Financing Challenges of SMEs and New Firms in Latin America

MARCO KAMIYAVice Presidency of Public Policy and Development Strategies

Division of Public Policy and Competitiveness

New Orleans, September 10 - 11, 2012

Four Decades of Presence in LAC

2011Letters of Intent:

Guatemala and Italia

18 countries14

commercial banks

1970BoliviaColombiaEcuadorPeru Venezuela

1990-2010

Mexico (1990)Brazil (1992)Chile (1992)Trinidad & Tobago (1994)Panama (1997)Paraguay (1997)Jamaica (1997)Argentina (2001)Uruguay (2001)Costa Rica (2002)Spain (2002)Dominican Republic (2004)Portugal (2009)

Finance and SMEs in Latin America

• Many very small micro-enterprises. • One family firms driven “by necessity”.• SMEs don’t grow as it should and have low

productivity.• Low availability of financing for start-up and firm

expansion.• …and, despite the emergence of ‘Multilatinas’ still few

global corporations in most of the countries, so lack of ‘anchor’ firms prevent expansion.

SMEs, New Firms and Financing in LAC

Avai

labi

lity

of C

apita

l

R&D Start, Sustainability, ExpansionOperation and Consolidation

Angel Investors

Seed Capital

Initial VC

VC for Expansion

Last Stage of Private Equity

Cycle of Financing in LAC: Many Obstacles

Cash

Flo

w -

/

Cash

Flo

w +

Financial Valley of

Death

WeakInnovation

Systems

Insufficient Deal flow

Stock Markets, small and with few

instruments

Stock Markets in LAC are Growing…

Source: World Bank and Bank for International Settlements

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

10

20

30

40

50

60

Stock Market Capitalization

% o

f GD

P

…but LAC Financial Markets lag Behind

Source: Prepared by CAF with World Bank data. LAC: Argentina, Brazil, Chile, Colombia, México, Peru and Venezuela. Emerging Asia includes: China, South Korea, India, Indonesia, Philippines, Singapore and Thailand

…and Financial Development is lower than expected

Source: Prepared with World Bank data.

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

20

25

30

35

40

45 Domestic Credit to Private Sector

% o

f GDP

19601964

19681972

19761980

19841988

19921996

20002004

20080

10

20

30

40

50

60

70

80

90

100

% o

f GDP

Latin America

Emerging Asia

Entrepreneurship and Nascent Firms

Source: OECD , CAF 2011

Private Finance for New Ventures in Latin America and East of Asia

9

LAC East Asia

Start First Years Start First Years

Percent of the Entrepreneurs funded by Private Investors 8,9 % 6,8 % 27,1 % 28,8 %

Perfect of the Entrepreneurs funded by Venture Capital 2,8 % 1,7 % 8,9 % 15,0 %

Venture Capital in LAC: The ‘Critical Mass’ Trap

…and number of deals too small

Investment Deals in 2011, 173. But in some countries were less than 10.

Source: Ernst & Young, LAVCA

Investment amount low…

VC funds committed in LAC in 2011: US$6.5 billion, so PE/VC size in LAC is 5% of total in the World

Total VC Funds Committed in LAC (2011)

Returns of Venture Capital Funds in the US

Source: Lerner (2009)Note: VC Funds Return as of March 2008

High Growth SMEs: Very Few Winners

Ecosystem, Institutions and Programs

Sil Val Israel Sing Bra Chi Mex Colo

Innovation Patents

Universities

Overseas networks

Entrepreneurship Teaching techniques

Training for Business plans, etc.Tech Transfer Centers

Financing Angel Investors/Seed

Venture Capital

Equity Investment

Enterprise Development Ecosystems

Developed Underdeveloped Incipient

Source: CAF 2012

Business Centers

Export Promotion Productive Development Finance

SECOM – Trade

Promotion Offices

Chambers of

CommerceInternational

National

Local

BNDES

BNDES Local

Offices

SEBRAE

Oficinas Locales de

SEBRAEPublic

Private

Public-Private

Confede-ración de Industrias

Conf. Industrias

Locales

FINEP

Oficinas Locales de

FINEP

APEX

International

Multilateral Investment

Banks

Min. De Industria y Comercio Exterior

Min. De Relaciones Exteriores

Agency for Industrial Develop-

ment

Estados /Municipio

Example: Institutional Ecosystem in Brazil

Source: CAF 2012

R&D Start-Up, Sustainability, Expansion Consolidation

Example: Instruments and Programs in Brazil

Exit to MarketVenture Capital Initial

SeedCapital

Research and Development

Angel Networks

InstrumentsFINEP

Non-reimbursable

funds

Innovar Seed

Innovar Juro Zero

Innova Brasil

InstrumentsSEBRAE

InstrumentsBNDES

FUNTEC

CRIATEC

Prosoft Comercializao / Prosoft Empresa

FINAMEPROFARMA CARTAO BNDES

FINEM Revitaliza

PROIMPE

PRIME

Negocio Certo Entrepreneurs fairs

Venture Capital

Expansion

Source: CAF 2012

Instruments and Programs to Expand SMEs’ Financial Access in

Latin America

National Development Banks in LAC *

Public Credit to SMEs

Number of % Assets (US$) %

First-tier banks 66 65.3 376,365 43.5

Second-tier banks

23 22.8 237,762 27.5

Banks of 1st and 2nd tier

12 11.9 251,043 29.9

TOTAL 101 100.0 865,169 100.0

Source: ALIDE data as of 2009 (Latin America Association of Financial Development Institutions)

(*) i.e. Chile-CORFO; Brazil-BNDES and FINEP; México-NAFINSA; Colombia-BANCOLDEX; Peru-COFIDE; etc.

Financial Development withCluster / Value Chain

CAF, IADB, World Bank, Governments

o Cluster Development Operations Manaos, Ceará, Dominica Republic, etc.

o City Development (Cities with Future) Comprehensive Approach - CAF

o Regional Innovation Systems In Santa Catarina-Brazil, San Juan-Argentina,

Costa Ricao Value Chain and Finance

Provinces in LAC countries

Successful Instruments and Programs for Financial Access

Source: Prepared by CAF with data from CAF, ALIDE, World Bank

Country NameGuarantees Chile

ColombiaMexico

Banco Estado - FOGAPEBANCOLDEX - Fondo Nac. Garantías (FNG)NAFIN Garantías Públicas

Credit Bureau Several countries

i.e. Chile, Peru

Factoring Mexico NAFIN Reverse FactoringNAFIN Cadenas Productivas

Seed Capital Several countries

Brazil -FINEP Inova, Chile-Sercotec, Uruguay-Red Emprender, Costa Rica, etc.

Outsourcing of Banking services

BrazilMexico

Caixa, Banco do BrasilBANSEFI - Banco de Ahorro Nac. y Serv. Financ.

CAF’s Role in SMEs’ Finance and Support of New Firms

CAF: Higher Credit Ratings than the Owners

Standard & Poor's Fitch Ratings Moody’s

Investment Grade

AAA

AA+

Chile AA

AA- A+ Chile

Chile

A

A- BBB+

Mexico, Peru, Brazil Colombia, Uruguay

Brazil, México, Peru Colombia

Mexico Brazil, Peru Colombia, Uruguay BBB

BBB-

Non-investment

grade

BB+ Venezuela

Uruguay

BB

BB- B+ Bolivia, Paraguay

Argentina Ecuador

Bolivia, Venezuela Argentina, Ecuador

Bolivia, Paraguay Ecuador, Venezuela Argentina B

B- CCC+

CCC

CCC-

Source: As of August 2012

CAF Investing in Microfinance FundsRegional Funds:

(i) LOC Fund

(ii) Solidus Investment Fund

(iii) Microfinance Growth Fund

(iv) Próspero Microfinanzas Fund

Bolivia•BancoSol (2 operac.)•Banco Los Andes ProCredit•Banco FIE (2 operac.)•FFP Prodem•FFP Fassil•Eco Futuro (2 operac.)•Cooper. Jesús Nazareno•ONG Crecer

Paraguay•Banco Regional•Visión Banco S.A•Banco Amambay

Uruguay•Microfinanzas del Uruguay S.A.

Peru•MiBanco•CMAC Arequipa•CMAC Tacna•Financiera Crear Arequipa•Edpyme Nueva Visión•Edpyme Confianza•Edpyme Edyficar•Caja Nuestra Gente

Argentina•FIE Gran Poder

Mexico•Banco Compartamos Panama•Microserfin•Banco Delta Colombia•Banco WWB Colombia (Cali)•2 Fundaciones del WWB• (Bucaramanga y Popayán) Ecuador•Banco Procredit

ParaguayVisión Banco S.A.

PanamaTrust (FCS)

BoliviaFondo Fortaleza PYMEFondo Emprender

BrazilFondo Burril Brasil, FMIEECRP VI Venture Fundo Mutuo

VenezuelaDynamic Equity Venture Fund

Trinidad y TobagoDynamic Equity Venture Fund

Dominican RepublicTrust Capital Semilla

ArgentinaCap VenturesFOGABAFondo PymarCGM Leasing

ColombiaFondo Escala Capital FCPColombia Opportunity FundFondo Nacional de Garantías

Costa RicaBanco ImprosaFinanciera Desyfin

MexicoFondo PronafimIgnia Fund Latin Idea Fund IINew Growth Fund I

CAF investing in Seed Capital, PE/VC

Regional Funds:

(i) Aureos Latin America Fund

(ii) Cleantech Fund

(iii) CASEIF Corporation II

SpainFondo Axon

Product:

Venture Capital

Guarantees

Value Chains PeruFOGAPI

EcuadorFideicomiso Inver. Agrop.Fondo País Ecuador

UruguayUruguay IVC PartnersFondo Emprender

BOLIVIABolivia Cost IndexCluster DevelopmentDevelopment AgencyCity Development

VENEZUELANetwork “Venezuela Sí

Compite” Incubators and UniversitiesSupport to Start-Ups (SACEV)

COSTA RICASupport to Public

administration efficiency and Public reform

PANAMAPanama Competitiveness

Program Innovation studies,

entrepreneurship

ARGENTINAEntrepreneurshipCluster DevelopmentTourism Development

COLOMBIA:Support to

Competitiveness StrategiesCluster Development

ECUADOR:Business Registration ProgramValue Chain in rural zonesSupport to Entrepreneurship

PERU:Corporate governance in Public firmsYoung Entrepreneurs programLocal Productive DevelopmentRegional supply chain SME networks

Supporting Productive Transformation

CAF Technical Cooperation to

SMEs

Conclusion: The Road Ahead

• Many obstacles to SMEs and new firms in the cycle of financing. So firms don’t grow and new ventures are lower than they should be.

• So, public policy have two tasks:– In 5 to 10 years, keep building the ecosystem with better

public capacity– In the short term, think in terms of ‘efficient and flexible’

instruments and programs.• In alliance with the private sector, combine provision of

financial access with technical cooperation to SMEs.• And finally, engage multilateral financial institutions (i.e. CAF)

in policy design and facilitation.

MARCO KAMIYAVice Presidency of Public Policy and Development Strategies

Division of Public Policy and Competitiveness

New Orleans, Thanks!