3 Critical Questions:

1
3 Critical Questions

• What do we know about SME Finance?
• Is there a technological solution?
• Will it work?

2
A. What We Know

• Numerous Constraints to SME Financing
• - Legal/Regulator Lacunae
• - Financial Infrastructure Weaknesses
• - Lack of reliable financial information on
  SMEs
• - SMEs lack skills ? Financial, strategic,
  marketing

3
A. What We Know

• Bank Perceptions of SMEs are Pessimistic
• - SMEs cannot provide standardize financials
• - Lending to the sector is
• ? inefficient
• ? high cost
• ? not profitable
• - Risk is high
• - Collateral guarantees are mandatory

4
A. What We Know

• Some Banks are trying to develop credit scoring
  and risk rating systems for SMEs, but
• - Standardized Financial Data is a Problem
• - Bank financial analysis skills for SMEs are
  underdeveloped
• - Bank internal culture is still heavily biased
  toward collateral, not cashflow
• - Lending to SMEs still depends of credit
  enhancements

5
A. What We Know

• Lots of mechanisms have been tried to jump start
  SME lending
• - TA and training to SMEs on business plans,
  marketing, HR, financial management
• - TA and training to the Banks on credit
  analysis, risk management, understanding SMEs,
  etc.
• - Donor agency special credit lines and
  guarantee funds
• - Government suasion and specialized programs
• - Equity Funds

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B. Is there a technological solution?

• FMI has developed an efficient, low cost software
  and training program to evaluate SME
  creditworthiness. The program is based on the
  need to standardize reliable SME information in a
  format susceptible to cash flow analysis.
• FMIs software program accomplishes the following
  functionalities
• ? Gathers financial data from SMEs
• ? Evaluates the capital needs of SME borrowers
• ? Evaluates and scores creditworthiness
• ? Monitors loan performance
• ? Creates a database for benchmarking

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FMIs SME Finance software provides a simple
solution to
Prospect Quality Customers
Engage the potential customer through a common
interactive communication platform
Evaluate Financial Risk
Examine financial structure, cash flow quality
and working capital structure
Establish Credit Score
Establish a standard format that provides each
customer with a credit score
Ongoing Loan Management
Measure actual performance vs. projected
performance against agreed upon loan covenants
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Prospect Quality Customers
Enables the banker to engage the potential
customer through a common interactive
communication platform

• Standardizes the information a banker needs to
  evaluate prospects
• Efficiently eliminates non-quality customers
• Reduces transaction costs and time while
  increasing volume of SME lending
• Enhances the value of customer relations
• U.S. loan evaluation processes take on average
  12 hours and cost between 500 -1000
• Estimated cost using GFB 30 minutes and cost
  between 50 - 100

9
Evaluate Financial Risk
Examine financial structure, cash flow quality
and working capital structure

• Financial risk is identified in the one page
  scorecard through the assessment of
• growth quality
• profitability
• working capital requirements
• quality cash flows
• Answers to key questions
• How much does the customer need to borrow?
• How does the bank get repaid?
• How does the bank monitor the loan?

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Establish Credit Score
Establish a standard format that provides each
customer with a credit score

• Provides a credit scoring system to lend
  profitably to good customers
• Allows banks to establish their own risk criteria
• Quantitative Credit Analysis
• Qualitative Credit Analysis
• Z Score (financial health)
• Assigns risk ratings according to international
  standards

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Ongoing Loan Management
Measure actual performance vs. projected
performance against agreed upon loan covenants

• Establishes key loan covenants
• Monitors performance against loan covenants
• Compares actual results with projected results
• Improves communications between the bank and SME
•  

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Prospect for Quality Customers
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Evaluate Financial Risk
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Establish a Credit Score
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Perform Ongoing Loan Management
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Evaluate Financial Health
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Review Financial Reports
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The powerful What IF functionality allows the
businessman to understand the impact of business
decisions, assumptions and projections before
they are made.
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Examine Variance in Financial Reports
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English or Arabic
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C. Will it work?

• Technically, yes, it works.
• Practically, maybe.
• - Carrots
• - Sticks
• - Enlightened Self-Interest