ITCs Trade Finance for SMEs

Building capacities to improve access to finance

Tehran, Iran Financing of SMEs: Increasing SMEs' Access to Finance in the Context of the Global Financial Crisis 29 November 2009 Division of Business and Institutional Support, ITC

ITCs Mission

ITC enables small business export success in developing countries by providing, with partners, sustainable and inclusive trade development solutions to the private sector, trade support institutions and policymakers.

Building capacities on three levels

Trade Support Institutions Enterprises
Formulate strategies for exports

Trade Policy

Prepare for exports

Strengthen SME capacities following ITC criteria

Develop and implement strategies

Advise policymakers

Establish an adequate institutional framework

Conclude commercial transactions

Improve networks

Build capacity for trade negotiations

Export Strategy Exporter Competitiveness

Trade Intelligence
Business and Trade Policy

Trade Support Institution Strengthening

Trade Finance for SMEs is part of a section whose objective is to create a conducive business environment for exporting SMEs
Business Environment Section

Trade Law

Trade Finance for SMEs

Export Facilitation

The Business Environment Section provides specialized products and services for the development of exporting SMEs along an integrated approach in three areas

In most developing countries and transition economies Trade Finance is a major impediment to SME development
SMEs constitute the majority of business enterprises, and they are vital for employment generation and poverty alleviation. Lack of Trade Finance is a major impediment to ITCs thrive towards export impact for good: Financing is the number one constraint cited b by SMEs in developing countries (World Bank)

ITC's Trade Finance for SMEs Programme aims at assisting exporting SMEs at all stages of their development, by enhancing access to affordable credit, building entrepreneurs' financial management skills, and encouraging the development of financial instruments and mechanisms tailored to SME needs.

Impact of the Financial Crisis The financial crisis has exacerbated SMEs difficulties to access finance It is urgent to develop and implement short term solutions specifically designed to restore confidence and dialogue between SMEs and Financial Institutions. To alleviate the impact of the crisis on SMEs, ITC has developed a strategy bringing short and medium term solutions

In response to the lack of trade finance for SMEs, ITC addresses four main challenges with a detailed and integrated response
Challenges
A. Build capacities of SMEs to access trade finance and strengthen their financial soundness

ITC's response
Certified Trade Advisors program Online financial management training selfcheckers SME financial management certification

B. Enhance Financial Institutions' understanding of SME risk and their ability to evaluate needs and project proposals C. Coordinate with other financial organizations to mobilize long-term credit and guarantee lines dedicated to exporting SMEs D. Broaden the range of financial services tailored to SMEs

Competency as Collateral (LOANCOM) Progress monitoring and coaching of SMEs

Partnership with other financial organizations Long-term guarantee and credit lines SME competency building LoanCom Benchmarks and best practices for all relevant stakeholders

A. Building capacities of SMEs to access finance Setting up a network of national counsellors

Purpose
Generate a multiplier effect in country, through a network of counsellors providing training & advisory services in financial management to SMEs prior, during and after the loan

Implementation mechanism
Identification of potential counsellors and training in financial management Certification in financial management of counsellors satisfactorily fulfilling the program Can be combined to ITCs Enterprise Competitiveness Program

Sustainability
Certified counsellors are linked to a national Trade Support Institution SMEs to pay a fee for their services

A. Building capacities of SMEs to access finance Training modules in financial management

Target audience
SME Counsellors

Purpose
Support material used to train counselors in adopting sound financial management practices and developing bankable proposals

Implementation mechanism
Generic training set comprising seven modules developed by ITC Modules tailored to the specificities of the country and sector where the project takes place Training delivered face to face, followed by practical work Coaching throughout the training program

A. Building capacities of SMEs to access finance Training modules in financial management

Content of generic modules
1. How to estimate SMEs financial needs 2. Alternative sources of finances for SMEs 3. Payment mechanisms & risk mitigation in international trade 1. How to estimate SME financial needs 4. Developing bankable proposals 5. Bookkeeping & Cash Flow management 6. Analyzing financial statements 7. Budgeting & Forecasting

Introduction to short-term and long-term finance Analysis of key components that determine a companys financial needs (fixed assets, working capital, marketing costs, financial cushion, committed cash outflows) Methods for estimating a companys financial need

A. Building capacities of SMEs to access finance Training modules in financial management

Content of generic modules (contd)
2. Alternative sources of finance for SMEs Presentation of most common sources of finance available for SMEs Discussion of advantages & drawbacks of each source Procedure to select the most appropriate source of finance 3. Payment mechanisms & risk mitigation in international trade Main payment mechanisms in international trade, pros & cons and applicability How to select the best payment mechanism Key risk mitigation instruments in international trade

A. Building capacities of SMEs to access finance Training modules in financial management

Content of generic modules (contd)
4. Developing bankable proposals Understanding financial institutions practices & requirements for a loan proposal What makes a proposal bankable Process to develop a bankable proposal Common formats of business plans 5. Bookkeeping Role of bookkeeping and accounting for a company Best practices in bookkeeping Revision of bookkeeping process Practicing through exercises

A. Building capacities of SMEs to access finance Training modules in financial management

Content of generic modules (contd)
6. Analyzing financial statements Role of financial statements (internal/ external) Revision of key financial statements: balance sheet, income statement, statement of cash flows Introduction to financial ratios 7. Budgeting & Forecasting Importance of sound planning for business success Link between strategic planning and budgeting The budgeting process The master budget and its components Using data & information for effective financial control

A. Building capacities of SMEs to access finance Financial management self-checkers

Target users
SME managers

Purpose
Self-tutorials to identify and address weaknesses in financial management (SME FinCheck) and in accessing finance (SME FinAccess) Understand and quantify the impact of different loan and amortization scenarios on cash flow (SME LoanCalc), in preparation to negotiations with bank.

Implementation mechanism
Three generic self-checkers developed by ITC Self-checkers tailored to the specificities of the target country and sector Available online/ offline through partner Trade Support Institution Possibility to switch from one pre-defined language to another 8

A. Building capacities of SMEs to access finance Financial management self-checkers

Use of generic self-checkers
SME FinCheck SME manager answers a set of questions aimed at testing his knowledge in business management and financial management o Topics tested in financial management: knowledge of general concepts, ability to plan, execute and monitor the use of financial resources Once questions are submitted, the software generates a report on the SME managers performance o Graphical representation of performance in business/ financial management o Visual representation of performance in financial management broken down per sub-topic o Substantive explanations generated and displayed for questions where the SME manager answered incorrectly

A. Building capacities of SMEs to access finance Financial management self-checkers

Use of generic self-checkers (contd)
SME FinAccess Same principle as SME FinCheck: questionnaire to be answered by the SME manager, with automatic generation of a detailed performance report with graphs and substantive explanations Topics evaluated related to steps surrounding access to finance o Ability of SME manager to assess his real needs o Ability to identify best instrument and source of finance o Pre-requisites to preparing a loan request o Quality of the loan request (in particular financial part) o Submission of the loan request and negotiation with the bank

A. Building capacities of SMEs to access finance Financial management self-checkers

Use of generic self-checkers (contd)
SME LoanCalc The SME manager fills in the details of his (expected) loan, in particular amount, interest rate, maturity, amortization scenario The software returns different amortization cases and offers the SME manager the possibility to refine his analysis The SME manager has the possibility to export the amortization tables to excel and further rework data. o Example: in excel, he can add fees in order to determine the total cash outflow generated by the loan during the periods considered

B. Help FIs mitigate risk in SME lending LoanCom

Target users
Bank loan officers

Purpose
Online interactive decision support system for financial institutions involved in SME lending Innovative approach: o analyzing non-financial parameters alongside traditional financial parameters to determine the real potential of SMEs o aims at developing a new breed of bankers

Implementation mechanism
Tailored version of software developed in partnership with the partner financial institution Software can easily be integrated to FIs information system Software becomes property of the FI

B. Help FIs mitigate risk in SME lending LoanCom

Use of the decision support system
The loan officer fills in the financial and non-financial questions following his analysis of the project proposal and his interactions with the SME manager Based on his input, the software automatically generates a report analyzing the performance of the SME manager o Visual representation of financial and non-financial performance o Detailed analysis of the weaknesses of the SME/ project proposal o A final recommendation on how to proceed with the loan request

B. Help FIs mitigate risk in SME lending Early warning & coaching system of loan recipients
Concept
Partnership between Bank, Trade Support Institution and loan recipient to enable early detection of repayment problems, coupled with targeted coaching of the SME to address issues identified

Beneficiaries
The Bank: the probability of its loan being repaid is increased The TSI: fulfills its mission of assisting SMEs The SME: gets targeted assistance, reduces default risk and increases its creditworthiness

Conditions for sustainability

Committed partners Each party fully understanding reciprocal benefits Institutionalization of process

C. Coordinating with other organizations to secure credit & guarantee lines for SMEs
Concrete example: ITCs strategic Approach to Trade Finance for SMEs in Cambodia
ITC
SME competence

Local Institutions TRTA Services & Finance LOANCOM & other tools

SMEs Commodities Sector

Private Sector Development

SME Finance Credit & Guarantee Lines

UNDP/ AFD / WB

BANK(S)

D. Broaden range of financial services for SMEs Publications & Tools

Target users
SME managers Counselors & Trade Support Institutions Policy-makers

Purpose
Better diffuse information on SME finance Raise awareness and share best practices on innovative trade finance schemes

Implementation mechanism
Key topics identified and scope determined Publication developed in close collaboration with experts in the field

D. Broaden range of financial services for SMEs Publications & Tools

Examples
How to access finance a guide for exporting SMEs Islamic banking a guide for SMEs Finance for Trade Business Navigator on e-Finance for SME Exporters in Developing Countries Export Credit Insurance and Guarantee Schemes: A Practical Guide for Developing and Transition Economies Financing Service Exports Foreign Exchange Derivatives and Risk Management in Developing Countries How to Approach Banks: A Guide to Short term Trade Credit How to Evaluate Trade Credit Requests: A Guide for Bankers and the Scorecard Glossary of Trade Finance Terms Trade Finance: A legal Guide for Cross-Border transactions

D. Broaden range of financial services for SMEs Reaching out to SMEs in rural areas

Rationale
To make finance accessible to SMEs even in rural areas, where access to finance is limited or inexistant

Example of schemes under consideration

Postal banking Mobile banking

Poverty Alleviation, Women Empowerment Global Partnerships for Development Response to Financial Crisis

ACCESS TO FINANCE FOR SMEs FOR INTERNATIONAL COMPETITIVENESS

Restoring dialogue between SMEs and Financial Institutions: TSIs

In country multiplier for SME capacity building before, during and after the loan

Financial Institutions
Increased SME lending while mitigating risks

ITC OFFERING : A one stop window Knowledge base for SME capacity building in financial management TSI coaching for improved SME support Assistance to financial institutions

Partnerships

Thank you!
For more information please contact: International Trade Centre 54-56, rue de Montbrillant Palais des Nations 1211 Geneva 10, Switzerland Tel: +4122 / 730.11.11 Fax: +4122 / 730.05.76

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