Westbridge University México E-Financing for SMEs Page 1 United Nations Conference on Trade and Development E-FINANCING FOR SME’s ~ “Coalition” a view from a Mexican perspective ~

Westbridge University México E-Financing for SMEs Page 2 United Nations Conference on Trade and Development SMEs usually don’t have enough assets to guarantee a loan. New SM companies are not know by Banks, therefore they don’t get credits, thus they don’t have a credit history.... SMEs are not prepared for the constant financial ups and downs in Latin American countries. I. USUAL FINANCING PROBLEMS FOR SMEs

Westbridge University México E-Financing for SMEs Page 3 United Nations Conference on Trade and Development II. COALITION PLAYERS: Banks: Although this is a new model, these financial institutions are still the centerpiece of SME financing, and as such, they hold the highest recognition and trustworthyness in developing countries. Government: : There has to be someone who defines all of the financial rules in a country, and it usually is a government office such as the Central Bank or a Banking Comission. “a temporary alliance of distinct parties, persons, or states for joint action”

Westbridge University México E-Financing for SMEs Page 4 United Nations Conference on Trade and Development PLAYERS(cont.): Guarantor: In this case, it is a big and solid enterprise that has enough means to certify that it will pay for the debts it may acquire with a Bank. Guarantee: This role is represented by a small or medium sized company in need of a loan. Guarantees should have an agreement with a Guarantor for delivering materials, services or products.

Westbridge University México E-Financing for SMEs Page 5 United Nations Conference on Trade and Development GAMEPLAY The Government establishes the rules through its institutions Banks design innovative products, according to Gov. Rules. Small Companies are in need of financing. Big Companies have SMEs as suppliers

Westbridge University México E-Financing for SMEs Page 6 United Nations Conference on Trade and Development III. ‘COALITION’ A NEW INITIATIVE WITH OLD FUNDAMENTS The whole coalition strategy is based on the traditional Factoring service. This means that there has to be a Guarantee selling its services or products to a Guarantor, and who is waiting for a specified period of time in order to recieve money for the products and invoice he has already handed over. The Guarantor has an account payable, owing the Guarantee a certain amount of money over a time lapse, and since it is a big company who usually has very important business with the Bank in other aspects (treasury, investment instruments, stocks, etc.), it already has a business history with the financial institution.

Westbridge University México E-Financing for SMEs Page 7 United Nations Conference on Trade and Development III. ‘COALITION’ A NEW| INITIATIVE WITH OLD FUNDAMENTS As a provider for the Guarantor, the Guarantee has some signed documents (generally, accounts receivable) that he got from his client at the time of the products or services delivery, and that he can take to the Bank in order to cash them in advance of their due date. The Bank already trusts the Guarantor, so it can easily grant the money to the guarantee in exchange of the signed documents before the maturing date. Once the transaction is performed, the Guarantee has enough money to continue operating, and is no longer hand-tied until he gets a loan.

Westbridge University México E-Financing for SMEs Page 8 United Nations Conference on Trade and Development GAMEPLAY Delivers Goods and invoices Signs Debt documents Sends Acct Receivables List Selects documents to discount on Bank’s website and delivers physical debt papers Delivers funds Collects debt at maturity date Arbitrates in the case of difficulties

Westbridge University México E-Financing for SMEs Page 9 United Nations Conference on Trade and Development IV. E-COALITION On the guarantor’s perspective, an electronic coalition means that they will be able to keep the products and services coming without worrying about their suppliers going broke because of a cash flow lack. They won’t even have to worry about the document discounting at all, because the Bank takes charge of all of the process. For the Banks, it is a new service which will attract new customers or that will make existing ones extend business with them. The services they provide will generate comissions on the guarantor’s side, and interests from the guarantee’s side, and the best part is that it can mostly be an automated online process, so it means less expenses on mortar and workforce.

Westbridge University México E-Financing for SMEs Page 10 United Nations Conference on Trade and Development Technology can be one of the key factors to make this proposal known and successfully used by the members of a commercial chain. It simply makes the process of discounting accounts receivable easier by allowing suppliers to consult via websites the status of all of their pending invoices, and by facilitating them to request the factoring from the bank. IV. E-COALITION

Westbridge University México E-Financing for SMEs Page 11 United Nations Conference on Trade and Development IV. WHAT IS BEING DONE IN MEXICO Since the election of President Vicente Fox, the country has been going through numerous changes in the ways of conducting business with the goverment, who usually was inefficient and bureaucratic. Last year, a project called “E-Mexico” was launched by the head of the country, with the intention of modernizing all the processes that in one way or the other have a relationship with either persons or enterprises, and the country’s main developing bank (NAFIN) hasn’t been an exception. The concept of “Productive Chains” has already been adopted by that Bank, and with the coalition with some big enterprises, it has developed factoring services for SME’s

Westbridge University México E-Financing for SMEs Page 12 United Nations Conference on Trade and Development IV. WHAT IS BEING DONE IN MEXICO Moreover, some of those corporations include international commercial chains such as Walmart, Important government owned institutions, including the Federal Electricity Commission (CFE) an electricity generation and reselling monopoly, The health Institute for State workers (ISSSTE), and some big national enterprises. Other commercial Banks have already envisioned the high profits and controlled risk they can have with this approach, and have started developing functionalities on their websites that will enable them to do E-Finance in a short term.