Transcript Troniak SMEs and Guarantees Amman Final

SME Credit Guarantees –
Why do we do this?
SMEs Financing & Loan Guarantees
24th-25th November 2014
Matthew Troniak
Director Asia, Africa, and Middle East,
Terradyne Agro Systems (Dec 1, 2014)
Mission Statements of Various Loan
Guarantee Organizations
•Improve Access to credit
•Reduce Risk so reduce interest rates
•Lend Longer term
Thus - to assist the development of SMEs to facilitate
economic and social development, job creation,
and thus political stability.
What is today's Macro Economic Environment for
the SMEs?
Are the SMEs “money” restricted or is it really
that they are “MARKET” deficient?
Globalization
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Washington Consensus
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United Nations – New International Economic Order.
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Free trade
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Free Flow of capital
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Free Flow of Labor
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Interdependence due to specialization.
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Harmonized legislation, regulation, and “Best Practices”
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Everyone is connected to everyone.
Wake Up calls
1) 2008 the banks – the heart of capitalism – had a heart attack
2) Governments flooded the banks with liquidity to keep them making
loans to SMEs and for trade finance. Did they? Credit less and jobless
recovery?
3) Trade Finance froze – food prices skyrocketed, oil at USD 147 – then
revolutions – Food Security became critical issue.
4) Next wave of collapse - Then nations went bankrupt
5) Lending to Government is no longer a risk free activity – thus there is
no longer a compass for the Capital Asset Pricing Model to work with –
there is no risk free rate of return.
6) So what are the risks and the returns? Is Dow today real value? Oil?
•
De coupling of real economy from financial sector - and stress testing
and marking to market assets and liabilities and tightening of bank
regulations reducing risk appetites. – stability or volatility?
Globalization, some possible unfortunate
consequences?
“Hunger Games” popularity a message?
• Concentration of capital on a global scale
accelerates.
• Capital acquires global control over production,
exchange, government policies, people’s lives
• Downward pressure on wages
• Global demand for goods and services
declines
• Solution: borrow money against future income
• Pyramid of debt grows to stimulate the global
economy
• At a certain point, the pyramid collapses
• Press the “Reset Button” and start again?
What is new normal?
SMEs - Meet Your Competition.
Food Security –
Agriculture and Agri business Example
The Competition SMEs Face
Meat Processing
Inputs – Seed, Pesticide / Herbicide / Fertilizer
Industry Concentration Ratios
So you want to go from Small
Holder Farming to Value
Added Processing?
So Can a Financial / Credit / Loan Guarantee System Help?
In today’s world of international trade and global
competition, supply chains compete more so than
individual firms - integration and collaboration have
become key differentiators of high performing supply
chains.
•Economic Opportunity !!!
•Banks need to provide integrated
supply chain and value chain
solutions from market to
production.
•Guarantees need to be tailored to
each part of each chain. Risk
layering.
•Nations – Malaysia Inc. , Japan Inc.
Jordan Inc.
•Need your own BIG banks, Big
Loan Guarantee operations –
Consolidate and acquire.
– New Deal Flow and SMEs
You need to be investing / guaranteeing / developing “Lean and
Mean” value / supply chains.
Banks and Loan Guarantee corporations must be expert at the
industry in which the SMEs operate. Do not “beggar thy
neighbor – prosper your neighbor”. Regional markets may not
be optimal choices.
IT / Logistics – Key to economic and financial efficiency –
Information Sharing and teamwork – Banks, and Guarantees
and Insurance and Equity.
Economic Coordination:
Government, Industry, Donors, Financiers, Loan Guarantee
Operations.
Build National Champions – Nokia – Leggo – Samsung - Tata
Need an Integrated Development Approach – along the Agri
Value Chain - Loan Guarantees only small part of the solution
Processing
Wholesaler
Consumer
Orientation
Market Linkage
Commodity Trading
Agri Infrastructure
Processing & Logistics
Equity – Debt – Risk Mitigation
Guarantees - Insurance
Streamlined
supply chain
Financial
Services
Retailer
Market
Development
Handling
& Mrktg.
Price competitiveness
Production
Research &
Extension
Farmer
linkages
Action steps
Where are the Markets?
Food for thought !
A Small Issue? Economic Efficiency but what about Labor?
What was this all about?
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The thesis of my presentation is that the current financial gap is
access to finance; and the target of the loan guarantee programs
( aside from financial sector stabilization as occurred in the 2008 crisis
or bulk lending such as guarantees to banks to lend to MFIs) is to
develop SMEs thereby creating jobs and diversifying the economy.
Generally it is hoped that value addition and processing will be
stimulated not just trading activities. However I point out that the
SMEs are expected to face international competition on an equal
footing and that this essentially it is like the smallest and the weakest
competing with the strongest international competitors.
I use some examples from Agribusiness and the global corporate
concentration in this sector. Thus I will propose that there is a need for
any Loan guarantee program that is targeted to this kind of MSME
development to have an integrated set of programs and alliances to
strengthen the SMEs that are taking the loans that are guaranteed.
This includes value chain approaches.
I then review some of the ways this can be done.
Thank You
Matt Troniak
[email protected]