1. Role of NBFCs in Financial inclusion
KASHIF YAQOOB

2. Contents Leasing Globally Access to finance for SMEs
Success Story in Pakistan
Future trends

3. Leasing globally

4. % of New Capital Investment
Lease Penetration
Country
New Leases
(US$ b)
% of New Capital Investment
% of GDP
USA
337
22.0%
1.95%
China
115
3.4%
1.3% UK 78
28.6%
2.8%
Germany 68
16.4%
1.9%
Japan 56
8.9%
1.0%
Australia 35
40.0%
2.5%
Korea 11
9.8%
0.9%
Turkey 9
11.0%
Pakistan 1
2.9%
0.4%

5. Key statistics
Global leasing market is around US$ 1 trillion, with 1/3rd share of US
China is the fastest growing leasing markets with growth rate over 30%
85% of the clients in German leasing markets are SMEs
Access to finance is 2nd most pressing issue for SMEs in emerging markets after electricity
After own equity and bank loans – leasing is most popular source of financing

6. Access to finance for smes

7. Banks & SMEs Total private sector financing by banks Rs. 4 trillion
SME financing by banks Rs. 298 billion
SME financing as % of total private sector financing 7.3%
NPLs of SMEs %
SME borrowers ,733
As on June 30, 2016

8. Facility wise break up
Working capital finance 66% of outstanding SME portfolio
Trade & finance 11%
Fixed investment 23%

9. Constraints for banks Lack of collateral
Lack of verifiable information
High transactional cost
High risk
Historical portfolio quality issues

10. Challenges for clients
Lack of proper documentation. Assets are not registered in business/ owner name
Fear of entering tax net – prefer informal credit
Low financial literacy
Lack of credit history
Cumbersome processes of financial institutions
Absence of collateral

11. Lending NBFCs
Currently 8 Leasing companies and 25 Modarabas are lending NBFCs
Total assets of leasing companies and Modarabas increased from Rs. 62 billion in June 2010 to Rs. 78 billion in June 2016 (Only 26% growth in last 6 years)
Number of lending NBFCs has reduced significantly over the years

12. Problems with NBFCs Absence of strong deep pocketed shareholders
Lack of banks’ investment in NBFCs to capture SME market
Lack of product innovation
Strategy of directly competing with banks

13. Success story in Pakistan

14. SME financing – the ORIX way
70% clients are SMEs
50% business from smaller cities/ towns (over 100). Close to customer strategy.
Start small and build big (regular interactions and visits)
Top 20% customer represent 10% exposure
Low delinquency ratios

15. Case Study: Chakwal & Talagang
Small & undocumented market dominated by farmers and small traders
Mostly associated with transport business as shareholders in 1-2 vehicles or as drivers
Used to resort to private lenders for financial needs
Mostly used or reconditioned vehicles
Very few or no vehicles in their own name

16. Case Study: Chakwal & Talagang
ORIX Staff started visiting the area, to understand business dynamics
Acquired knowledge and expertise to assess & mitigate credit risk
Started taking smaller exposures
Established small branch & educated clients how to document the business
Motivated clients to register vehicles in their own names & acquire new vehicles

17. Case Study: Chakwal & Talagang
ORIX Chakwal has leased more than 500 vehicles worth over Rs.2.0 billion
Leased to more than 150 transporters
90% clients availed formal credit for the first time; majority obtained NTN for first time
Less than 1% delinquency
Many have grown from small to Medium enterprises & have formal financial statements
Customers have now active relationships with banks and started insuring their assets

18. Gul Muhammad Awan (Talagang)
Started transport business from scratch in Bilalabad (a village near Talagang)
Built small fleet of used transport vehicles, had no access to formal financing
Leased first truck to GM in year 2005
Business grew and GM involved his friends, relatives and unemployed youth
ORIX leased 14 trucks of Rs.54 (m) to GM so far
Now GM is a leading transporter of area.
His success has inspired many other entrepreneurs of area to start transport business.

19. Ashfaq Brothers (Village Tamman, Talagang)
Started business as Cement Trader in Tamman (small village, 30 KM from Talagang)
Had no access to formal financial sector
ORIX leased first Truck Trailer in 2005
ORIX has leased 15 commercial vehicles worth more than Rs.67 million
ORIX also leased Cement Bulkers to modernize the fleet.
Now leading transporter of the area with annual turnover of Rs.400 million

20. Future Trends

21. Key future trends
Banks’ increasing interest and exposure in SME financing
Value added financial services
Rental Modarabas
New products based on residual value
Increasing role of technology

22. Thank you