YBI Global Forum, Wednesday: Lending
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YBI Global Forum, Wednesday: Lending
- 1. Lending: good practice and achieving scale
- 2. Agenda Part A – Good lending practices Part B – Working together to source loan capital at scale
- 3. Good lending practices Minimising credit risk (upfront) Making the lending decision Monitoring loan performance Dealing with late payments or delinquency
- 4. 1. The challenge of sourcing loan capital 2. One proposed solution 3. Many other possibilities... Working together to source loan capital at scale
- 5. Our proposal for the G20 SME finance challenge Government Guarantee Scheme Local Bank YBP (BYST) Young entrepreneurs financed
- 6. Our proposal for the G20 SME finance challenge International public sector guarantee Local Bank YBP Young entrepreneurs financed Local Bank YBP Young entrepreneurs financed Local Bank YBP Young entrepreneurs financed Local Bank YBP Young entrepreneurs financed
- 7. Can we raise more loan capital for our entrepreneurs by working collectively rather than independently?
Notas del editor
- Explain that the first hour of the workshop will be sharing good practice (and mistakes!) in terms of lending. The second hour will be more of a collective brainstorm around how we can potentially work together to source more loan capital. The most common route initially for lending was in-house lending. But I know there are now quite a number of programmes lending through third parties (financial institutions). How many of you follow this third-party model? Suggest in-house lending model sit together on right side of room; third party lending model sit on left side of the room.
- Whether you are lending in-house or through a third-party financial institution, the processes you have in place to prepare and select entrepreneurs and to monitor their performance are critical to the health of your loan portfolio. Let’s look at these four aspects of the lending process: We want to spend this next hour sharing experiences about how you work, what challenges you face in the lending area, what works/what doesn’t. We’ll make a note of key learnings throughout the session so don’t feel you need to take notes. To get the discussion going, I’d like to ask for some volunteers from the more experienced programmes who have strong loan portfolios: 2 with in-house lending model, 2 with third-party lending model
- Andrew to present: We are aware that for many of you, sourcing money for loans is a key challenge. The ability to source sufficient amounts of loan capital is critical to scale and to meaningful impact. Are their ways we can leverage the network to address this problem for each of you in your countries? We have started to see moves by some programmes (and the numbers are increasing) to partner with financial institutions who are prepared to put up their own money as loans because they see the other support services provided by the YBP as a form of collateral on those loans (eg. Australia). ie. They wouldn’t normally support these young people without the YBP being in place. In some cases (eg. India), this has been made possible by a third party guarantee scheme (in this case provided by the Indian government) which convinced the local banks to enter into a partnership. The idea of multi-country loan funds or guarantee funds has been discussed on and off in the network and Alvaro explained the G20 proposal on Monday. Sarah will just take you through it again so that you are clear what we are proposing:
- Sarah to present (leave screen blank initially) The competition was launched by the G20 group and Ashoka’s Changemakers, with support from the Rockefeller Foundation. They have invited people to pitch innovative ideas for how the public sector could help unlock private sector finance for SMEs. Many of the major development banks have signed up to implementing the winning proposals including the World Bank, IFC, Asian Development Bank, Inter-American Development Bank, African Development Bank and European Bank for Reconstruction and Development. We took a public private partnership model which has worked in India where a government guarantee scheme which guarantees 80% of loans to high risk clients (bring up pictures) enabled BYST to propose and secure a partnership with the Indian Bank. The guarantee was the catalyst but it was the combination of that and the BYST support activities that convinced the bank to work with BYST.
- We proposed that this model could be replicated in multiple countries through creating an international public sector guarantee (either through a regional development bank or a global bank like IFC/World Bank) which would guarantee up to 80% of loans from private sector banks in-country to young entrepreneurs, in partnership with YBPs. We argued that this would be easier/faster than campaigning for individual governments to create their own in-country guarantee schemes like the Indian one, although possibly our initiative could drive them to do that, meaning the international guarantee could one day be removed. Our proposal was called Multi-country Financing Partnerships for Youth-led SMEs. You can read it online at www.changemakers.com/SME-Finance. Invite Alvaro to add anything in terms of his experience of being involved in this proposal and the value of this sort of mechanism for his environment
- We will spend the next 45 minutes discussing this topic: Let’s think about what solutions have worked locally? Could they be scaled/innovated like the G20 example?