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Visioning the Strategic Role of Development Finance Institutions34th ADFIAP Annual Meeting, Kyrenia, North Cyprus20th - 23rd April 2011
DFIs and SME Finance:Building Capacity for SME Development and Innovative Financing Mechanisms
DFIs Challenges: Past, Present and Future...
1. Balancing Act2. Evolving in Nature3. Keeping Abreast4. Staying Relevant5. Target Market6. Making the Difference
Balancing Act...
Developmental Role
Financing & Profit Making
Merit Based
Need Based
High Utilization of Open Market
Funds
High Interventions i.e. Business
Advisory Supports
Evolving in Nature...
A sound development bank is one that is changing and living up to its underlying goals, both financial and economic, seeking continually to regenerate itself in the light of the changing circumstances
Each development bank is unique to the environment and there is no single solution applicable to all
Each institution must be self-reliant and capable of using its resources efficiently
It cannot do so if it relies on procedures automatically and repetitiously satisfying yesterday’s standards
Keeping Abreast...
Market & Industry
Requirement (Domestic &
Global)
Rapid Technology
Advancement (Efficiency; Greater Market
Outreach)
In-House Knowledge &
Capacity Building; i.e.
Internal Expertise
(Human Capital Development &
Resources)
SME Customer’s Business &
Financial Needs
(Products & Services)
Socio-Economic
Requirement (Government Aspirations &
Developmental Policies)
Economy; Industry; Market;
Technology; & Knowledge
Progressions
Staying Relevant...
The Tenth Malaysia
Plan
New Economic Model
New Key Results Area
Government Transformation
Plan
Effective Integrations and Implementations at the SME Bank
1. SME Bank’s Evolving Role as a DFI
2. Promoted Growth Areas3. Strategic Initiatives
4. Effective Implementation5. Key Performance Indicators
Stakeholders Engagement - Maintain a mutually beneficial relationship with the individuals and institutions on whom its effectiveness depends
The Concept of Change, Transformation, Innovation and the Culture of Nurturing - Requires that its staff and training programs be oriented towards inculcating in everyone - staff as well as management
Developmental - Never end the process of reviewing its own experience and of society’s changing needs
Dynamic - Requires that its own policies be renowned and marked to market
Target Market...
Making the Difference...
Turning and Changing From:
1. Impossible to Possible2. Dreams to Reality3. Design to Redesign4. Synergy to Energy5. Domestic to Global6. Interventions to Inventions7. Ideas to Bankable Businesses
Quick Take: SMEs Development in Malaysia
1. Malaysian Shores2. SME Significant Contribution to the Economy3. Shifting Traditional Economy to an Innovation Based Economy4. SME Significant Contributions to the Economy5. Important Driver to Achieve a Developed Nation and High Income Status6. Multi-Facet Challenges and Limitations7. DFIs: An Integral Component in Executing Government’s Agenda in SME Development
Malaysian Shores...
SMEs constitute 99.2% of total business establishments in Malaysia
In line with the New Economic Model (NEM), with the exponential annual growth of 6.5%, the GDP value will be around RM900 billion by 2020
It is targeted that the SMEs’ contribution towards GDP will stand at 50% - 60% which will be around RM450 bill - RM540 bill by 2010
Characteristics of Malaysia in 2020
Market LedWell-Governed
Regionally IntegratedEntrepreneurial
Innovative
LeadershipLeadership GovernanceGovernance
PlanetPlanetProfits/ProductivityProfits/Productivity
PeoplePeople
The Five (5) Dimensions of Global Changes
2010 2020
Value Drivers
8 Strategic Reforms Initiatives
Average Annual
Growth of 6.5%
Current Income
High Income
Economies
Lower Income
Economies
Investment
Labour
Efficiency
Per Capita Income
USD
$17,500
$15,500
$7,000
Unlocking the Value Drivers
Source: New Economic Model for Malaysia Part 1
SME Significant Contributions to the Economy
Shifting Traditional Economy to an Innovation Based Economy
Important Driver to Achieve a Developed Nation and High Income Status
Multi-Facet Challenges and Limitations
DFIs: An Integral Component in Executing Government’s Agenda in SME Development
Visioning SME Bank: Building Tomorrow’s Future Today
1. Vision & Mission 2. Raising the Bar3. IQ-Dagang4. Moving Forward: - The Importance of SME - Moving from funding standpoint, rather than outcome based - New Business Model: Focused on financing the ecosystem, driven by desired outcomes (i) & (ii)
Vision
Mission To support Government’s
Economic Agenda in developing SMEs as an engine of growth
To be fully-fledged specialized financial institution to nurture the small medium industry and enterprise for Nation building
Raising the Bar Launched in August 2010
The Objectives:
To enhance the Bank’s services via unique partnership with recognized external service providers, a partnership that is constantly developing in line with the economy
As at December 2010: A total of 104 professionals and industry experts have registered with the Bank
IQ-Dagang Officially introduced in
October 2010
Approaches: i) To turn viable business ideas to be credit worthy ii) To help and guide entrepreneurs to secure funding iii) To nurture entrepreneurs towards sustainable success iv) To have more business partners (including SME Bank) to play roles as investors in business matching v) To simplify and clarify the loan application process
As at April 2011: i) 129 ideas registered ii) 19 ideas accepted iii) 1 idea has secured fundings from SME Bank
DFI’s who’s socio economic
targets are realized, have
poor commercial results
DFI’s with strong commercial results, no
longer focus on the socio economic agenda
Based on the initial
understanding, socio economic and commercial
goals are deemed to be mutually
exclusive
How then do we measure the
success of SME Bank?
“Taking everything into
account, what is the appropriate
business operating model moving forward?
Moving Forward...
The Importance of SME
YEAR 2010 (GDP VALUE: RM540 bill)
Contribution by SMEs (37%): RM200 bill
YEAR 2010 (FINANCING REQUIRED)Expected Needs of SMEs: RM120 bill
Expected Contribution by SMEs (50%): RM300 bill
YEAR 2015 (GDP VALUE: RM740 bill)
YEAR 2015 (FINANCING REQUIRED)Expected Needs of SMEs: RM180 bill
The needs of SMEs are growing over the years and SME Bank should assume a
significant role in meeting the requirement
Moving from funding standpoint, rather than outcome based
New Business Model: Focused on financing the ecosystem, driven by desired outcomes(i)
New Business Model: Focused on financing the ecosystem, driven by desired outcomes (ii)
Thank YouTogether we create
Value towards sustainable
Success