1. Pacific SME Financing: Assessment and Recommendations European Investment Bank presentation to ADFIP Annual Meeting 2016

2. Project Background EIB active in financing Pacific MSMEs since 2005
Main mechanism – credit lines to development banks and commercial banks
Mixed results to date
Need to determine financing needs of Pacific MSMEs now and in the future
EIB seeking new strategy to support growth of Pacific MSMEs

3. Project Overview
ASI and EIB Team – Kerry Burridge, Tanner Chaiken, Parmendra Sharma, Katrin Bock, Dónal Cannon
To cover all 19 Pacific States and OCTs
Research from field visits (8) and desk reviews
Project Purpose
To identify and define financing gaps for MSMEs across the region.
Develop proposals for EIB to effectively engage in the Pacific region’s financial sector with added value

4. Specific Activities Phase 1: Initial Desk Review
EIB’s past and current lines of credit
Role of multi-lateral and bi-lateral donors
Banks and NBFIs across the Pacific region
MSMEs across the region by sector
Public operating environment, economy and business barriers

5. Pacific Island Countries Visited

6. Specific Activities Phase 2: Survey of MSME Demand
Identify financing needs and sectors having high development impact
Profile of MSME projects that could be financed
TA requirements for MSMEs to implement the projects
Phase 3: Survey of MSME Finance Supply
Review financial providers for MSME activity
Assess appetite for further MSME investment
Determine TA needs and structural support, for them to engage

7. Specific Activities Phase 4: Recommendations and Proposals
Target sectors and financial providers for investment projects
Structure and level and funding
Technical Assistance to MSMEs and FIs
Risk Bearing Instruments
Formulate a catalytic, or supportive approach

8. Financial Providers Interviewed
Supply Side Findings
Financial Providers Interviewed
Country
Banks
Dev.
MFIs
Other
Totals
Fiji 6 1 4 12
Palau 2 8
PNG 3
Samoa
Solomons 5
Timor-Leste
Tonga
Vanuatu
TOTALS 31 9 11 70

9. ADFIP Members Interviewed
Supply Side Findings
ADFIP Members Interviewed
Fiji Development Bank (FDB)
HFC Bank (Fiji)
National Development Bank of Palau (NDBP)
National Development Bank of Papua New Guinea (NDB)
Development Bank of Samoa (DBS)
Samoa Housing Corporation (SHC)
Solomon Islands Home Finance
Tonga Development Bank (TDB)
Vanuatu Agriculture Development Bank (VADB)

10. Private Sector Credit Outstanding ($mill)
Supply Estimate
Country
Private Sector Credit Outstanding ($mill)
65% Estimate
Loans to Businesses
($mill)
Fiji
1,800
0.65
1,170
Palau
1.2 1
PNG
3,720
2,418
Samoa
317
206
Solomons
258
168
Timor-Leste
141 92
Tonga 74 48
Vanuatu
230
150
TOTAL
6,541
4,252

11. Supply Side Findings Share of MSME Finance Market # Type
% of Loan Market
% to MSMEs
% of MSME Loan Market 31
Banks
79 %
28 %
67 % 11
Other FIs
8 %
15 % 6
Development Banks
12 %
36 %
13 % 9
MFIs
2 %
91 %
5 % 57
100 %
33 %

12. Supply Side Findings Who likes lending to MSMEs? BSP Finance (Fiji)
ANZ Bank (Timor-Leste)
Development Bank of Samoa
Palau Construction Bank
PNG Microfinance
Moris Rasik (Timor-Leste)
First Investment Finance (PNG)
Credit Corporation (Solomon Islands)
Credit Corporation (PNG)
Of the four large regional banks:
BSP and Bred Bank
Westpac
…not ANZ

13. Supply Side Findings  ICT, services, agribusiness
Main Supply Side Findings
Lack of risk share facilities
Commercial banks dominate
Some need for technical assistance
Foreign owned banks are the largest
Risk averse and profit focussed
Limited loan products and terms
Excess liquidity (currently)
Limited interest in credit lines
Sectors:  retail and wholesale trade, tourism, transportation, construction and property development
 ICT, services, agribusiness

14. Demand Side Findings Number of MSMEs Interviewed Country
Number of Projects
Value of Projects ($mill)
Fiji 11 9
12.1
Palau 8
7.9
PNG 6
5.1
Samoa
10.6
Solomons 7
75.8
Timor-Leste 5
18.6
Tonga
2.7
Vanuatu 13
4.1
TOTALS 75 59
136.9

15. Main Demand Side Findings
Low financial literacy and business acumen
Micro and small businesses struggle
Lack of financial statements
Indigenous-owned businesses are underserved
Lack of existing capital
Lack of security / freehold land
Rural / remote businesses are underserved
High interest rates and fees
IT, agriculture, small-scale producers, and start-up firms need help
Foreign owned and/or large corporates are fine
MSMEs require technical support

16. Demand $7 billion less Supply $4 billion = MSME Finance Gap $3 billion
Is There a Gap?
Is there a gap?
Demand $7 billion less Supply $4 billion = MSME Finance Gap $3 billion
size gap: micro and small businesses
sectoral gap: agriculture and agri-processing
geographic gap: rural and remote areas
ethnic gap: indigenous entrepreneurs

17. Key Question
How to encourage or incentivise the financial sector to increase lending to Pacific MSMEs?

18. Possible Options to Consider
Partnerships with smaller, locally or indigenously owned banks
Simplified processes and procedures for EIB facilities
Continuing technical assistance to ADFIP and the Development Finance Institutions
More risk share options across the Pacific (e.g. a regional credit guarantee)
Provision of post-disaster relief funding regionally
Increased support to microfinance regionally
Support for deeper access to finance using mobile banking, internet banking, or agency banking models
Use of EIB's ACP Smallholder Finance Facility on a Pacific regional basis
Support programmes or incentives for lending to:
rural or remote areas
agricultural or agri-processing sector
micro or small businesses
Indigenously-owned businesses

19. Questions
Questions
And
Discussion