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Ideas for MSME/SME financing from international models

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Devansh Doshi
Devansh Doshi

This is a slideshow presentation made for a competition. This covers Germany's cluster based financing, Thailand's SME bond project, and factoring by Mexican central bank, Nafinsa.

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MSME FINANCING CHALLENGE Team Strategem Devansh Doshi Nikhil Indla IIFT Delhi
MSMEs Requirement Wholesale Products Working Capital Delivered Retail Style Simple, Standardized Terms & Conditions Capital Machinery Finance Quick Delivery Business Expansion Finance Short Term and Festival Working Capital Loans Flexible Repayment Structure – Matched to Cash Flow
The Challenge To develop a non-transactional relationship-based approach that can be applied across a large enough segment of the market. generates enough volume to be sustainable One possible solution is the Cluster Based Approach
Defining Clusters UNIDO defines clusters as sectorial and geographical concentrations of enterprises that produce and sell a range of related or complementary products and, thus, face common challenges and opportunities External Economies A pool of Sectorspecific Skills Development of Specialized Services India has 388 clusters spread over 21 states in various parts of the country
Financing Advantages Monitoring by the lending institutions Dealing with welldefined and recognized groups Availability of appropriate information for risk assessment Reduction in costs
Thailand’s MSME Definition Small Medium Capital Capital Type Employees (million Employees (million baht) baht) Not more Not more Production 51-200 51-200 than 50 than 50 Not more Not more Service 51-200 51-200 than 50 than 50 Not more Not more Wholesale 26-50 51-100 than 25 than 50 Not more Not more Retail 16-30 31-60 than 15 than 50 Trade Sector Redefinition needed to have better development of financing
Germany’s Cluster Financing Approach Funding of Existing Clusters • Focus on funding the existing clusters rather than developing infrastructure for a new cluster • India has 388 clusters Towards Project Based Financing • Current focus on financing the entire institution • Need to analyse only the viability of the project Financing Addition of New Services • Need for expansion capital • Lower risk than funding a start up
Mexican Development Bank Nafinsa’s Electronic Bill Factoring Exchanges MSMEs sell products to big companies in bulk They typically have to wait for 90 to 120 days for the payment This reduces their working capital that is the prime need of a MSME Banks charge an interest rate in the range of 10% -12% MSME bills can be auctioned on an electronic platform CCIL, BSE, and NSE as the prime platforms
Thailand’s SME Bond Market Thai Bond Market Association Thai Chamber of Commerce Federation of Thai Industries TRIS Rating Co. Ltd SME Bond Project Thai Listed Companies Association Fitch Ratings (Thailand) Co., Ltd Bond Electronic Exchange
Conclusion Redefinition of MSMEs Project based financing Expansion based financing Electronic bill factoring exchanges MSME bond market
Thank You!

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Ideas for MSME/SME financing from international models

  • 1. MSME FINANCING CHALLENGE Team Strategem Devansh Doshi Nikhil Indla IIFT Delhi
  • 2. MSMEs Requirement Wholesale Products Working Capital Delivered Retail Style Simple, Standardized Terms & Conditions Capital Machinery Finance Quick Delivery Business Expansion Finance Short Term and Festival Working Capital Loans Flexible Repayment Structure – Matched to Cash Flow
  • 3. The Challenge To develop a non-transactional relationship-based approach that can be applied across a large enough segment of the market. generates enough volume to be sustainable One possible solution is the Cluster Based Approach
  • 4. Defining Clusters UNIDO defines clusters as sectorial and geographical concentrations of enterprises that produce and sell a range of related or complementary products and, thus, face common challenges and opportunities External Economies A pool of Sectorspecific Skills Development of Specialized Services India has 388 clusters spread over 21 states in various parts of the country
  • 5. Financing Advantages Monitoring by the lending institutions Dealing with welldefined and recognized groups Availability of appropriate information for risk assessment Reduction in costs
  • 6. Thailand’s MSME Definition Small Medium Capital Capital Type Employees (million Employees (million baht) baht) Not more Not more Production 51-200 51-200 than 50 than 50 Not more Not more Service 51-200 51-200 than 50 than 50 Not more Not more Wholesale 26-50 51-100 than 25 than 50 Not more Not more Retail 16-30 31-60 than 15 than 50 Trade Sector Redefinition needed to have better development of financing
  • 7. Germany’s Cluster Financing Approach Funding of Existing Clusters • Focus on funding the existing clusters rather than developing infrastructure for a new cluster • India has 388 clusters Towards Project Based Financing • Current focus on financing the entire institution • Need to analyse only the viability of the project Financing Addition of New Services • Need for expansion capital • Lower risk than funding a start up
  • 8. Mexican Development Bank Nafinsa’s Electronic Bill Factoring Exchanges MSMEs sell products to big companies in bulk They typically have to wait for 90 to 120 days for the payment This reduces their working capital that is the prime need of a MSME Banks charge an interest rate in the range of 10% -12% MSME bills can be auctioned on an electronic platform CCIL, BSE, and NSE as the prime platforms
  • 9. Thailand’s SME Bond Market Thai Bond Market Association Thai Chamber of Commerce Federation of Thai Industries TRIS Rating Co. Ltd SME Bond Project Thai Listed Companies Association Fitch Ratings (Thailand) Co., Ltd Bond Electronic Exchange
  • 10. Conclusion Redefinition of MSMEs Project based financing Expansion based financing Electronic bill factoring exchanges MSME bond market