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ACCOUNTANTS FOR BUSINESS
Innovations in access to finance for SMEs
About ACCA This paper reviews a broad range
ACCA (the Association of Chartered Certified of innovations in business
Accountants) is the global body for professional
accountants. We aim to offer business-relevant, first- financing and highlights examples
choice qualifications to people of application, ability and of good practice in developed and
ambition around the world who seek a rewarding career
in accountancy, finance and management. emerging economies.
Founded in 1904, ACCA has consistently held unique
core values: opportunity, diversity, innovation, integrity
and accountability. We believe that accountants bring The paper is a contribution by the
value to economies in all stages of development. We aim ACCA Global Forum for SMEs to
to develop capacity in the profession and encourage the
adoption of consistent global standards. Our values are the current debate about
aligned to the needs of employers in all sectors and we improving SMEs' access to finance
ensure that, through our qualifications, we prepare
accountants for business. We work to open up the around the world. The Forum is
profession to people of all backgrounds and remove grateful for the assistance and
artificial barriers to entry, ensuring that our qualifications
and their delivery meet the diverse needs of trainee insights of Andy Davis, associate
professionals and their employers. editor and investment columnist at
We support our 162,000 members and 428,000 students Prospect magazine.
in 170 countries, helping them to develop successful
careers in accounting and business, with the skills needed
by employers. We work through a network of over 89
offices and centres and more than 8,500 Approved
Employers worldwide, who provide high standards of
employee learning and development.
ABOUT ACCOUNTANTS FOR BUSINESS
ACCA's global programme, Accountants for Business,
champions the role of finance professionals in all sectors ABOUT ACCA'S GLOBAL FORUMS
as true value creators in organisations. Through people,
process and professionalism, accountants are central to To further its work, ACCA developed an innovative
great performance. They shape business strategy through programme of global forums which brings
a deep understanding of financial drivers and seek together respected thinkers from the wider
opportunities for long-term success. By focusing on the profession and academia around the world.
critical role professional accountants play in economies at
all stages of development around the world, and in globalforums
diverse organisations, ACCA seeks to highlight and
enhance the role the accountancy profession plays in About the ACCA Global Forum for SMEs
supporting a healthy global economy. The ACCA Global Forum for SMEs provides a
unique platform for promoting the role of SMEs in
ri the global economy. Representing over 15
countries and a wide range of professional
backgrounds - from finance institutions,
academics and professional advisers to
entrepreneurs themselves - the Forum represents
the sector's needs at a global level and facilitates
the sharing of best practice.
For more information contact
Emmanouil Schizas
Senior Economic Analyst, ACCA
emmanouil.schizas@
? The Association of Chartered Certified Accountants,
2February 2014
1. Introduction
In the years since the 2007-8 financial Even so, other factors beyond the crisis
crisis, the issue of access to finance for of the developed world's banking
small and medium-sized enterprises system have also contributed to the
(SMEs) has taken on a new prominence, initiatives that this paper will discuss,
having been formally recognised as an notably technological developments
issue of pressing importance at the G20 and increasing access to online services;
summit in Pittsburgh in September 2009.1 electronic data from a growing variety
of sources; and innovative financial
Of course, one of the key reasons for instruments and structures that together
the increased attention that this subject help to create new ways for savers and
now receives is the well-documented borrowers, investors and entrepreneurs,
problems of the banking system in to meet and do business.
many parts of the world following the
`credit crunch' of 2008-9. This This paper provides examples of a
dimension of the financial crisis - and range of important innovations in SME
the policy and regulatory measures finance and discusses some of the
subsequently put in place - has had a lessons we can draw from them.
notable effect on the ability and Although the definition of an SME
willingness of the conventional banking varies widely across different markets,
system to fund SMEs in some parts of the for the purposes of this report a small
world, and has therefore contributed to enterprise is considered to be a company
the emergence of innovative alternative with 50 or fewer workers and a medium-
forms of SME finance. In other regions, sized enterprise is any business with 51
a general lack of development in to 249 workers. In common with other
commercial banking and other sorts of definitions of SMEs, this excludes
financial infrastructure has been a more companies in extractive industries,
pressing issue. utilities and financial services.
1. `Leaders' Statement', The Pittsburgh Summit,
G20, September 2009.
INNOVATIONS IN ACCESS TO FINANCE FOR SMES 3
2. The range of innovations in SME finance
Although by no means exhaustive, this expand its lending capacity. Writing in well-known such service is M-Pesa in
section offers an overview of some of Global Times in February this year, Lu East Africa, which now has more than 20
the most significant innovations and Zhengwai, chief economist at ICBC, said million users. Other similar services are
developments in access to finance for that from its establishment through to also spreading fast, including Ecocash
SMEs that have emerged in recent the first half of 2012, Alipay Financial and Textacash in Southern Africa. More
years, under four headings: had made loans worth some RMB13bn recently, services such as M-shwari have
($2.09bn). appeared, which add a loan facility to
? New lending and equity funding the basic mobile payments service.
initiatives In the US and Europe, where M-shwari is a joint venture between
e-commerce operations such as eBay mobile provider Safaricom and a
? Innovative financing structures and and Amazon dominate, similar but Kenyan bank, Commercial Bank of
instruments smaller networks of alternative finance Africa (CBA). The service enables users
have begun to appear. In September to borrow sums ranging from the
? New proxies for credit information 2012, Reuters reported that Amazon equivalent of about $1 up to about
had begun offering funding to some of $235, although the largest loan
? Legal and regulatory infrastructure. its largest sellers under a programme advanced to date is less than $100.
called Amazon Lending. Although
NEW LENDING AND EQUITY Amazon has released no official details The attraction of this service has
FUNDING INITIATIVES of the programme publicly, industry resulted in a very rapid uptake of bank
observers told Reuters that Amazon was accounts at CBA, with 2.15 million bank
The most obvious way to increase offering advances of up to $800,000 to accounts opened in the three months to
access to finance for SMEs is for more some merchants and charging interest September 2013, transforming it over
new organisations within or outside the rates that ranged from 1% to 13% a year. that period into the second largest
banking system to start lending to retail bank in Kenya.2 Over the same
them, and in many parts of the world Independent operators are also starting period, the overall number of bank
this has happened. to offer finance to Amazon and eBay accounts in Kenya grew 11.3% to a
sellers. The largest such company, record 21.5 million.3 Kenya Commercial
In June 2010 the giant Chinese Kabbage, which was founded in 2009 Bank, the country's largest by asset
e-commerce platform Alibaba launched and is based in the US city of Atlanta, value, has introduced M-benki, a similar
a micro-credit company, Alipay obtains borrowers' consent to access service to M-shwari.
Financial, based in the city of real-time data from their e-commerce
Hangzhou, to offer loans from its own seller's accounts, PayPal accounts, UPS In the UK and US, particularly, new
cash resources to existing SME users of shipping accounts, as well as from a sources of equity and debt funding for
its e-commerce services. Initially it variety of SME accounting software SMEs are opening up via the
offered 30-day working capital packages such as QuickBooks, Stripe crowdfunding and peer-to-peer (p2p)
advances of up to RMB500,000 and Xero. Kabbage offers advances of movement. Equity crowdfunding
($82,000) to fund sales of goods via its between $500 and $50,000 at interest platforms wherein investors buy an
Taobao online marketplace. rates of between 2% and 7% for a actual stake in the recipient's business
Subsequently, the business expanded 30-day period. For a six-month advance are only one of the crowdfunding
geographically and began offering a rates range from 10%-18%. In August options, coexisting with a number of
wider range of loan products. Larger 2013 the company announced it had pre-selling, donation-, or rewards-
loans could be secured by groups of made 80,000 advances in the US, four based platforms. The leading US equity
three SMEs standing as guarantors for times more than its nearest competitor. platform, Kickstarter, raised $480
each other. Reports suggest that the During 2013 it also launched in the UK. million in 2013, while UK-based
Alipay Financial loans business later Crowdcube and Seedrs raised ?12.2
began originating loans among users of In many parts of Africa, meanwhile, high million and ?1.4 million worth of
Taobao on behalf of China Construction take-up of mobile phones has enabled investment respectively. The platforms
Bank and the Industrial and Commercial the growth of mobile payment services
Bank (ICBC) of China, among other that allow users to send and receive
mainstream financial institutions, to small sums via their phones. The most 2. Business Daily, 27 October, 2013.
3. ibid.
4
have combined rapid growth with auction, or by racing to offer funding at receivables to raise working capital, and
geographical expansion as well as a fixed rate before the target amount is Fakturaborsen, a similar platform in
product innovation: Crowdcube, for reached and the loan request closes. Sweden.
example, has recently launched its own
venture fund, while Seedrs now also They facilitate lending in a semi-public It seems possible that direct lending via
funds non-UK companies. context in which key documents and these non-bank forms of mediation is
financial details that would normally poised to become a significant and
A common feature of such platforms is remain private are published to potential meaningful alternative source of
the ability to turn investor pitches into lenders to support the loan request. funding for SMEs in a growing number
fundraising campaigns through of countries in the years ahead.
multimedia content and social media They enable potential lenders to
integration. Platforms rely on this question borrowers during the auction International aid and community
`campaign element' and are built to process. Answers to these questions organisations
enable two-way investor are usually published for all potential Alongside these more novel examples,
communications and `crowd-based due lenders to see - hence the term `crowd- development organisations and
diligence' (see explanation below). based due diligence'. community-based initiatives continue to
Finally, equity platforms are now play a vital role in promoting access to
typically eligible for the same tax They frequently operate secondary finance, often via micro-lending
incentives and public subsidies as markets in which existing lenders who institutions that accept borrowers
traditional early-stage investment. wish to take back their money can sell based on the viability of projects rather
their share of any loan to other than the availability of suitable
With p2p lending platforms, the key investors. These markets have so far collateral. In Zimbabwe, for example,
innovation has been the creation of a proved liquid, with loan parts changing micro-finance institutions backed by
Web-based marketplace in which hands rapidly and often at a premium. international funds, training and
individuals or institutions with capital to technical assistance are seen as a vital
invest are able to make contact with They tend to offer more flexible terms source of funding for marginalised
SMEs that want to borrow, and agree to than equivalent bank lending, for borrowers who struggle to access funds
advance funds to them on standardised example on security and early repayment. from traditional banks. In Kenya,
terms set out by the platform that meanwhile, there has been growing
facilitates the transaction. Their fee structures make it economical uptake of savings and credit
for small investors to build diversified cooperatives (SACCOs) whose
Although they all operate in slightly portfolios. members lend to each other in order to
different ways, lending platforms are access an alternative to expensive bank
less diverse than their equity So far this movement remains small, credit. Kenya has by far the largest
counterparts and have a number of having facilitated about ?390 million of number of SACCO members in Africa,
central features in common that are loans and invoice discounting with 18% of adult Kenyans using them.
worth setting out. transactions to SMEs in the UK by A report by their regulator, the SACCO
mid-January 2014 via platforms such as Societies Regulatory Authority, says that
Platforms seek to assemble loans from Funding Circle, ThinCats, total lending increased at an annualised
groups of individual lenders, ranging MarketInvoice, Platform Black, Funding rate of 61% in the first eight months of
from 30-day working capital advances Knight, Assetz, Lendinvest and 2013 compared with the previous year.
up to five-year term loans and asset- Relendex, among others. The majority
finance deals. All loans are therefore of these loans were advanced during INNOVATIVE FINANCING
`fractionalised' between multiple 2013 and the leading platforms report STRUCTURES AND INSTRUMENTS
lenders. that their lending books are doubling in
size every six to eight months. In Probably the most debated
They frequently operate auction-based Continental Europe, SME crowdfunding development in this area is supply chain
systems that force lenders to compete platforms have also started operating, finance (SCF). This involves a
to provide funding, either by offering a such as Debitos, a German platform relationship between a finance provider
`bidding down' in a reverse or Dutch that allows companies to auction and a large company under which the
INNOVATIONS IN ACCESS TO FINANCE FOR SMES 5
financier agrees to advance short-term research by Demica, a UK-based September 2001 and mid-2009, the
funding against invoices issued by the provider of the electronic invoicing most recent date for which information
large company's suppliers once these systems that connect the large is readily available, Nafin's SCF
have been formally approved for corporate customers and the suppliers programme had attracted 455 `big
payment. This arrangement provides that join its SCF programme, leading buyers' and more than 80,000 of their
the following advantages to supplier, banks are reporting current growth suppliers, and had advanced more than
customer and financier. rates of 30%-40% per year in SCF $60bn to Mexican SMEs. About 20
volumes. These rates are expected to Mexican banks and financial institutions
The supplier is able to raise finance moderate to 20%-30% a year by 2015 lend via the Nafin platform.
against `approved payables', which in turn and 10% a year by 2020. Eastern
are backed by the credit rating of the Europe, India and China are reported to A more global version of Nafin's
company at the head of the supply chain be the regions with the greatest growth Cadenas Productivas is provided by the
- therefore enabling smaller companies potential for SCF providers. International Finance Corporation (IFC
to benefit from a cheaper cost of working - a member of the World Bank Group)
capital thanks to the superior A number of large, international through its Global Trade Supplier
creditworthiness of their large customers. companies are now operating SCF Finance (GTSF) programme, a $500
programmes with their major suppliers million initiative that started in 2010 and
The customer is able to optimise its own but multilateral and state-backed is specifically designed to advance
working capital position by extending institutions have made the most working capital finance to SME
its payment terms to 90 days and concerted efforts to harness the suppliers based in the developing world
beyond without putting undue financial potential of discounting receivables to that are selling to end-customers in
pressure on its SME supplier base. improve cashflow for SME suppliers in developed markets. As above, the
developing markets . These intention is to enable small and poorly
The finance provider is able to manage programmes tend to offer `reverse collateralised borrowers in the
its credit risk effectively since credit factoring', by which SMEs that supply emerging markets to access finance at
information on large corporates, large companies can raise short-term prices that reflect the credit risk of their
particularly those based in developed funding against invoices that have much larger end-customers.
markets, is readily available. This is already been approved for payment by
particularly important when advancing their larger customers. In the research it undertook before
finance to SME suppliers based in setting up the GTSF programme, the
developing markets where credit Probably the best example of reverse IFC found that there were about
information is scarce or non-existent. factoring's potential to increase access $400bn-worth a year of exports from
to working capital for SMEs in the emerging markets to corporate
In spite of these apparent advantages, developing world is the Cadenas customers in the US, Western Europe
SCF remains a very small part of the Productivas programme in Mexico. This and Japan that could potentially be
overall receivables finance market, project, backed by the state-run financeable via SCF, yet only about 5%
accounting for less than 4% of global development bank Nacional Financiera of such exports were actually financed
market value (based on figures from the (Nafin), created an online marketplace through SCF. This indicates the huge
International Factors Group covering 65 in which SMEs that are accredited growth potential for this form of finance.
countries) but about 12% by value on suppliers to `Big Buyers' - large,
average in those countries where it is established companies - can offer their Reasons for the very low penetration of
practised at all - although this average invoices for sale to a panel of financial SCF in emerging markets range from
is likely to be heavily influenced by a few buyers in return for immediate access to the lack of financial products of this sort
larger markets such as Spain, where it is working capital. Nafin's aim in offered by local commercial banks to
widely used. launching Cadenas Productivas was to the lack of experience among global
greatly enhance access to finance for banks of working in this way in
Nonetheless, SCF is now a rapidly the country's SMEs, 80% of which emerging markets.
growing part of the trade finance received no bank credit, according to a
product range offered by large, 2004 study by Banco de Mexico. At least two private sector companies
international banks. According to recent Between its establishment in are now operating that seek to pursue
6

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