The latest edition of an IDB Group-Felaban survey shows increased confidence in the small and medium enterprise segment, more investments and longer term loans
Most financial institutions in Latin America and the Caribbean expect to boost credit for small and medium enterprises (SMEs) next year, according to a survey by the Inter-American Development Bank Group and the Latin-American Banks Federation, with 106 banks in the region.
The sampling reveals how important SMEs are to banking operations: all the large banks, 87 percent of midsize banks and 72 percent of small ones have an SME department to deal specifically with the SME segment. Seventy-seven percent of financial entities expect an increase in their SME portfolios as a share of their total lending portfolio.
The survey also indicates that confidence in the SME segment remains strong. A new indicator in the 2012 survey shows that 89% of banks approved loans with maturities of three years or more to SMEs.
It highlights a jump in investments made by banks in media advertising to reach SMEs. This year’s investment total practically doubled since 2011: 36 percent newspapers, 32 percent television and 29 percent radio. Investment in internet advertising was 25%, six percentage points more than last year.
Obstacles to Growth
Even though nearly two-thirds of banks foresee a more prosperous future for SMEs for the remainder of 2012 and 2013, the 2012 survey shows a decrease in optimism to 62 percent, 21 percentage points less than what was recorded the previous year. It’s possible that this is due to the global economic situation, following the financial crisis in Europe and China’s economic deceleration, which could be impacting the region’s economic operators’ confidence levels in a negative way.
However, the survey also shows that big obstacles still exist that could hinder financing to SMEs. The biggest one is the level of informality. Fifty-six percent of banks mention this drawback, since the lack of trustworthy information makes it difficult for banks to assess credit risk.
Internal administrative costs are another drawback indicated in 41% of cases, but this factor decreases as the bank’s size increases. Finally, 29 percent cite hurdles related to government policies, particularly regulations.
For the first time, the survey included questions about the share of women-led SMEs in the portfolios of banks that participated in the survey. Results show that most of these banks don’t have information in their portfolios that could identify gender, limiting their ability to take any action regarding this segment.
The survey was developed by Argentinean consulting firm D’Alessio, and the following members of the BID Group took part in it: Multilateral Investment Fund (FOMIN), Inter-American Investment Corporation (CII) and the Department of Structured and Corporate Financing (SCF), along with the Latin-American Banks Federation (FELABAN).
The Multilateral Investment Fund
Established in 1993, as part of the Inter-American Development Bank (IDB) Group, the Multilateral Investment Fund (MIF) was created to develop effective approaches to support economic growth and poverty reduction through private sector-led development in support of micro, small and medium-sized enterprises (MSMEs) benefitting the poor—their businesses, their farms, and their households.
The Inter-American Investment Corporation
The IIC is a multilateral financial institution that is a member of the Inter-American Development Bank (IDB) Group. The IIC’s mission is to promote the economic development of its regional member countries by encouraging the establishment, expansion, and modernization of private enterprises, particularly those that are small and medium in size. It does so by providing financing (in the form of equity investments, loans, guarantees, and other instruments) and advisory services to private enterprises in Latin America and the Caribbean. In 2010, the IIC reached $1.4 billion in assets and approved 49 operations channeling $374.8 million to SMEs in the region.
beyondBanking
Banking on global sustainability is a program developed by the Financial Markets Division of the IDB’s Structured and Corporate Finance Department that seeks to promote sustainable environmental, social and corporate governance principles among Latin American and Caribbean financial intermediaries through financial and technical cooperation.
FELABAN
The Latin American Banking Federation, or FELABAN, is a non-profit institution established in 1965 in Mar del Plata, Argentina. It convenes, through its respective associations in 19 countries in the continent, more than 500 banks and financial institutions in Latin America.