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THIRD TRI NATIONS SUMMIT ON SMALL BUSINESS Session II: Critical role of finance in building competitive MSMEs leading the way Title: BRIDGING FINANCIAL GAPS FOR MSME PRESENTATION PLAN • BRAZILIAN ECONOMIC MODEL UNDER THE NEW UNCERTAINTY SCENARIO • FINANCING SME IN THE BRAZILIAN CONTEXT • SEBRAE´S LEADING STRATEGY FOR SUPPORTING MSE FINANCING: REDUCING THE GAPS THE BRAZILIAN ECONOMIC MODEL 1. INFLATION TARGET 2. FISCAL RESPONSIBILITY 3. FLOATING EXCHANGE RATES INFLATION (CPI) 12 months 18 17,24% 15 % 12 9 consenso 2008: 4,5% 6 Meta 4,5% 3 0 Jan 02 Jan 03 Fonte: IBGE, Bacen Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 PUBLIC SETOR DEBT/GDP 58 54 % PIB 50 46 42 38 Jan 02 Jul 40,6% Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Fonte: BCB FOREIGN EXCHANGE RESERVES 220 23 Set 206,1 US$ bilhões 165 110 abr 15,9 55 0 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Set 08 Fonte: BCB EXTERNAL VULNERABILITY 11 35 30 DEBT SERVICES/GDP 9 25 15 7 % % 20 DEBT/GDP 5 10 5 3 0 -5 2000 2001 2002 2003 2004 2005 2006 2007 Ago 2008 1 Fonte: BCB BRAZIL GDP GROWTH RATE 6,0% 6 AVG 99-03 1,9% 5 AVG 04-08 4,8% % 4 3 2 1 0 -1 1T 99 1T 00 1T 01 1T 02 1T 03 1T 04 1T 05 1T 06 1T 07 Fonte: IBGE 2T 08 COMPARING REGIONS... 2006 2007 Estimated 2008 (oct/07) estimated 2008 (atual) estimated 2009 (atual) 6 5,1 5 3,9 % 4 3 2,9 2,8 1,2 2 0,8 1 0 EUA Área Euro Japão Mundo Fonte: FMI CREDIT AS % OF THE GDP 140 120 % do PIB 100 80 60 40 37 20 0 Source: IMF Summarizing THE FAVORABLE IMPACTS FOR MSME ... 1.ECONOMIC STABILITY 2.CREDIT EXPANSION 3.INEQUALITY REDUCTION THE NEW SCENARIO AND THE SME CONTEXT BACKGROUND... 1. THE FINANCIAL CRISIS IS BASED ON THE LONG PERIOD OF LOW INTEREST RATES IN THE U.S 2. SUBSTANCIAL INCREASE IN CREDIT AND REAL ASSETS PRICES (SPECIALLY REAL STATE) 3. CREDIT EXPANSION WAS FOLLOWED BY FINANCIAL INNOVATION THAT ALLOWED LEVERAGE, WITHOUT PROPER SUPERVISION. IMPACTS OVER THE BRAZILIAN ECONOMY 1. IN THE LAST FEW YEARS, BRASIL TOOK ADVANTAGE OF THE FAVORABLE SCENARIO TO INCREASE ITS CAPACITY TO EXTERNAL SHOCKS. 2. ELIMINATION OF PUBLIC SECTOR FOREIGN EXCHANGE INDEBTENESS HAS INTERRUPTED AN OLD VICIOUS CICLE OF EXTERNAL IMPACT CONTAMINATION CHALLENGES FOR THE MODEL UNDER UNCERTAINTY 1. TO CONTINUE FOSTERING SUSTAINABLE ECONOMIC GROWTH 2. TO IMPLEMENT COUNTERCICLE CREDIT POLICIES UNDER BANKING RISK AVERSION 3. TO LOWER INTEREST RATES UNDER CURRENCY APPRECIATION AND INFLATIONARY THREATEN 4. TO DEEPEN ECONOMIC AND POLITICAL REFORMS 5. TO SUSTAIN SOCIAL WELFARE EXPENDITURE FOR LOWER GOVERNMENT REVENUES SCENARIO WHY CREDIT IS SO HARD FOR MSME IN DEVELOPING COUNTRIES? 1. USUALLY FINANCIAL SECTOR IS THE MOST REGULATED SECTOR 2. LOWER DEVELOPMENT STAGE MEANS HIGHER ASSIMETRY AND LACK OF INFORMATION. 3. FINANCIAL ACTIVITY STILL HIGHLY BASED ON GUARANTEES INSTEAD OF BUSINESS VIABILITY. 4. HIGH INCOME INEQUALITIES 5. LACK OF POLITICAL PRIORITY IT GETS WORST FOR MSME…. •FINANCIAL TRANSACTIONS HIGH FIXED COSTS FOR •LACK OF GUARANTEES AND DIFFICULTIES FOR RECOVERING •NON RELIABLE ACCOUNTING DATA •THE BUSINESS AND THE BUSINESSMAN ARE THE SAME. FINANCIAL MARKET AND THEIR TARGETS LEGAL ADVANCES • ALTERNATIVE DISTRIBUTION CANALS: –BANKING CORRESPONDENTS –CREDIT UNIONS • ALTERNATIVE FINANCIAL PRODUCTS AND SERVICES TO BUSINESS SEGMENTS PREVIOUSLY NOT ATTENDED. SEBRAE´S STRATEGY FOR SUPPORTING MSE FINANCING SEBRAE IS NOT A FINANCIAL INSTITUTION !!!! OUR MISSION IS: TO INDUCE PROXIMITY BETWEEN FINANCIAL SYSTEM AND SMALL BUSINESS TOWARDS HIGHER CREDIT ACCESSMENT AND LOWER FINANCIAL SERVICES COSTS NEGOTIATION GUARANTEES INFORMATION MICROFINANCE INFORMATION Micro National COSTS SMALL BUSINESS ACCESS INFORMALS HOW TO REDUCE INFORMATIONAL COSTS AND CREDIT RISKS? From the individual analysis and to business groups INDIVIDUAL FIRMS COLLECTIVE What are the advantagens of such strategy for the MSE point of view? Customized products and services Better access conditions Closer relation with the financial institution Collective demands and commitement What are the advantages of such strategy for the Financial Institution point of view? Lower costs and risks Scale Assimetry of information reduction Learning process PROGRAMS AND PROJECTS • MICROFINANCE – MICROCREDIT SUPPORT PROGRAM – CREDIT UNIONS SUPPORT PROGRAM • SPECIAL FUNDS AND PROJECTS – CREDIT GUARANTEE PROGRAM – VENTURE CAPITAL INVESTOR • INFORMATION AND CLIENT ORIENTATION FINAL CONSIDERATIONS... WHY FINANCING IS SO CRITICAL FOR BUILDING MSMEs COMPETITIVENESS ? • TO FOSTER INVESTMENT AND ECONOMIC GROWTH, REDUCING INEQUALITIES • TO STRENGHT CONSUMPTION AND LARGE COMPANIES CHAIN VALUES. • TO DEVELOP LOCAL AND SECTORIAL MSME ARRANGEMENTS • TO INDUCE INNOVATION • TO PURSUE ECONOMIC STABILITY AMONG THE BRAZILIAN FAMILIES PROMOTING SOCIAL PEACE. Some remarks... 1. CREDIT IS NOT A PANACEA 2. TECHNICAL SUPPORT IS DECISIVE FOR MSME 3. CONSISTENT PUBLIC POLICIES 4. PRIVATE AND 3RD SECTOR ARE ALSO IMPORTANT PLAYERS IN FINANCING MSME. WWW.UASF.SEBRAE.COM.BR ALEXANDRE GUERRA DE ARAUJO [email protected]