va W O RLD BANK G RO UP/ S MALL AND ME DI UM E NTE RPR ISE DE PA RTME NT VO L .2, NO.2 AP LR i 2 0 0 1 The Power of Partners I N T HI S IS S U E: It is the essence of teamwork-two sides doing more together than they could on their own. It's something seen PAGE ~~~in every business, and especially in the world of micro, small, and medium enterprises. To strengthen its impact in this crucial segment of private sector development, the World Bank Group is increasingly 4~ rtners: looking outside, linking up with organizations that stand as SEAF, ACCION, leaders in the field. The goal: to make them even better and t -tend their reach. Scaling up these micro/SME players on the cutting edge F enables them to do more than ever with their time-tested ° models of service delivery, and is one of the keys to the - i --- P=AGE World Bank Group's new strategy. For its part IFC has ". begun reducing its own direct investments in individual A/ / SMEs, instead emphasizing "wholesale" efforts channeled Azerbaijan: Women weavers team up. through both financial and non-financial intermediaries. To th~ Ground: this end, IFC is using its new $7.1 million SME Capacity Director Peter Woicke. "Traditionally IFC has defined its On tia Building Facility to fund major new partnerships with several intermediaries in micro/SME work as conventional Cam bod ia, Honduras, Mexico global best-practice institutions. Helping extend their reach finance institutions such as banks, venture capital funds, is an efficient step toward meeting IFC's objective of and leasing companies. And while that approach is fighting poverty by building small businesses. entirely valid and must continue, it's also time to expand the definition a bit and start working through some less These world-class partners-whether profit or nonprofit, conventional ones as well." and based in the developed or developing world-can PAGE apply to the facility for funding of up to 40 percent of This new commitment to partnership is also happening the costs of innovative projects that take their proven within the World Bank G;roup itself. The World Bank is models farther. Early examples of this new partnership broadening its own efforts, which often focus on helping approach include ACCION International and IPC, two top governments improve the business climate for smaller microfinance institutions with somewhat different styles firms. New closer coordination between the Bank and Cooperation: but equally powerful results, and SEAF, a specialized SME IFC helps bring the private sector directly into the Bosnia and investment fund manager that also boosts productivity dialogue in many countries, including Bosnia and Moldova with carefully honed technical assistance packages (see Herzegovina (see page 6,). pages 2-3). More such partnerships are expected in the coming months, giving IFC new sources of learning that Another interesting approach is in Moldova, where the can help widen its range of micro/SME activities. World Bank and European donors have teamed to finance a government body that has generated 10,000 new jobs "We see these groups as just the right kind of partners," in the past five years by creating new SMEs out of existing says IFC Executive Vice President and World Bank Managing large industrial enterprises (see page 7). See NEW PARTNERS, page 2 i~~~~~~~~~4 ~ ~ ~ ; SEAF CEO Bert van der Vaart and IFC Executive Vice President Peter Woicke sign partnership agreement in Washington, DC, March 1, 2001. but vital to local economies. SEAF works intensively with investees to build value, providing fee-based and donor- funded consulting services in areas such as marketing, _ ...iFfinance, and management, before eventually selling its stake. Its exits have achieved cumulative weighted average returns on investment above 30 percent. Although originally only able to attract the participation of development institutions, SEAF's investment funds have now begun to attract private capital as well. It is a trend IFC will strongly support through its growing partnership with SEAF. Since 1999 IFC has invested 517 million in four different SEAF-managed funds. The new agreement w 11 help the organizabon scale up, covering the cost of tools such as new management information systems and specialized financial personnel. IFC's support will also enable SEAF to SMALL ENTERPRISE begin working in Africa and other regions. ASSISTANCE FUNDS Since its founding, SEAF has helped create 7,000 jobs and has assisted more than 160 SMEs. Bert van der Small Enterprise Assistance Funds (SEAF) is a Vaart, SEAF's CEO, says IFC's participation will help the -special breed. Like the big U.S. and European organization reach many more SMEs than before. venture capital funds, it invests in small companies -_-_---_ _- with big ideas-and at far earlier stages than most others would consider. But unlike the big funds, SEAF works exclusively in developing and transition economies. With 12 years of operating history and $140 million under management, SEAF has become a key channel of finance and technical assistance to SMEs. ACCION INTERNATIONAL Now, IFC is helping the organization move to a pioneer in microfinance, ACCION International new level, attracting more private capital and A supports a network of independent institutions channeling it down to the market segments that that have provided more than $3 billion in loans to need it most. Under a $2.5 million global initiative 2 million low-income borrowers in Latin America, the launched this spring, SEAF will receive $850,000 Caribbean, and the United States. It is an NGO with a from IFC's SME Capacity Building Facility. SEAF is private sector mindset, one with a proven technical contributing $733,000 from its own resources and assistance model that helps poor people raise their drawing on other funding sources that include the incomes through entrepreneurship. With 27 years of U.S. Agency for International Development, the microfinance experience in one hemisphere, ACCION SNME FOCUS Dutch government, and Citizens Democracy now wants to go further, taking its model to Africa for is published quarterly by the Corps, a U.S. organization that sends senior the first time. World Bank Group business executives to work as volunteers with Department SMEs in developing countries. Additional resources A new initiative funded by the World Bank Group's are expected from other donors in the future. SME Capacity Building Facility will enable ACCION to 2121 Pennsylvania Avenue, NW Washington, DC 20433 USA help new microfinance partners In South Afnca and Based in Washington, D.C. and the Netherlands, Mozambique while also scaling up existing members of Director: Harold Rosen SEAF manages a network of 14 commercially driven its network in Guatemala and Brazil. Editors: Catherine Sunshine, investment funds around the world. Operating under Rob Wrighternd V a unique "equity plus assistance" model, the funds In each case the facility will provide $100,000 to support Newsletter coordinator: Luijeta Tola typically invest in businesses with 10 to 100 employees ACCION's work, for a total of $400,000. In South and annual revenues of $200,000 to $2 million-too Africa, ACCION and local partners will create a new For further information or to request additional copies: small to interest mainstream private equity investors, microfinance institution in the country's North West L.Tola, (202) 458-7562 E-mail: Ltola@ifc.org Province. In Mozambique the work will center on strengthening * DOEN Foundation of the Netherlands (20 percent) . an institution called Tchuma in the Maputo area, where only *FMO the Dutch development finanice institution (10 percent) a A 5 percent of potential microborrowers are currently being reached. t i ( p Efforts in Guatemala and Brazil will also focus on helping * IFC (10 percent) successful nonprofit microfinance institutions evolve into viable commercial players, increasing their impact and sustainability. Early studies financed by IFC's Japanese trust fund confirmed that significant demand for microfinance exists in Mindanao. These new initiatives come just as IFC has made its first direct MEB-Philippines will provide market-rate loans to small investment in an ACCION affiliate, Compartamos of Mexico. In entrepreneurs traditionally underserved by existing financial the last 10 years Compartamos has developed a highly profitable institutions. That approach is the hall mark of IPC, a consulting lending portfolio serving 60,000 Mexican borrowers, mostly group whose management support !ervices have helped build women. With technical assistance provided by ACCION and self-sustaining microfinance institutions in Latin America, funded by the U.S. Agency for International Development, Central and Eastern Europe, and the lormer Soviet Union. IPC Compartamos recently spun off its microfinance operations into a separate for-profit entity, Financiera Compartamos SA. IFC is now v supporting this new institution's capital increase, taking over 15 percent of the newly issued shares and helping triple its number of borrowers over the next five years. ACCION has a core operational staff of 30 experienced microfinance management specialists working both from a regional office in Bogota and from the ACCION headquarters outside Boston. Its work has helped show that, under the right regulatory conditions and with proper management and technology in place, microfinance can both serve the poor and earn profits-enough so that some commercial banks are now keen to enter the field. The key, ACCION believes, lies in the strong technical support it provides to its network. In partnership with IFC, ACCION should be able to offer new economic opportunities to thousands more small-scale entrepreneurs in Latin America and Africa. Mindanao: Coconut workers in southern Philippines. will now develop this new institution in the Philippines, applying its customized credit technologies and expertise and training local loan officers. It is an approach that has prc,ved successful in many difficult environments, including Kosovo, where the IPC-managed Micro Enterprise Bank was the first licensed bank in the post-conflict era and reported profits after only six months of operation. INTERNATIONALE Like IFC, IPC believes that regulated, self-sustaining financial PROJ EKT CONSULT institutions are the best way to meet the large demand for microcredit. The two institutions thus teamed in June 2000 to A new commercial microfinance bank will soon open in one spearhead a new partnership called the Global Microfinance of the Philippines' poorest islands, Mindanao. It is the latest Capacity Building Facility. An $85 million initiative to support result of IFC's new global partnership with a world leader in new IPC-managed commercial microfinance institutions in 11 microfinance, Internationale Projekt Consult GmbH (IPC) of countries, the facility combines investment and technical Germany. assistance funds in one efficient package, uniting several like-minded groups in a common cause. At a meeting in Manila on February 20, IFC Executive Vice President Peter Woicke signed documents bringing together the When MEB-Philippines opens in a .:ew months, it will be able to five shareholders who are providing around 60 million Philippine draw on already committed training funds from IFC and the pesos (US$1.2 million) to launch Micro Enterprise Bank of the DOEN Foundation to cover its institution-building needs in the Philippines (MEB-Philippines). They are: critical first three years. Other countties expected to get new IPC-managed microfinance institut ons under this initiative include * PlantersBank, a Philippine commercial bank specializing Ghana, Turkey, and others. in SME finance (40 percent) * IPC's investment fund Internationale Micro Investitionen For more information on all three partnerships: Katia Macedo (20 percent) (kmacedo@ifc.org). There's a "frontier focus" to much of the World Bank Building Sustainability: Group's SME work. The toughest issues, such as Cambodia's Hagar Crafts extreme poverty and environmental degradation, are often the ones that demand the most creative The Hagar Project, an integrated housing and job training responses. In Cambodia, the IFC-managed Mekong program for destitute women and their children, is widely seen Project Development Facility is helping expand a as one of Cambodia's most effective poverty-fighting initiatives. handicrafts business that employs formerly homeless Sponsored by Youth with a Mission, an international Christian women. IniHonduras, poor people without home NGO, it has an excellent track record of helping people climb from the economic fringe of one of the world's poorest electricity are benefiting from IFC-financed solar countries, assisting them in building new lives and learning lighting. And in Mexico, a World Bank initiative is marketable skills. Now, assistance from the IFC-managed linking small companies with large ones to find Mekong Project Development Facility (MPDF) is helping to ways to make environmental improvements that scale up its most successful component, a handicraft business boost the bottom line. currently providing training and employment for 50 women. AMany of the women at the Hagar shelter previously lived on the E streets and were subject to exploitation. Hagar provides them * with relief assistance, job training, schooling for their children, 0 and housing for up to six months. Business units in handicrafts, i soy milk production, and catering provide support for the shelter by creating income-generating jobs. Women can continue as wage-earning employees after their stay in the shelter ends. Operational since 1997, Hagar Crafts makes high-quality bags, mats, slippers, and other items from local woven cloth. It currently turns a small profit by selling the goods to tourists in Phnom Penh and Siam Riep as well as exporting them, mainly to Switzerland, Japan, and Singapore. Production uses manual _ - sewing machines. The turnover of the unit in 2000 wvas estimated at $80,000. MPDF conducted a thorough review of Hagar Crafts' production processes and advised it on a business expansion project. The plan is to transform Hagar Crafts from a donor-funded unit into a private company, enabling it to expand its production capacity and increase exports. Hagar will establish a separate commercial entity for Hagar Crafts, with an independent management and operating structure. The goal is to obtain new sources of technical assistance (both advisory services and training) and upgraded technology, including management information systems. Current employees would then be trained in new skills, including operating electrical sewing machines. The expansion is expected to create an additional 20 jobs. The planned transformation of Hagar Crafts will integrate the social development objectives of Hagar with private sector development objectives. Hagar is expected to be one of the shareholders, and will implement the plan to transform the craft unit into a private enterprise. In addition to providing employment for approximately 70 destitute women, the project will also contribute approximately $100,000 to Cambodia's export earnings by 2003. Long-term plans include the transfer Job skills learned at Hagar give some of Cambodia's poorest women a of ownership to deserving employees. The project has the new chance in life. potential for replication in other commercial units of Hagar as well as other NGO projects. For more information: Karla M. Quizon (mquizon@ifc.org). Soluz Honduras already serves more than 750 fee-for-service customers and is poised to expand. A survey carried out by the company before starting business showed that a third of the residents in target markets spent more than $8 a month on batteries, kerosene, and candles. A 515 monthly charge for clean electricity is thus an attractive alternative for many. There is no competition from other e ectricity suppliers in Honduras, as the national utility corioany has a limited capacity to electrify most of the areas served. Soluz Honduras's near-term expansion goal is to serve 5,000 paying customers within the next three to four years, allowing it to achieve profitability. Future expansion, perhaps with additional IFC financing, could position Soluz Honduras to serve 50,000 of that country's 850,000 unelectrified households. For more information: Doug Salloum, GEF tB >x -S " .t L(doug.salloum@sympatico.ca) or Johin Rogers, vice president, Soluz Inc. (jhrogers@Pijc.org). Big and Small Companiies in Mexico: Solar lighting helps rural Hondurans who lack conventional Together in Environme!ntal electrical connections. Management Putting environmental management systems in place is often Honduras: too expensive for small businesses. But working with larger Solar Power for the Poor mentor companies can give SMEs a cost-effective way to improve their environmental efficiency. A startling fact: A third of the world's people have no access to commercial energy sources. In Mexico, the government, the \A'orld Bank, and 11 large companies including IBM, Lucent Technologies, Honda, and In Honduras, one of Central America's poorest countries, fully CEMEX have jointly sponsored a project to help 22 SMEs 50 percent of all households lack access to electricity. Extending improve their environmental perfo'rnance. The goal was to the electric grid to remote rural areas is too expensive for the see if the mentoring support would help the SMEs-all of national utilities company. Many farmers have no choice but to them suppliers to the larger firms--successfully meet the rely on traditional small-scale sources of energy, or on polluting criteria of targets such as ISO 1400(1, a certification setting and often oversized gas and diesel generators. But another, standards for a firm's environmental policy, planning, cleaner solution exists: photovoltaic solar home systems. implementation, and operation. Giving rural Hondurans access to solar power is the business of Progress is encouraging. Within a year, 80 percent of the Soluz Honduras, a subsidiary of a U.S.-based company, Soluz Inc. SMEs reported lower pollution and nearly 50 percent reported For a small installation fee, Soluz installs a solar home system that improved waste handling. More than half also reported provides a small amount of electricity. The user pays $10 to $20 improved efficiencies in use of energy and raw materials. Even a month for service, and receives enough energy to provide though none of the SMEs chose tD become ISO-certified, electric lighting and power a radio or television set. The unit thus they have reported continued gocicl environmental progress. provides the small amount of power that many rural households Some of the new networks created have been maintained. would like at a cost they can afford. The electricity replaces the The pilot helped increase understanding of small businesses' use of generators, fuelwood, candles, and kerosene for lighting, approach to environmental matters, and the model is now thus reducing pollution-causing carbon dioxide emissions. being replicated in Bangladesh. The product is simple, but it fills the needs of people who For more information: otherwise could not afford electricity, says Doug Salloum, Kulsum Ahmed (kahmed4@worldbank.org). manager of the IFC-managed Global Environment Facility (GEF). Soluz Honduras has raised a total of $1.5 million in debt and equity funding from that program as well as others. CLOSE COOPERATION Combining the World Bank's policy reform expertise with IFC's client focus creates a whole stronger than the sum of its parts. Through this joint effort, Bosnian SME owners are starting to press their government for a better business climate, and a Moldovan industrial restructuring effort may move into a new phase. 'N" i = I I* Judicial reform and legal enforcement * Reducing corruption in customs administration -* Simplifying registration, licensing, and inspection * Promoting public-private sector dialogue in the formation of legislation and policies affecting private business The recent emergence of business associations determined to advocate for policy change has been an encouraging step. While working on a small business 'country map" of Bosnia last June, an SME Department team saw the need to bolster these groups. Accordingly, the World Bank used Canadian donor trust funds to enlist the Canadian Manufacturers and Exporters Association to help train the groups in advocacy work. Work was done in close coordination with the World Bank's BAC team and involved strong support from Southeast Europe Enterprise Development (SEED), a new IFC-managed multidonor initiative for SMEs in SMEs like this wood processing factory are the heart of the Bosnia, Albania, Kosovo, and FYR Macedonia. Bosnian economy. The participating business groups face major challenges in organization, membership recruitment, and communication. But BO SN IA aand they are gaining new advocacy skills and applying them in the policy formulation process via the BAC. There are encouraging H ERZEG O V I N A: signs that independent voices of small business are emerging to help build a more favorable business climate, making Bosnia a A Better Business Climate better place to live, work, and invest. Strong associations that can speak effectively on behalf of private For more information: Christopher Miller (cmiller3@ifc.org). business interests are crucial to private sector development in any country. But too often they are absent. New ways must be found to bring them into the policy reform process. M O LD O V A : In Bosnia and Herzegovina the World Bank Group is working to bring local small business groups directly into the debate on Post-Privatization ways to improve the business climate. The country's postwar Restructuring pace of privatization and small business start-ups has been slow, taking a toll on development. Foreign investment is also low, mainly due to the intrusive administrative and legal barriers held In Moidova, the World Bank Group is helping tackle the over from the past. complex task of restructuring large, inefficient industrial enterprises without creating massive unemployment. Playing In response, the World Bank is preparing an estimated $40 million a key role is the nonprofit Agency for Restructuring and Business Adjustment Credit (BAC) that will support the government's Enterprise Assistance (ARIA), which received initial funding reform agenda. Four key areas are being considered: under a Private Sector Development loan. Some 450 small and MAE ET medium businesses have benefited from ARIA's assistance-at least 80 of them new SMEs created by spinning off viable units of larger, dysfunctional companies. THE TmE AMA ARIA was established in 1995, a time of severe economic difficulties in Moldova. Companies that once powered the Soviet military-industrial complex were limping along, burdened Six more staffers in the World by enormous debt, bloated labor forces, rusting capital assets, Bank Group's Small and Medium and little production. ARIA has helped these companies reorganize through bankruptcy and liquidation, sale or lease Enterprise Department. of assets, and spinning off of units that still show profit potential. '_ tNiANA AFRAMI-M'BOW The enterprises' physical assets themselves have been _ 11NANAA reconceived. Where the hulking relics of decaying manufacturing Current position: Program assistant, plants once loomed, newly created industrial parks now hum SME Department. with activity. Spin-off businesses are remaining on site while Recent experience: Program assistant, other SMEs are also moving in, making use of existing buildings, equipment, and infrastructure to substantially lower their costs. IRINA ASTRAKHAN One example is the liquidation of Spectrul, a textile manufacturer Russiatj in the city of Chisinau. ARIA helped the company preserve its . Current position: Consultant, SME Department. core business, complete the privatization process, and sell or Recent experience: Consultant on SME development, World Bank; deputy director of business development project in spin off its noncore assets. A new company, Produse Tehnice, Russia, Deloitte & Touche; director of training programs, was established to manage the Spectrul Industrial Park on the International Center for Development of Small Enterprises. site of the old textile firm. The park quickly filled with small and medium-sized businesses that together employ 450 people. FRANS A. J. BANEKE Also restructured was a manufacturer of technical military D uci equipment known as ALFA. After the breakup of the Soviet Current position: Managing director, African Management l)nion, ALFA stopped getting orders, and by 1997 the company t | F6 A Services Comrpany. Union, ALFA sopdgtigodr,adb197tecm nyRecent experience: Manager of financial sector development was nearly $13.5 million in debt. The 800 workers on the and directo of services, Netherlands Development Finance had not been paid in more han two years. Today, theCompany (FMO); secretary general of European payroll had not been paid in more than two years. Today, the Development Finance Institutions, Brussels; managed ALFA Industrial Park supports 85 businesses employing 1,500 development finance projects in Asia and Africa. workers. Most of the debt has been paid off and most tenants report profitability. AMARIO FISCHEL Austriani In the last five years, 60 enterprises have completed ARIA's Current position: Manager, Mekong restructuring regimen while 24 were liquidated, all working I .. Recent experience: Regional manager, with teams of trained, almost entirely local consultants. The ". MPDF, Ho Chi Minh City; senior investment expenditures for the period total about $9 million, officer, Asian Development Bank, Manila; agency's expenditures for the penod total about $9 milion, investment officer, IFC, New Delhi. with funding from the World Bank, USAID, and European donors. The SMEs assisted by ARIA have created approximately 10,000 new jobs, account for a 30 percent increase in worker MARIAI\ N KURTZ productivity, and have attracted $40 million in new private ACurentoer, a investment commitments. P ~~~~~~~~~~~~~~~Current position: Manager, Southeast Europe investment commitments. Enterprise Development. Recent experience: Consultant, PricewaterhouseCoopers, working orl USAID privatization project in Bosnia and With hundreds of companies still under state ownership, many Herzegoviria and on privatization and SME of them in serious arrears, great potential exists to development in Central and Eastern Europe and the create still more SMEs. ARIA is moving toward a fee-based, Commonwealth of Independent States. management consulting model that uses local consultants to work with qualifying companies. World Bank Group support GRAEME ROTHWELL may help scale up the successful ARIA model by transferring N wC Zea latind Cui-rent position: Regional manager, South Pacific the knowledge and organizational framework and by designing Project Facility. pilot restructuring projects in other countries. Recent experience: Principal industry specialist, IFC Agribusiness Department; senior management and oper- aticnal experience in food and agribusiness companies For more information: Lars J eurling (Ijeurling@worldbank.org). in Australia and New Zealand; trade policy and industry _ representation in Europe during Uruguay round of WTO. s~u World Bank Group Small and Medium Enterprise Department 2121 Pennsylvania Avenue, NW Washington, DC 20433 USA Printed on recycled paper with soy-based inks. C=ALENDAR Seminars In the World Bank Group ASIAN DEVELOPMENT BANK BUSINESS DEVELOPMENT SERVICES. 34th ANNUAL MEETING OF THE BOARD OF GOVERNORS. April 23-24, 2001, in Washington, D.C. May 9-11, 2001, in Honolulu, Hawaii. Sponsor: SME Department. http://www.adb.org/AnnualMeeting/2001 /default.asp E-mail: aamuah@worldbank.org (Alex Amuah) E-mail: annualmeeting@adb.org COMPETITION POLICY IN INFRASTRUCTURE SERVICES. AFRICAN DEVELOPMENT BANK GROUP April 23-24, 2001, in Washington, D.C. ANNUAL MEETINGS 2001. For more information contact Leticia Aguilar at leticiaa@iadb.org or at May 29-31, 2001, in Valencia, Spain. (202) 623-1648. http://www.afdb.org/news/am2001/am2001l.html E-mail: valenciapress@afdb.org WORLD BANK GROUP/INTERNATIONAL MONETARY FUND SPRING MEETING. April 29-30, 2001, in Washington, D.C. Training MAINSTREAMING MICRO AND SME FINANCE INTO COMMERCIAL BANKING. BDS TRAINING PROGRAM 2001. May 14, 21, 28, and June 4, 2001. August 5-23, 2001, in Glasgow, U.K. Sponsor: SME Department. Features interactive distance learning from Sponsor: Springfield Centre. various sites, including Accra, Addis Ababa, Dar es Salaam, Kampala, www.springfieldcentre.com Pretoria, with resource persons participating from California and Frankfurt. E-mail: bds@springfieldcentre.com E-mail: aamuah@worldbank.org (Alex Amuah) CHALLENGES TO MICROFINANCE COMMERCIALIZATION. June 4-6, 2001, in Washington, D.C. Sponsors: The MicroFinance Network; ACCION International; MBP; U.S. Agency for International Development; Consultative Group to Assist the Poorest (CGAP). http://www.bellanet.org/partners/mfn/conf.html E-mail: shalpern@mfnetwork.org (Sahra Halpern) AFRICA PROJECT DEVELOPMENT FACILITY/AFRICAN MANAGEMENT SERVICES COMPANY JOINT MEETINGS. June 4-7, 2001, in Lisbon, Portugal. E-mail: nafram-m'bow@ifc.org (Nana Afram-M'bow)