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SMEs: The Missing Middle
Peter Johnson, Developing World MarketsNovember 11, 2010
Securities transactions through DWM Finance LLC member FINRA/SIPCPast performance is not indicative of future results. Please see end of presentation for
Important Risks and Disclosures
Presentation Outline
I. Developing World Markets (DWM)II. SMEs: The Missing MiddleIII. SME Funding SourcesIV. DWM and SME FI FinancingV. Looking Forward: Increasing Financing for
SMEs
Securities transactions through DWM Finance LLC member FINRA/SIPCPast performance is not indicative of future results. Please see end of presentation for
Important Risks and Disclosures
I. Developing World MarketsDWM Finance, LLC Investment Banking
DWM Asset Management, LLC Asset Management
Relationships with 300+ MFIs and SME FIs Address full sweep of capital needs
Experienced team with long careers in emerging markets investment banking & fund
management
$650 million Micro and SME Financial Institution (FI)
Assets under Management Institutional-scale origination
capacity & credit skills Emerging Markets asset manager
since 1994
$850 million* Micro and SME FIs Capital Markets
TransactionsStructuringM&A/Strategic AdvisoryCorporate Finance Services
*includes AUM
Securities transactions through DWM Finance LLC member FINRA/SIPCPast performance is not indicative of future results. Please see end of presentation for
Important Risks and Disclosures
I. DWM’s Mission and Business Strategy
• Foster financial services to the poor in all developing countries
• Help strengthen & grow MFIs and SME FIs
• Link MFIs and SME FIs to international capital markets funding
• Design innovative financial solutions to meet the capital needs of MFIs and
SME FIs and help low-income entrepreneurs to grow and prosper
Linking MFIs and SME FIs in developing countries to international capital markets
MFIs and SME FIs
Investment Vehiclesdebt, equity, hybrids &
others
Entrepreneurs
Investors
DWM
Securities transactions through DWM Finance LLC member FINRA/SIPCPast performance is not indicative of future results. Please see end of presentation for
Important Risks and Disclosures
II. Defining SMEs
Small to Medium Enterprises (SMEs) still remains a catch-all phrase, open to many different business models and subject tomany different classifications particular to each respective region.
Varying Definitions of SMEs Institution Max. # of employees Max. Revenues or
Turnover ($)Max. Assets
World Bank 300 15,000,000 15,000,000
MIF-IADB 100 3,000,000 (none)
African Dev Bank 50 (none) (none)
Asian Dev Bank No official definition. Uses only definitions of individual national governments.
UNDP (none) (none) (none)
Securities transactions through DWM Finance LLC member FINRA/SIPCPast performance is not indicative of future results. Please see end of presentation for
Important Risks and Disclosures
II. SMEs and Economic Development
SMEs can promote economic development in emerging markets through:• Increased business productivity• Use and promotion of more advanced
technologies• Economies of scale• Employment creation
Securities transactions through DWM Finance LLC member FINRA/SIPCPast performance is not indicative of future results. Please see end of presentation for
Important Risks and Disclosures
III. Limited Financing: Obstacle to SME Growth
• SMEs worldwide named financing constraints as the second biggest obstacle to their growth, while large firms placed financing constraints fourth*
• Many SMEs do not qualify at commercial banks– Weak collateral, unaudited financials, and higher perceived
risk and cost• SME financing needs surpass MFI lending capabilities
– Inadequate underwriting methodologies– Inexperience with individual-based lending– Inexperience with collateral – Limited funding sources
*World Bank’s “World Business Environment Survey” 2008
Securities transactions through DWM Finance LLC member FINRA/SIPCPast performance is not indicative of future results. Please see end of presentation for
Important Risks and Disclosures
III. Current SME Lending Sources
• Banks: Commercial banks moving down-market – ACBA Credit Agricole Bank in Armenia– Banco Pichincha in Ecuador (CrediFé)
• MFIs: MFIs moving up-market– Mibanco in Peru– XacBank in Mongolia
• SME FIs– ProCredit Bank
• Capital Markets: Domestic and international structured debt transactions
• Venture Capital and Angel Investors
Deb
tEq
uity
Securities transactions through DWM Finance LLC member FINRA/SIPCPast performance is not indicative of future results. Please see end of presentation for
Important Risks and Disclosures
IV: DWM and SME Financing
• DWM has provided over $100MM in senior and subordinated debt to SME FIs including:
• 25% Equity stake in leading Bolivian SME FI• DWM arranged:– $25MM Bond issuance for AccessBank, Azerbaijan – €34MM Private placement for SME Bank Network
•Holding Co. of Int’l SME Bank Network •6 Affiliates of SME Bank Network
•2 Azeri MSME banks •1 Mongolian MSME bank
For DWM, investing in SME FIs is a natural extension of microfinance investing
Securities transactions through DWM Finance LLC member FINRA/SIPCPast performance is not indicative of future results. Please see end of presentation for
Important Risks and Disclosures
V: SMEs: Attractive Investment Space
• Strong growth potential – less saturated market than microfinance
• Good credit quality – DWM shows PAR>30 for SME banks ~1.5% less than pure microfinance institutions
• Impact investment – like microfinance, provides a private-sector approach to emerging markets economic development
Securities transactions through DWM Finance LLC member FINRA/SIPCPast performance is not indicative of future results. Please see end of presentation for
Important Risks and Disclosures
V. Moving Forward in the SME Space
• Public-private partnerships (e.g. multilaterals)• Guarantee programs
• Direct investments through domestic and international SME-focused funds
• Capital markets transactions• Increase liquidity for SME investment securities
• Advisory services• Equity investments in MFIs• Promote better business environment for SMEs
– Lower barriers to entry for small businesses– Improve quality of financial information for lenders
(e.g. credit bureaus)
Securities transactions through DWM Finance LLC member FINRA/SIPCPast performance is not indicative of future results. Please see end of presentation for
Important Risks and Disclosures
Contact Information
DWM Asset Management LLC800 Post Road, Darien, Connecticut 06820,
USAwww.dwmarkets.com
Tel: 1 203 655 5453 Fax: 1 203 656 9528 Peter Johnson Simone Balch Kari Filerman
[email protected] [email protected] [email protected]
12
Securities transactions through DWM Finance LLC member FINRA/SIPCPast performance is not indicative of future results. Please see end of presentation for
Important Risks and Disclosures
Risks and DisclosuresOpinion Any statements of opinion constitute only current opinions of DWM Asset Management, LLC, which are subject to change and which DWM Asset Management, LLC does not undertake to update. Unaudited Information Subject to ChangeSome information in this report is based on unaudited information and is subject to change.Third Party InformationSome information contained herein has been obtained from DWM Finance, LLC and other third party sources and has not been independently verified by DWM Asset Management, LLC. DWM Asset Management, LLC makes no representations as to the accuracy or the completeness of any of the information herein.Strategy/Process Risk DisclaimerNo investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY AN INTEREST IN DWM INVESTMENT PRODUCTS. NO SUCH OFFER OR SOLICITATION WILL BE MADE PRIOR TO THE DELIVERY OF AN OFFERING MEMORANDUM AND OTHER MATERIALS RELATING TO THE MATTERS MENTIONED HEREIN.
NO REPRESENTATION OR WARRANTY IS MADE BY DEVELOPING WORLD MARKETS OR ANY OF ITS AFFLIATES (COLLECTIVELY, DWM), INCLUDING ANY OF ITS AGENTS OR OTHER REPRESENTATIVES, AS TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN.
COPYRIGHT 2010.