy regime led to
blurring of DFIs and
commercial banks roles
Commercial banks now
lend long term loans
Unhealthy competition to
win the limited clients
Limited access to lowcost retail deposit
Difficulty in pricing
lending products at
competitive rates
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Paucity and higher cost of
resources made
sustainability of viability
difficult
Virtually term-loan
dominated DFIs portfolio
did not keep pace with the
market changes & new
demands
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DFIs New Agenda for Future
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Specialised development financing channel for any
developing economy is a Must
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Is conversion into Universal Bank for DFIs survival a
Must?
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International experiences have shown that suitable
restructuring can give DFIs a Strong foot-hold
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Major factor in survival of DFIs in India is the Cost of
Resources as compared to commercial banks
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Is Government / RBI ready to address this issue in
favour of DFIs or leave it to market forces?
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Suggested New Framework for DFIs
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Awareness about DFIs critical role for “Financing for
Development”
DFIs may be recapitalized
DFIs be promoted as NBFCs, PPPs or JVs in the private
sector
Government should be facilitators and not owners of DFIs
Central Banks should provide “level playing field” to DFIs
for resources
Multilateral, bilateral and international financial and
investment institutions to become co-promoters of DFIs
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Issues for Discussion
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Relevance of DFIs in today’s changing financial system
Should it be “Banks vs. DFIs” or “Banks and DFIs”
Are banks well equipped to play developmental roles
If DFIs have to continue, what should be the new structure and
Central Banking policy
How to provide “level playing field” for raising resources by DFIs
How to revitalize the existing weak DFIs – role of national
governments and international financial system
What are the systemic, institutional and enabling environment
changes necessary for providing DFIs a new look
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Contact email: [email protected]
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