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KfW y la Promocin de las Pequeas y Medianas Empresas SME Financing in Germany KfWs Role

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KfW Mittelstandsbank (KfW SME bank) ... KfW works with more than 600 banks. Appr. ... 385.000 loans in 2006, thereof about 350.000 via banks ... – PowerPoint PPT presentation

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Title: KfW y la Promocin de las Pequeas y Medianas Empresas SME Financing in Germany KfWs Role


1
KfW y la Promoción de las Pequeñas y Medianas
EmpresasSME Financing in GermanyKfWs Role
  • Dr. Thomas DuveVice President Strategic
    Projects, KfW Bankengruppe (KfW banking group)
  • Lima, 15 November 2007

2
Brand structure.
3
KfW Mittelstandsbank (KfW SME bank).
  • Target group start-ups, small and medium-sized
    enterprises, self-employed professionals in
    Germany and abroad
  • Financing products
  • Classic promotional loansLong-term financing,
    for instance through the product family
    Unternehmerkredit (Entrepreneur Loan)
  • Mezzanine financing
    Strengthening
    the financing structure through the product
    family Unternehmerkapital (Entrepreneur
    Capital)
  • Strengthening companies equity base by providing
    private equity
  • Advisory services

4
KfWs Loans, Grants, Guarantees and
Securitisations in 2006
Total 75.9 billion EUR
5
Agenda
  • German SMEs Facts, Figures and Finance
  • KfWs Role in financing SMEs
  • Loans
  • Mezzanine
  • Equity
  • Securitisation

6
What are SMEs / what is the Mittelstand?
  • Generally accepted definition of small and medium
    sized enterprises (SMEs, Mittelstand) does not
    exist
  • Frequently used qualitative criteria for SMEs
  • Ownership and management of the company coincide
  • Company is independent, e. g. it is not a
    subsidiary of a large-scale enterprise (LSE)
  • Frequently used quantitative criteria for SMEs
  • KfWs promotional loan programs in
    generalmaximum EUR 500 million annual turnover
  • EU Commission not more than 250 employees,
    maximum EUR 50 million annual turnover, and
    maximum EUR 47 million total assets
  • Scientific research not more than 500 employees
    and maximum EUR million 50 annual turnover

7
The role of small and medium-sized enterprises in
the overall economy
  • The 3.5 million SMEs in Germany
  • employ almost two-thirds of the workforce
  • train 73 of apprentices
  • conduct 50 of gross investment by the German
    corporate sector
  • Enterprises with an annual turnover of no more
    than EUR 500 million.

Source KfW-Mittelstandspanel 2006
8
Role of SMEs for export champion Germany
  • Export is main driver of the German economy
    responsible for 60 of GDP growth
  • In particular, RD intensive industrial SMEs
    participate in Germanys export growth
  • Highest share of exporting SMEs compared with
    larger EU countries

Share of exporting SMEs
Source ENSR Enterprise Survey 2003
9
The banking system in GermanyWho finances
German enterprises?
  • Commercial banks in Germany may be grouped into
    three broad categories

Savings banks(state owned) Market share in
total assets 34,3 Market share in loans to
non-banks 42.0 Number of banks475 Number of
bank offices 15,000 7 central banks administer
KfW loans
(Private) credit cooperatives Market share in
total assets 11,8 Market share in loans to
non-banks 15.1 Number of banks1,295 Number of
bank offices 14,000 2 central banks administer
KfW loans
Private commercial banks Market share in total
assets 28,2 Market share in loans to non-banks
33.0 Number of bank offices approx.
5,300 Number of banks356, thereof 5 major
partners for KfW loans
10
Who finances German enterprises?
Market-shares of German bank groups in loans to
enterprises
KfW works with more than 600 banks Appr. 2/3 of
KfWs promotional loans are commited to only 15
(central-) banks
11
Upheavals in the financial markets
Different investor preferences (higher yields,
riskier forms of investment)
Automation of standard-isable processes (e.g.
ATMs, fund transfers)
Reliable risk and rating models possible for the
first time
Information available worldwide at the same time
Full integration of national financial markets
into one sole world financial market
Result Drastically increasing competitive
pressure in the financial sector
12
Consequences of the upheavals declining
earnings for all banking groups up to 2002
Source Bundesbank
13
Reactions of the credit institutions
  • Drastic austerity programmes (job cuts,
    closing of branches, etc.)
  • Reluctance New lending especially to smaller
    SMEs with caution and an intensive
    risk-assessment.
  • Implementation of newly developed instruments for
    surveying (and controlling) costs and risks and
    introduction of pricing based on credit ratings

14
Financing problems in the German SME sector
Annual turnover
Companies reporting difficulties in accessing
credit ()
Company Survey 2006
15
Equity ratio in German enterprises
  • Equity ratios of German enterprises are low
    compared to other European countries.
  • Negative effect on ratings
  • This has contributed to banks reluctance in
    extending loans

In of balance sheet total
Source BACH Database/ 2000
Turnover category
16
Impacts on Financing for SMEs
  • Risk-based differentiation of credit conditions
  • Growing importance of a strong equity base
  • Broader spectrum of financing instruments

17
Consequences and strategies for German SMEs
  • Improve their credit rating (equity ratio)
  • Consider financing alternatives (such as
    mezzanine capital, private equity, leasing,
    factoring, etc)
  • Ensure active, offensive maintenance of their
    relations with their regular business bank
  • get fit for rating / professionalisation of
    management
  • clear communication of facts and figures -
    increase transparency for the bank
  • take advantage of bank competition

18
QA Session I
  • What is the size structure of your SME clients?
  • Who finances South American SMEs?
  • Are there typical means to finance SME
    business?(loans, equity)
  • Structure of the banking system in your
    countries?
  • In 2007 and beyond, overall conditions/trends for
    SME finance in South America are?

19
Agenda
  • German SMEs Facts, Figures and Finance
  • KfWs Role in financing SMEs
  • Loans
  • Mezzanine
  • Equity
  • Securitisation

20
Role and tasks of KfW
  • The use of our market conform financing
    instruments
  • helps to
  • promote the required structural change of the
    German economy,
  • improve the financing conditions of start-ups and
    SMEs sustainably, and
  • support the development of financial markets.

21
KfWs dual SME support strategy
  • Continuous improvement of the classical
    financing instruments (e. g. long term loans at
    favourable interest rates)
  • introduction of risk-adjusted interest rates
  • adjusting loan terms and structure to changing
    needs of SMEs
  • Development of innovative financing instruments
  • low-interest global loans (focus on efficient
    processing)
  • securitisation products to give banks and savings
    banks more leeway to lend
  • tapping of new financing opportunities for SMEs
  • e. g. design of mezzanine products

22
Product offer Main product lines ofKfW
Mittelstandsbank
Mezzanine(subordinated loans)
Equity finance
Loans
E.g. Entrepreneur Loan, Microloan Programme
Entrepreneur Capital, ERP Innovation Programme
E.g. ERP Start Fund
Information and advice
23
Commitments in 2006 KfW Mittelstandsbank
(excluding securitisation)
24
The Bulk of the Businessis with Small
ClientsBeneficiaries of KfW Mittelstandsbank
Product Lines
Share in No. of commitments by beneficiary's
size class
Size Class (Annual Turnover)

01. January 2007 to 30. June 2007, items with
missing turnover omitted
25
Agenda
  • German SMEs Facts, Figures and Finance
  • KfWs Role in financing SMEs
  • Loans
  • Mezzanine
  • Equity
  • Securitisation

26
Promotion of SMEs KfWs on-lending concept
National and international capital market (AAA)
On-lending bank / house bank
SME
SME
SME
On-lending bank / house bank
SME
SME
Government funds for special credit programmes,
e.g. ERP
On-lending bank / house bank
SME
Commercial bank
27
How to Apply for aKfW Investment Loan
Bank
SME / Investor
Application onKfW-form
Presentation of Project
Project eligible under KfWs promotional
criteria?
  • Project appraisal
  • Credit risk appraisal
  • Collateral

Project
1
2
Project and loan monitoring
3
Commitment
4
Commitment
28
E-Commerce KfWs Experience
  • KfW committed ca. 385.000 loans in 2006, thereof
    about 350.000 via banks
  • Due to lower administration cost and faster
    procedures, E-Commerce was vital in ensuring
    continuing interest of banks in selling
    promotional loans

Bank
KfW
29
Pricing of LoansWhy One fits all is out of date
  • According to good banking practice in the past,
    interest rates of KfWs loans were the same for
    all SMEs no matter the collateral provided or
    the rating achieved.
  • For a long time, cross-subsidisation took place
    good risks paid too much, while interest rates
    for inferior risks were too low.
  • With the implementation of newly developed
    instruments for surveying (and controlling) costs
    and risks, banks could identify cases of
    cost-ineffectiveness, e. g. for clients
    with lower ratings and poor collateral.
  • With a uniform risk margin, banks were more and
    more reluctant to on-lend KfWs loans.
  • Increasing difficulties for SMEs to have access
    to KfWs loans.
  • KfW introduced its risk-adjusted pricing system.

30
KfWs on-lending concept IIRisk-adjusted pricing
system I
  • Combination of rating and collateral determines
    pricing of loans
  • Exact pricing by house bank KfW sets upper
    limits for each pricing class

10-year loan term with 2 grace years and
10-year fix interest rate
31
KfWs on-lending concept IIRisk-adjusted
pricing system II
  • The target group of companies for promotional
    loans becomes larger due to the implementation of
    the risk adjusted pricing system.
  • Companies with weaker creditworthiness and
    limited collateral are now financed, as banks can
    charge a margin sufficient to cover the risk

41 of typical SME portfolio coverd by old
pricing system
86 of typical SME portfolio coverd by old
pricing system
32
Base Product is the Entrepreneur Loan
  • Unternehmerkredit (Entrepreneur Loan)
  • Simple and easy loans for start-ups, SMEs and
    self-employed professionals with annual turnover
    EUR 500 million
  • Maximum loan amount is usually EUR 10 million
  • Conditions
  • Favourable interest rates and long maturities
    usually 10-year loan term with 2 grace years
  • Interest rates are determined by a companys
    credit rating and collateral available

more information online
www.kfw-mittelstandsbank.de/EN_Home/Loans/
33
Focus Small Loans for Start-ups KfW-Startgeld
(starting Jan. 08)
  • Problem Low survival rate of start-ups (50
    after five years)
  • High default rates of loans especially to small
    start-ups (cumulative value 25-35)
  • Small start-ups complain about banks reluctant to
    extend loans
  • KfW StartMoney
  • Financing purpose start-up investments, working
    capital during the first 6 months and business
    consolidation for up to 3 years after start-up
  • Loan amount 5,000-50,000
  • Modified on-lending procedure
  • House bank receives a fixed margin (1.2 p.a.)
    and a lump sum for administration cost ( (500 to
    1,000 depending on loan amount)
  • 80 of the liability is assumed by KfW, KfW
    performs own risk assessment based on
    documentation
  • Term 2- 10 years, Nominal interest rate ca. 7
    (planned)
  • Simplified procedure for loan disbursements if
    the house bank cooperates with a start-up
    advisory centre

34
QA Session II
  • Would the on-lending concept work in your
    countries?
  • Is risk-adjusted pricing something to consider?
  • Should loan technique and actors differ between
    Micro Lending and bigger loans?

35
Agenda
  • German SMEs Facts, Figures and Finance
  • KfWs Role in financing SMEs
  • Loans
  • Mezzanine
  • Equity
  • Securitisation

36
Mezzanine Product Family Entrepreneur Capital
Subordinated capital for start-ups, self-employed
professionals and SMEs
ERP capital for start-ups For start-ups and
young enterprises up to 2 years after business
operations began
ERP capital for growth For young enterprises
whose business operations started more than 2 but
not more than 5 years before application
Capital for work and investments For
established companies active in the market for
more than 5 years
37
Subordinated Capital Entrepreneur Capital
Bridging function
  • Subordinated capital strengthens a companys
    financial structure immediately
  • Over the loan term a company can improve its
    equity ratio by retaining profits

Retention of Earnings
Equity ratio
Time
Borrowing
Redemption
38
Agenda
  • German SMEs Facts, Figures and Finance
  • KfWs Role in financing SMEs
  • Loans
  • Mezzanine
  • Equity
  • Securitisation

39
Equity FinanceMain Programme Offers
Early Stage
Later Stage
ERP Participation Programme
Fund Investments
ERP Start Fund
High-TechFoundation Fund
40
Product offer for innovators and start-ups Equity
  • ERP Start-up Fund Venture capital for technology
    start-ups
  • Co-investment Deal acquisition through VCs and
    business angels, financing condition pari passu
  • Pilot project Cluster Key Accounting Intensive
    cooperation with universities, cluster and
    network actors in four regions

41
Product offer for innovators and start-ups Equity
II
  • KfW fund financing
  • KfW acts as (cornerstone) investor in private
    equity funds
  • Focus on early-stage technology funds,
    later-stage funds with focus on SMEs (expansion,
    company succession)
  • Example Fraunhofer spin-off fund
  • High-tech Start-up fund (HTGF) PPP between
    government, KfW and industry (BASF, Telekom,
    Siemens, Bosch, Daimler, Carl Zeiss)
  • Seed fund (volume 272 million) investing up to
    0.5 million in first round and another 0.5
    million in follow-up rounds
  • Cooperation with side investors (business angels)
    and coaches
  • KfW also gives management and HR support
  • Refinancing ERP Participation Programme
  • KfW refinances small-scale deals of regional
    private equity funds with promotional focus

42
QA Session III
  • Where does equity come from for SMEs in your
    countries?
  • Do demand and/or supply differ according to
    companys life cycle, the use of technology ?
  • Would a fund concept work?

43
Agenda
  • German SMEs Facts, Figures and Finance
  • KfWs Role in financing SMEs
  • Loans
  • Mezzanine
  • Equity
  • Securitisation

44
How does securitisation work?
  • In the process of securitisation, illiquid assets
    are transformed into tradable securities.
  • Credit risk is transferred from the banks
    balance sheet to the capital market.
  • Securitisation is the transfer of a portfolio of
    assets from a bank (originator) to the capital
    market.

45
Securitisation and promotion of SMEs The
framework for SME promotion
46
Impact of securitisation The banks
perspective
By taking advantage of asset securitisation banks
are in a position to provide more loans to
customers (e.g. SME loans), without the need to
raise more equity
Bank
Debt
SME-loans
Equity
New SME loans
Capital release through asset securitisation
47
Impact of securitisation The companies
perspective
  • Customer relationship between company and bank
    remains unchanged.
  • Banks can extend additional loans.
  • Companies benefit from more favourable loan
    conditions.
  • By transferring risks from the bank to investors,
    SMEs obtain indirect access to the capital market.

48
Impact of securitisation Summary
  • Securitisation releases (regulatory and economic)
    capital.
  • Thus, banks are able to supply new loans to their
    customers (more loans can be produced with the
    same level of equity).
  • The relationship between banks and customers is
    not affected.
  • Improved access to finance for SMEs
  • More loans
  • Better conditions
  • Broader product range

49
KfWs securitisation activities Our focus
  • Mission Improvement of the credit supply for our
    target groups
  • Liquid secondary markets / access to capital
    markets
  • Regional Focus European Union
  • Emerging Markets (in context of German
    Development Cooperation)
  • Asset Classes SMEs Leasing
  • Micro finance
  • Housing / mortgage loans
  • Infrastructure and PPP
  • DPR (diversified payment rights)

50
KfWs securitisation activities KfWs
synthetic platforms basic structure
Senior CDS
OECD-BankSuper senior tranche of the
portfolio (80 - 90 )
KfW
Bank
Credit Default Swap (CDS)
AAA
Certificate of indebtedness (Schuldscheine)
Risksof thereferenceportfolio
Reference portfolio
CLN Issue
AA
SPVin Germany
A
Issue proceeds of CLN
Proceeds
BBB
BB
FLP
51
KfWs securitisation activities Promotional
effects of KfWs securitisation platforms
52
KfWs securitisation activities Achievements so
far (2000-2007)
  • KfW-Mittelstandsbank Securitisation of SME risk
  • Inception of PROMISE December 2000
  • 19 transactions executed under PROMISE
  • 6 other deals including SME related assets
  • Notional amount transferred to capital markets
    EUR 41.4 billion

(17.09.2007)
53
KfWs securitisation activities KfWs platforms
- achievements so far
  • KfW has kicked-off the development of secondary
    markets for asset classes which are relevant from
    a developmental perspective
  • KfW has expanded the scope of the platform
    according to market demand
  • World leader in synthetic securitisation market
    65 transactions EUR 113.0 billion default risk
    transferred to investors


more information online
www.kfw.de/EN_Home/Loan_Securitisation/Disclaimer.
jsp
  • Market existence banks originate new loans with
    the objective to securitise
  • Market access smaller banks can also securitise
    their portfolios
  • Market width challenging asset classes (e.g. SME
    loans, acquisition finance) are securitised
  • Market depth continuous deal-flow increases
    liquidity in secondary market

54
QA Session IV
  • Are SMEs an already established asset class
    insecuritisation?
  • What is or could be a rationale for SME
    securitisation in South America?

55
Conclusion
  • KfWs SME-promotion
  • improves financing conditions for SMEs, and
  • is making a major contribution to establishing
    new financial market segments and financing
    instruments for SMEs and
  • enhances structural changes in the overall
    economy and the financial sector
  • The further development of SME promotion is an
    ongoing task.

56
For more information
57
Disclaimer
  • This document is provided for information
    purposes only. This document may not be
    reproduced either in full or in part, nor may it
    be passed on to another party. It constitutes
    neither an offer nor an invitation to subscribe
    or to purchase securities, nor is this document
    or the information contained herein meant to
    serve as a basis for any kind of obligation,
    contractual or otherwise. In all legal systems
    this document may only be distributed in
    compliance with the respective applicable law,
    and persons obtaining possession of this document
    should familiarise themselves with and adhere to
    the relevant applicable legal provisions. A
    breach of these restrictions may constitute a
    violation of US securities law regulations or of
    the law applicable in other legal systems. The
    information contained in this document is
    historical and speaks only as of its date. KfW
    disclaims any intention or obligation to update
    or revise the information contained in this
    document. By accessing this document you
    acknowledge acceptance of these terms.
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