1. 4 December 2002World Bank, Washington DC E-Finance for SMEs: Global Trends and National Experiences 1 Dr. Rouben Indjikian Head of E-Finance, UNCTAD “New Technologies for Small and Medium-Size Enterprise Finance” World Bank Global Conference 4-6 December 2002

2. 4 December 2002World Bank, Washington DC Introduction 2 New technologies for SME finance: how much of it is e-finance ? E-Commerce global trends and digital divide E-Finance : global trends E-Finance: national experiences Conclusions

3. 4 December 2002World Bank, Washington DC The World Wide Web population is expected to reach 655 million in 2002. OECD countries account for more than two thirds of it, while ICT related investment exceeds 7% of their GDP. The ICT connectivity (number of companies using web,email or EDI) was ranking from 65% in the US to 34% in Italy. EIU E-readiness indicators show similar patterns. China is catching up rapidly and is already the 3 rd user of Internet and mobile after USA& Japan. Starting at lower levels many developing countries try to catch up and ICT infrastructure grows faster here, with email dominating over web. More bandwidth, ISP and lower costs are the key issues. Internet might help their firms, primarily SMEs, to access foreign B2B and even B2C markets and sell and buy through e-markets, e-procurement systems,or through their own websites. 3 Internet Connectivity and E-Readiness: The World Digital Divide

4. 4 December 2002World Bank, Washington DC Africa had only 0.25% of Internet hosts. Out of 2.5 mln web users nearly 1 mln were in South Africa while Egypt had only 50,000. Middle East is a bit better off, but with few exceptions is also among low Internet density regions. Overall Arab world users are 3.1 million. Poor telecom infrastructure, low circuit capacity for sufficient international bandwidth, high tariffs, create major problems. Majority of websites are for information while trade is still offline. Realistic projects including outward online information, marketing and trade ventures might become a beginning of e-commerce. For many countries liberalisation is not enough for IT related investments. International assistance in debt relief, project financing and co-financing by MDBs, human resource development and business facilitation are equally needed to overcome the threat of further digital divide. Internet Connectivity and E-Readiness: Africa and Middle East 4

5. 4 December 2002World Bank, Washington DC UNCTAD Electronic Commerce and Development Reports (ECDR) and Forums: ECDR 2000 has covered issues of e-banking, e-brokerage and e-insurance, ECDR 2001 those of online payments, while ECDR 2002 addressed the topic of SMEs access to e- finance. UNCTAD Expert Meeting on e-finance for SMEs in Geneva(2001) and Side Event “E- Finance for Development in Monterrey (2002); regional e-commerce forums in Asia- Pacific (2002) and Latin America(2002) and elsewhere. 5

6. 4 December 2002World Bank, Washington DC E-Finance WWW-Revolution: Banking and Brokerage According to WB the e-banking share in banking in developed countries might increase from 9% to 50% in 2005, while in developing ones-from 2% to 20% or to 35%-the latter in case of improved policy environment. e-brokerage share: 27% to 80% by 2005 in developed countries and from 1,5% to 15% or 40% (improved policy) in developing ones. Future?- personalised WebPages where clients assets and liabilities are programmed to optimise their future cash flows and investment decisions based on future incomes, preferences and online advise of financial intermediaries. 6

7. 4 December 2002World Bank, Washington DC E-Finance for SMEs: from conventional to online payments instruments Conventional could be electronic while online is www Conventional: cash, money orders, checks, credit and debit cards, as well as drafts, notes, bills of exchange letter of credit and others, with or without third party protection; Online B2C&B2B: personal, corporate and government credit, debit and prepaid cards based on SSL, SET and other security systems; emerging world of smart cards; electronic money, e-cash, electronic checks, EBPP&EIPP, other electronic trade finance instruments and systems. 7

8. 4 December 2002World Bank, Washington DC E-Finance for SMEs: selected B2C online payment instruments Credit, debit cards and prepaid cards getting combined into smart cards (Visa, MasterCard, Amex etc). So far smart cards represent less than 10 % of all cards and a bulk of it is in B2C. However, in 2-3 years they might capture from one third to half of the cards market. Digital wallets (Yahoo Inc., Microsoft Passport); Peer to peer (P2P) payments (Paypal, BillPoint, PayDirect); Virtual escrow systems (escrow.com, tradesafe.com) Electronic bill payment and presentment or EBPP (e- route, billserv.com, CheckFree). 8

9. 4 December 2002World Bank, Washington DC E-Finance for SMEs: selected B2B online payment instruments Electronic checks, Electronic invoice payment and presentment (EIPP); Financial Services Markup Language (FSML), digital signatures el al; Public key infrastructures (PKI): issues of interoperability customisation, pricing, governance and oversight; From Business banking to Internet banking: FSTC Bank Internet Payments System (BIPS) as a front end to existing ACH debits and credit, wire transfers and other networks; Smart cards for B2B:with decreased costs in 2 years they might capture 25-30% of the card market. B2B might become important. Example-Visa Commerce Card. 9

10. 4 December 2002World Bank, Washington DC The future of e-markets: the B2B e-commerce growth A moderate projection for coming 3 years suggests that B2B trade will grow more than 4 times from current level of around a USD 1 trillion to more than 4 trillions with computing and electronics, motor vehicles, paper and office, petrochemicals and utilities as leading e- market industries. The most optimistic forecast predicts that e-commerce will reach nearly USD13 trillion in 2006, with B2B estimated at the level of more than 90% of the total. E-markets improve access to information on products and prices, cut search, selling and distribution costs, cushion variability of demand due to free flow of information and networking effect. 10

11. 4 December 2002World Bank, Washington DC E-Finance for SMEs: the opportunities of e-marketplacess E-markets for goods and services and large e- procurement platforms might open chances to developing countries SMEs to supply goods and services. As trusted suppliers the SMEs might eventually get e-finance, for pre-export, working capital etc. Those SMEs, which adapt fast to EDI type foreign trade and trade finance platforms for online negotiation, contracting, delivery and e-payments (Bolero, Tradecard, CCEweb etc), might greatly benefit by participating online in trade and payment transactions. 11

12. 4 December 2002World Bank, Washington DC E-Finance for SMEs : the case of e-credit insurance E-credit insurance global market is represented by a few global players. Each of them have developed online platforms for credit insurance, reisnurance, credit information and collection services. Their global Internet based commercial risk databases are the backbone of their e-commerce and the bulk of their clients are SMEs. Thus Coface Common Risk System Database contains online info on 41 million companies of which 1.2 million are from developing countries. Its @rating system insures trade debt and provides for credit limits online. Gerling NCM developed Internet based E-Service credit infromation and E-Trade credit insurance systems. Euler & Hermes, Dun & Bradstreet and other ECAs also developed similar systems. 12

13. 4 December 2002World Bank, Washington DC E-Finance for SMEs: local e-credit information & e-credit insurance, SMEs are the bulk of clients for credit insurance and information companies. As sellers they get a coverage from buyer’s risk. However, as buyers they need to present credible financials and payments record to the above companies. To get e-trade finance SMEs need to be registered in local, regional or global Internet based commercial risk databases. Local credit insurers and credit information providers should meantime move online their databases on credit risks and make them compatible with global ones. Countries lacking local credit information services should start them immediately both offline and online. To develop credible databases, company registries, public courts, accountancy and audit, and other services should really start functioning while informal economy should start shrinking. 13

14. 4 December 2002World Bank, Washington DC E-Finance for SMEs: some innovative approaches E-finance for SMEs by discounting their large buyer’s receivables; SME associations databases: the role of peers; E-finance for SMEs through a credit risk management clearinghouse ( Smetrix of Philippines); E-Finance for SMEs through SME friendly information requirements and their online management (SMEloan); Importance of extending venture capital and business angels financing to developing countries. 14

15. 4 December 2002World Bank, Washington DC E-Finance for SMEs: some national and regional best practices India: the case of ICICI; Brazil: the case of Itau Bank; Mexico: the case of Banamex; Bangladesh: the case of Grameen Bank; Sub-Saharan Africa: the case of Pride Africa. 15

16. 4 December 2002World Bank, Washington DC E-Finance for SMEs: some preliminary lessons Working with global and regional e-marketplaces as suppliers and buyers might give access to e-finance. Having Internet banking locally facilitates access to global e-finance platforms. Leapfrogging towards e-finance say through immediate introduction of smart cards and other e-payments instruments, pushes SMEs to start paying and getting paid online and seeking online trade finance and even loger-term finance. Public-private partnerships with international support might be essential to encourage SMEs to enter into the world of e-finance. 16

17. 4 December 2002World Bank, Washington DC E-Finance for SMEs: the importance of regulations and institutions Developing countries need to create and develop institutions to develop SME financing and especially its e-component. That implies: further investment to improve Internet connectivity and build up capacity for ICT use especially in financial and corporate sectors; creation of regulatory framework accepting electronic contracts, signatures, information etc. as well as of institutions to facilitate e-commerce and e-finance; concerted technical assistance by international agencies to help develop e-commerce strategies and practices, particularly in the area of e-finance, in developing and transition economies. 17

18. 4 December 2002World Bank, Washington DC 3 keywords for e-finance for SMEs Access Know-how Trust 18

19. Thank you for your attention for further information please contact rouben.indjikian@unctad.org or consult and download documents from http://www.unctad.org/ecommerce 19