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Your Partner in Growth and Development 1 © Copyright FINA Bank Ltd SME Banking: FINA GROUP Presentation by Frank Griffiths, FINA Group CEO World Bank Workshop on SME Financing Dar es Salaam, Tanzania June 26-27, 2007
Your Partner in Growth and Development 2 © Copyright FINA Bank Ltd SME Banking: FINA Group Economy Overview State Policy Overview FINA Group and FINA Bank Ltd. Kenya Technical Assistance on Bank Downscaling Principles and Approach Lessons and Examples
Your Partner in Growth and Development 3 © Copyright FINA Bank Ltd Economy Overview: Kenya Population 36.9 million Median Age: 18.6 years Inflation: 9.7% Feb. 07, expected to continue moderating in 2007 GDP +6.0% (2006) vs. +5.8% (2005) –forecast 2007: IMF +5.7% GDP per capita USD 1,200 (2006) USD/KES (31/05/07) Kenyan Shilling grows stronger due to FCY inflows from Kenyan Diaspora, agriculture, tourism, S. Sudan reconstruction. Expected moderate depreciation closer to elections Unemployment rate 40% (2001 estimate) Population below the poverty line 50% (2000 est.)
Your Partner in Growth and Development 4 © Copyright FINA Bank Ltd Economy Overview: Banking Sector, Kenya 2006 Current min core capital requirement Kes250m /USD 3.7mln Recent budget increasing to Kes1bln /USD 14.7mln by banks, total banking assets Kes751bn / USD 11bn (2006) Multinational Banks (Barclays, Standard Chartered, Citibank, Stanbic) - 35% of market share Next 5 biggest local banks (by asset size) – 33% of market share 34 remaining banks – 21% of market share T-bill yield: 91-d 6.487% (auction Jun1807) 182-d 7.028% () Access to SME finance
Your Partner in Growth and Development 5 © Copyright FINA Bank Ltd SME Banking: FINA Group Economy Overview State Policy Overview FINA Group and FINA Bank Ltd. Kenya Technical Assistance on Bank Downscaling Principles and Approach Lessons and Examples
Your Partner in Growth and Development 6 © Copyright FINA Bank Ltd State Policy Overview, Kenya Government slow to modernize Petty bureaucracy Licensing requirements Out dated legal framework –Land registry –Company law –Judicial system
Your Partner in Growth and Development 7 © Copyright FINA Bank Ltd State Policy Overview, Rwanda Membership of EAC Move to anglophile legal system Desire to modernize Corruption dealt with swiftly Permits easy to obtain Embrace investors
Your Partner in Growth and Development 8 © Copyright FINA Bank Ltd SME Banking: FINA Group Economy Overview State Policy Overview FINA Group and FINA Bank Ltd. Kenya Technical Assistance on Bank Downscaling Principles and Approach Lessons and Examples
Your Partner in Growth and Development 9 © Copyright FINA Bank Ltd FINA Group Snapshot Group achieves returns equal or superior to banks of comparable size that do not have an SME focus Social Corporate Responsibility Projects & Community Development FINA Bank Kenya & Rwanda: Regional SME focus Total staff 268: 5 branches in Kenya, 5 branches in Rwanda. Total Group Assets: USD 147mln By 2010: 4 countries, 30 – 35 branches
Your Partner in Growth and Development 10 © Copyright FINA Bank Ltd FINA Bank Kenya: background Small private bank, historically focused on larger, Asian-owned businesses New shareholder repositioning bank to address the broader SME sector Multi national & experienced Board of Directors Multicultural and diverse senior management 20 th bank in Kenya by asset size (2006) Increasingly competitive banking market Poor skills of lending staff and legacy credit culture Underdeveloped SME borrowers finance skills, reporting standards and legal framework for lending
Your Partner in Growth and Development 11 © Copyright FINA Bank Ltd SME Banking: FINA Group Economy Overview State Policy Overview FINA Group and FINA Bank Ltd. Kenya Technical Assistance on Bank Downscaling Principles and Approach Lessons and Examples
Your Partner in Growth and Development 12 © Copyright FINA Bank Ltd Technical Assistance Donor: Financial Sector Deepening Trust Kenya Technical Assistance Provider: ShoreBank International Ltd. Donor testing the approach (TA only; no loan funds) Donor support in steps: –Began with one month feasibility study –Followed (after a pause) with 4 months pilot –Followed (after a pause) by 5 months extension –Followed (after 3 months) by 11 months extension Polices, procedures and products developed All new staff, including departmental management, hired and trained No lending took place during pilot; lending started during extension phase Loan closing process proved to be very lengthy
Your Partner in Growth and Development 13 © Copyright FINA Bank Ltd Resources Staff -Department Structure: Head of SME, 3 Team Leaders, 3 Relationship Managers, 6 Relationship Officers, 5 Junior Relationship Officers, 1 Screener -High Turnover -Total # of staff trained: 31 External Resources -Technical Assistance: on-site full-time Advisor -FMO Loan: 3mln for 7 years -USAID DCA Facility: USD 5mln, 50% guarantee Jul05Jul06Jul07 SME Staff7719
Your Partner in Growth and Development 14 © Copyright FINA Bank Ltd SME profile: Nairobi & Mombasa Financing needs: Kes0.3– 10mln (USD 4,400 – 147,000): Working capital, Asset Finance, Trade Finance, Forex Formally registered business Sole Proprietors, Partnerships, LLCs Up to 100 employees Up to Kes 50mln (USD 735,000) in annual turnover Average borrowers age: 41 years 60% of customers new relationships with Bank 44% of borrowers no prior credit history 18% female borrowers 1,465 jobs sustained 324 jobs created
Your Partner in Growth and Development 15 © Copyright FINA Bank Ltd SME Portfolio Amount Disbursed: Kes 335mln / USD 5mln (171 loans) Amount outstanding (31/05/07): Kes 308mln / USD 4.5mln (165 loans, 144 active borrowers) PAR > 30 days: 2.2% (8 borrowers) Ave loan size: USD 29,200 Ave term: 30 months Ave Interest Rate: 18.96% p.a. Break Even: Dec06 (14 months after roll out)
Your Partner in Growth and Development 16 © Copyright FINA Bank Ltd Projected growth: disburse Kes761mln/USD11mln by Dec07 SME Portfolio 15% of total bank portfolio
Your Partner in Growth and Development 17 © Copyright FINA Bank Ltd SME Banking: FINA Group Economy Overview State Policy Overview FINA Group and FINA Bank Ltd. Kenya Technical Assistance on Bank Downscaling Principles and Approach Lessons and Examples
Your Partner in Growth and Development 18 © Copyright FINA Bank Ltd Principles and Approach: Cash Flow based Lending Core Principles of SBI SME Credit Methodology: Cash flow-based – Attempt to measure the clients real capacity to generate future cash flow for servicing debt (not always evident in official historical accounting) –Develop lender skills in the construction of well-founded and defensible cash flow projections –Cash flow model – Sensitivity and breakeven analysis Character based – Quality and experience of management Interviewing and due diligence skills
Your Partner in Growth and Development 19 © Copyright FINA Bank Ltd Principles and Approach: Human Resources; Sales & Marketing Transforming function-oriented analysts into client-oriented relationship managers Proactive approach to sales Training in selling (cross-selling) skills and customer service Educating Customers Performance Incentive Schemes
Your Partner in Growth and Development 20 © Copyright FINA Bank Ltd SME Banking: FINA Group Economy Overview State Policy Overview FINA Group and FINA Bank Ltd. Kenya Technical Assistance on Bank Downscaling Principles and Approach Lessons and Examples
Your Partner in Growth and Development 21 © Copyright FINA Bank Ltd Lessons Strengths Shareholders and top management support Ability to hire and train new staff Successful repositioning & re-branding of the bank and launch of SME products Donor prepared to provide long term commitment Weaknesses Initial donor hesitancy – Limited consultant resources – Disrupted implementation effort Lack of skilled human resources in the field Cultural resistance to sales approach Weak original bank image in the marketplace Inefficient security perfection system leading to an extended turn-around time
Your Partner in Growth and Development 22 © Copyright FINA Bank Ltd Summary: Lessons for Successful TA Long-term, embedded approach Alignment of goals (bank, donor and consultant) –Patient shareholders –Commitment & buy in of senior management –Collaborative approach –Adapting methods to existing structures & country context Design program for long term sustainability and profitability from outset Incentive systems for staff Technical Assistance designed and delivered in line with: –Local market conditions; Maturity of financial institution; Receptiveness of senior management Local staff development as an aspect of sustainability
Your Partner in Growth and Development 23 © Copyright FINA Bank Ltd For More Information FINA Bank Ltd. Kenya Frank Griffiths, Group CEO P.O. Box 20613, Kimathi Street, FINA House Nairobi, Kenya FINA Bank Rwanda Steve Caley, Managing Director Address: 20, Bld de Revolution P.O. Box 331 Kigali, Rwanda
Workshop on SME Financing Dar es Salaam - June 26, 2007 Building up capacities for successful lending to Micro, Small and Medium-sized Businesses.
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