IFC Financing to Micro, Small, and Medium Enterprises in the Poorest Countries Key Highlights IFC is working to develop solutions to close the micro, small, and (down 3 percent from $2.6 billion), $596 million of which was medium enterprise (MSME1) financing gap, collaborating with attributed to long-term financing. 129 financial institutions (FIs) across 39 International Development Association (IDA) countries2. By the end of calendar year (CY) 2012 IFC’s MSME clients had 4.54 million micro loans outstanding in IDA Countries (down from As of June 2013, IFC committed a total of $3.97 billion to MSME 8.23 million in CY2011), totaling $6.96 billion (up 22 percent finance in IDA countries, $3.18 billion for long term finance from $5.72 billion in CY2011). Similarly, IFC’s MSME clients had (including $381 million for funds supporting MSMEs), and 953 thousand small and medium loans outstanding by the end of $792 million for trade finance. In fiscal year (FY) 2013 alone, CY2012 (up 4 percent from 913 thousand in CY2011), totaling IFC MSME commitments in IDA countries were $2.53 billion $34.67 billion in IDA countries (up 5 percent from $33.09 billion in CY2011). MSME Financial Intermediary Portfolio, FY2013 (as of June 2013) IFC Committed Portfolio to MSMEs3 IFC Total Committed Portfolio to MSMEs IDA Countries ($ Million) (% of Total Portfolio) $3,000 Growth of Committed Portfolio: South Asia 35.7% => 6.8% growth in FY 2013 YOY $2,500 Sub-Saharan Africa 32.7% => 26.0% CAGR since 2000 $2,000 East Asia and the Pacific 17.2% $1,500 Europe and Central Asia 9.5% $1,000 Middle East and North Africa 3.3% $500 Latin America and the Caribbean 1.5% $- FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 MSME Loans by Type of IFC Clients in IDA Countries, CY2012 MSME Loans by Microfinance Institutions MSME Loans by SME Financial Institutions IFC was able to survey or extrapolate outreach data from 57 clients - IFC was able to survey or extrapolate outreach data from 72 clients - Microfinance Institutions (MFIs) in 28 IDA countries, 49 percent of small and medium enterprises (SME) FIs in 30 IDA countries, these clients received advisory services from IFC. 61 percent of these clients received advisory services from IFC. Number of Outstanding Average NPL Number of Outstanding Average NPL Loans Loan Portfolio Loan %4 Loans Loan Portfolio Loan %4 Outstanding in ‘000 $ Size Outstanding in ‘000 $ Size Micro Loans 2,854,518 3,451,074 1209 4% Micro Loans 1,689,430 3,504,762 2,075 11% Small Loans 401,831 6,270,348 15,604 3% Small Loans 398,724 8,047,736 20,184 9% Medium Loans 28,285 6614,102 233,841 2% Medium Loans 123,861 13,723,220 110,795 7% 1. MSME firm size definitions: IFC’s Financial Institutions Group categorizes its clients’ sub-borrowers according to the following definitions: (1) microfinance institution if loan < $10,000 at origination; (2) small enterprise if loan < $100,000 at origination; (3) medium enterprise if loan < $1 million at origination ($2 million for more advanced countries). 2. The International Development Association (IDA) is the World Bank’s Fund for the Poorest. Further information may be found at http://www.worldbank.org/ida/ 3. The committed portfolio in MSME FIs below does not include commitments for commercial banking trade finance and collective investment vehicles. 4. Nonperforming Loan (NPL) = > 90 days past due loans. Growth Trends of Loan Volume by Type of Institution in IDA Countries, CY2006-CY20124 Volume and Number of Micro Loans by MFIs Volume and Number of SME Loans by SME FIs $4,500 7,600 8,000 700 $30,000 632 Number of Loans, Thousand Number of Loans, Thousand $4,000 7,000 Volume of Loans, $ Million Volume of Loans, $ Million $25,000 501 523 600 $3,500 5,357 6,000 485 500 $3,000 5,000 $20,000 359 $2,500 400 3,327 4,000 $15,000 $2,000 2,855 300 2,480 2,584 3,000 $1,500 $10,000 158 1,018 2,000 200 $1,000 115 1,000 $5,000 100 $500 $- - $- - 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012 SME Loans Number (right axis) SME Loans Volume (left axis) SME Loans Number (right axis) SME Loans Volume (left axis) The trend of micro loans provided by microfinance institutions The portfolio of SME loans provided by SME FIs experienced smooth was not even over time. Recent economic growth observed in IDA growth since 2006 until the drop in CY2011 by 22 percent. This countries boosted IFC clients’ portfolio in CY2011 by 38 percent was a result of the termination of business with 13 clients, the three versus CY2010. This increase resulted from the addition of 15 new largest of which (in India, Sri Lanka and Indonesia) accounted for clients, the 3 largest of which contributed 55 percent to the total 42 percent of total SME portfolio in IDA countries in CY2010. This MFI portfolio in IDA countries. In CY2012, portfolio contraction contraction was partially compensated by adding 16 new clients, by 20 percent can be mainly explained by the squeezing of the which contributed $1.5 billion in CY2012. portfolio of an Indian client by $600 million. MSME Portfolio Composition by Loan Category in IDA Countries, CY2012 MFI Portfolio SME FI Portfolio 14% 21% Micro Loans Micro Loans 41% Small Loans 54% Small Loans 32% Medium Loans Medium Loans 38% MFI Micro Loans Small Loans Medium Loans SME Micro Loans Small Loans Medium Loans 2006 60.5% 28.2% 11.3% 2006 13.4% 37.6% 49.0% 2007 72.1% 19.4% 8.5% 2007 8.3% 32.2% 59.5% 2008 67.4% 22.4% 10.3% 2008 7.2% 31.7% 61.1% 2009 77.9% 14.4% 7.7% 2009 7.7% 34.6% 57.8% 2010 71.4% 18.6% 10.0% 2010 7.6% 30.1% 62.3% 2011 24.9% 36.7% 38.3% 2011 6.9% 30.9% 62.2% 2012 21.1% 38.4% 40.5% 2012 13.9% 31.8% 54.3% Total Portfolio Composition by Loan Category in IDA Countries, CY2012 MFI Portfolio Composition: Volume of Loans SME FI Portfolio Composition: Volume of Loans 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012 Corporate Medium Small Micro Retail Corporate Medium Small Micro Retail The portfolio composition among the MFI clients in IDA countries 30 percent over the last three years, while the share of corporate demonstrates the historical bias towards retail loans, the share loans volume increased from 29 percent in CY2006 to 52 percent of which increased from 18 percent in CY2007 to 45 percent in in CY2012. CY2012. The share of retail loans by SMEs were stable around MFI Portfolio Composition: Number of Loans SME FI Portfolio Composition: Number of Loans 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012 Corporate Medium Small Micro Retail Corporate Medium Small Micro Retail Analyzing the portfolio composition based on the number of loans, a large scale yet. SME FIs’ portfolio is mainly concentrated in retail one might notice that the lion share of the portfolio is attributed and corporate loans. It is worth mentioning that retail loans account to the retail and micro loans. Loan portfolio by MFIs is consistent for 76 percent of number of loans, while only 31 percent in volume in both volume and number of loans: microfinance institutions are terms. Although the corporate loans account for only less than one relying largely on the retail loans while decreasing micro portfolio percent of the number of loans, due to the scale of transactions, over time. Since CY2011 MFIs in IDA countries started diversifying they account for 52 percent of the share in the volume of loans. their portfolio, adding SME and corporate loans, although not on Trend Analysis of Compounded Annual Growth Rate (CAGR)5 CAGR Trend – Micro Loans by MFIs in IDA Countries CAGR Trend – SME Loans by SME FIs in IDA Countries 50% 46.5% 60% 37.4% 50% 46.0% 48.2% 40% 40% 30% 22.0% 30% 20% 20% 13.5% 11.3% 8.6% 7.5% 8.5% 10% 10% 5.6% 8.1% 0% 0% 2004-2007 2008-2010 2011-2012 2004-2007 2008-2010 2011-2012 Number of Micro Loans Volume of Micro Loans Number of SME Loans Volume of SME Loans 5. Compounded annual growth rate (CAGR) from 18 reporting and repeated clients in the CY2004-CY2007 period, 37 reporting and repeated clients in the CY2008-CY2010 period, 46 reporting and repeated clients in the CY2011-CY2012 period, excluding greenfield institutions and FIs that are closing their operations. Change in Deposits Volume CY2009-CY20126 Volume of Micro Loans and Deposits Volume of Small/Medium Loans and Deposits by MFIs in IDA Countries ($ Billion) by MFIs in IDA Countries ($ Billion) $18 $17.0 $35 $16 $29.1 $30 $14 $12 $25 $10 $20 $8 $15 $12.7 $13.0 $12.9 $6 $4.2 $4.9 $3.6 $3.5 $10 $4 $3.1 $2 $1.4 $5 $1.4 $1.0 $2.1 $1.2 $0.2 $- $- 2009 2010 2011 2012 2009 2010 2011 2012 Micro Deposits Micro Loans Small/Medium Deposits Small/Medium Loans Volume of Micro Loans and Deposits Volume of Small/Medium Loans and Deposits by SME FIs in IDA Countries ($ Billion) by SME FIs in IDA Countries ($ Billion) $30 $27.3 $100 $25.4 $88.0 $90 $25 $80 $20 $70 $14.4 $60 $50.6 $15 $50 $40 $34.7 $30.6 $10 $23.1 $26.1 $21.8 $30 $20.4 $5 $3.6 $3.5 $20 $1.9 $1.9 $1.5 $10 $- $- 2009 2010 2011 2012 2009 2010 2011 2012 Micro Deposits Micro Loans Small/Medium Deposits Small/Medium Loans The volatility of the deposits volumes in IDA countries was mainly volume held by SMEs in CY2011. Moreover, next year this client driven by IFC portfolio reconfiguration. Thus in CY2011 one of the was reclassified from MFI to non-MSME, thus MFI portfolio shrank large SME FIs in India, with portfolio of $25 billion of micro and significantly in CY2012. The major drivers of deposits portfolio by $39 billion in small and medium deposits, was reclassified to MFI type SME FIs growth were: a) scaling up of four clients in Sub-Saharan institution. Since this client had a fairly large portfolio (accounted Africa by $7.6 billion; b) scaling up of three clients in East Asia and for 93 percent of entire deposits portfolio held by MFIs in CY2011), the Pacific region by $5 billion; and c) adding three new clients with this reclassification was the major reason for the drop in deposits joint portfolio of $5.4 billion. 6. The deposits data includes retail, MSME and other commercial portfolio deposits. Micro and Small/Medium deposits classifications were done in accordance with definition of relevant loan size noted in footnote 1. Martin Hommes | Mhommes@ifc.org Aksinya Sorokina | ASorokina1@ifc.org