Description
Small And Medium Enterprises Key Driver For Growth And Jobs In South Asia
Small and Medium Enterprises
Key Driver for Growth and Jobs in South Asia
Increasing Access to Finance Facilitating Access to Markets
DONOR PARTNERS
United
States of
America
Netherlands Japan
Switzerland United
Kingdom
Sweden Norway
Italy Germany
European
Union
Finland
Canada Denmark
Australia Austria
Promoting Inclusion and Growth
Small and Medium Enterprises:
Key Driver for Growth and Jobs
in South Asia
16
India
Helping Non-Banking
Financial Companies
Support Small
Entrepreneurs
14
Bangladesh
Building a Database
of Clients to Improve
Lending Decisions
Increasing Access to Finance
20
Sri Lanka
IFC Helps Develop
Tourism Value Chains
22
Bangladesh
Reducing Energy and
Water Consumption
in Washing-Dyeing-
Finishing Sub-Sector
26
Bangladesh
Obtaining Trade Licenses,
a First Step to Starting a
Formal Business
28
India
Simplifying Tax
Compliance for Small
Firms, Improving
Business Climate
30
Nepal
Registering a Business
and Getting Tax
Information Online
Facilitating Access to Markets
Promoting Inclusion and Growth
32
The Way Forward
Our Priorities, Next Steps
34
Sharing Knowledge
6
Developing Competitive
Firms in the Private
Sector
Stori es of Impact
Forty million new jobs need to be created in
South Asia by 2016
[1]
to absorb newcomers in the
labor market. Small and medium enterprises will
be the main providers of these jobs. Improving
performance is critical to their success, making it
easier for them to operate, expand, and generate
business opportunities.
IFC has a decade of experience working with small
and medium enterprises in this region, providing
scalable and replicable solutions throughout
the lifecycles of small businesses. In 2002, IFC
established the SouthAsia Enterprise Development
Facility to enhance performance, competitiveness,
and growth of small and medium sized frms in
Bangladesh, Bhutan, Nepal, and North East India.
IFC provides investment and advisory services to
help small and medium enterprises through their
entire life cycle - right from inception to growth and
maturity. We do this by assisting in introducing
regulatory reforms, building management skills and
supporting access to fnance and markets.
[1] Estimates from the World Development Report and International Labor
Organization
? IFC trained 233,000
entrepreneurs to be more
efficient and productive
? More than 150,000 small
and medium enterprises have
received improved access to
financial services
? Micro, small, and medium
enterprises together generated
$15 million in revenues
Developing Competitive Firms in the
Private Sector
Fifty-three percent of IFC's advisory
portfolio in South Asia focuses on
micro, small, and medium enterprises
Between 2009 and 2012,
6
IFC’s support during various stages of
small and medium enterprise development
Stages
of SME
development
Formation phase Start-up phase
Growth phase Expansion phase
Capitalizing on Opportunities
IFC is linking frms with appropriate fnancial products
P
r
o
m
o
t
i
n
g
I
n
c
l
u
s
i
v
e
G
r
o
w
t
h
I
F
C
i
s
s
u
p
p
o
r
t
i
n
g
s
m
a
l
l
a
n
d
m
e
d
i
u
m
e
n
t
e
r
p
r
i
s
e
d
e
v
e
l
o
p
m
e
n
t
t
h
a
t
i
s
l
i
n
k
e
d
i
n
t
o
l
a
r
g
e
r
v
a
l
u
e
c
h
a
i
n
s
Constant skill-building
To improve business acumen and accelerate
growth to create jobs and tap new markets
C
r
e
a
t
i
n
g
t
h
e
R
i
g
h
t
C
o
n
d
i
t
i
o
n
s
I
F
C
i
s
r
e
m
o
v
i
n
g
c
o
n
s
t
r
a
i
n
t
s
t
o
f
o
r
m
a
l
i
z
a
t
i
o
n
b
y
i
n
t
r
o
d
u
c
i
n
g
p
o
l
i
c
y
r
e
f
o
r
m
s
7
Hardworking entrepreneurs running successful smaller companies contribute to local economic growth.
However, they face a range of challenges that constrain operations and growth:
Access to Electricity
As many as 23 million
micro-enterprises and
one million small and
medium enterprises
lack access to reliable
electricity in South Asia.
Access to Finance
Nearly 37 million micro-
enterprises including one million
small and medium enterprises
have limited or no access to
fnance in South Asia. Micro-
enterprises face a credit gap of
$280 billion to $340 billion while
it is $30 billion to $40 billion for
small and medium enterprises
in the region.
Access to Skills
Limited availability of
skilled labor reduces
productivity and
operational capabilities.
Entrepreneurs also lack
skills to expand and
grow their business.
Enabling Environment
Micro, small and medium enterprises face challenges at policy and
operational levels throughout their lifecycles. Interventions are needed, both
from the government and other private sector stakeholders to create an
ecosystem that nurtures them.
Access to Markets
Access to market
opportunities has
always affected
the ability of micro,
small and medium
enterprises to grow
and become more
proftable.
8
IFC’s Lighting Asia/India Program aims to provide safe, clean, and affordable off-grid electricity to 2 million people in rural India. The
governments of United States and Italy are co-funding this initiative.
9
Increasing Access to Finance
? IFC develops fnancial infrastructure and works with
leading commercial banks, non-banking fnancial
companies, and microfnance institutions in Bangladesh,
Bhutan, India, Maldives, Nepal, and Sri Lanka to help
them better serve the needs of small businesses.
? IFC works with BRAC Bank in Bangladesh to train
its staff to use existing portfolio information to predict
customer behavior. This has improved lending decisions
and signifcantly reduced non-performing loans. Small
business owners beneftted from faster turnaround time.
? IFC has supported an urban microfnance institution,
Swadhaar, to conduct market research and defne its
strategy to expand into the micro-enterprise segment.
IFC focuses on selectively
addressing the challenges
of access to finance,
markets and inclusion in
South Asia. It leverages
its global experience in
improving investment
climate, working with the
financial sector and its
relationships with lead
firms and corporations
10
? IFC works with lead frms and market aggregators to
reach a large pool of enterprises to introduce better
business practices, upgrade standards, and enhance
competitiveness.
? IFC’s interventions are based on an assessment of the
performance gaps in the value chain focusing mainly on
improving managerial and technical expertise of small
businesses.
? Dialog, an IFC investee mobile telecommunications
company in Sri Lanka, relies on a network of 55,000
retailers and distributors. Dialog is using IFC’s business
tools such as SME Toolkit and Business Edge™ to
increase integration within the network and improve the
operational effciencies of even its smallest distributors.
Facilitating Access to Markets Promoting Inclusion and Growth
? In South Asia, there are 69 million informal units;
many of them have the potential to grow. IFC
works with governments to introduce reforms that
make it easier for small and medium frms to do
business.
? IFC works in state of Bihar, India to simplify
business tax for small and large enterprises. In
Bangladesh and India, IFC is making it easier for
businesses to obtain trade licenses.
? In a unique eWaste recycling initiative in India,
IFC has partnered with a private sector client,
Attero, to integrate informal sector waste
collectors into the formal sector.
11
Increasing Access to Finance
Addressing the Regional Gap
An IFC global study on small and medium
enterprise fnance indicates that at least
40 percent of them in South Asia do not have
access to any institutional sources of fnance.
The formal credit gap for small and medium
enterprises in the region is an estimated
$30 billion to $40 billion, with a total credit
gap of $280 billion to $340 billion, including
micro-enterprises.
Financial institutions have limited exposure
to small businesses due to a “higher risk”
perception and limited access of these
enterprises to immovable collateral.
As a result, the fnancial needs of small
businesses are primarily met through informal
sources of fnance including moneylenders,
friends and family, and chit funds, all of which
charge signifcantly higher rates of interest than
formal sources.
Almost all fnance currently fowing into
this sector in South Asia is debt, with little
or no equity.
IFC plays a leadership role in providing
financing, as an advisor to the G-20 and
through innovative products and services that
support small and medium enterprises in frontier
markets and low income states
B.D. Mundhra employs 300 people at his bottling plant, Orient Beverages, in India.
He received fnance from IFC-investee Magma to expand his business.
12
1. Increasing Outreach to Micro-Enterprises: IFC advises Utkarsh Micro Finance, an investee-client and a registered
microfnance non-banking fnancial company working in the low income states of Uttar Pradesh and Bihar in India, to
develop loan products for micro-enterprises. Utkarsh specifcally serves customers that do not qualify for traditional
microfnance. IFC helps Utkarsh develop policies, systems, and pilot projects in two cities of Uttar Pradesh. Through
this, IFC estimates that Utkarsh will have the capacity to fnance up to 20,000 micro-enterprises in three years.
IFC’s four-pronged approach to increase access to fnance focuses on:
2. Strengthening Reach, Promoting Innovation: IFC builds the capacity of commercial banks to develop tailored
products and incorporate stronger risk management to expand operations to small and medium enterprises. IFC
supports Bangladesh’s BRAC Bank to increase its business performance by using evaluation tools and sustainability
reporting in small and medium enterprise fnance. IFC engages with the bank’s staff and senior managers to
strengthen evidence-based decision-making using these tools. IFC also supports National Development Bank in Sri
Lanka to strengthen lending to small frms, with an additional sub-component on agricultural lending.
3. Non-Financial Services to Foster Growth: In addition to fnance, small frms need business advice, skills, networking,
and market opportunities to grow. IFC focuses on non-fnancial services and provides thought leadership to develop
operational tools in this area. Since 2008, ICICI Bank, India’s largest private sector bank, using IFC’s SME Toolkit online
platform to provide non-fnancial services and information to smaller enterprises. As of March 2013, more than 520,000
SMEs use the business directory feature making it an exciting business-to-business platform. In Sri Lanka, IFC supports
National Development Bank to establish centers that facilitate banks’ direct engagement with their small and medium
enterprise clients and provide them with tools, training, and business information to improve productivity. National
Development Bank has opened fve small business centers and is in the process of opening four more.
4. Developing Credit Bureaus and Collateral Registries to Increase Transparency: IFC has partnered with the
Indian government’s central collateral registry, Central Registry of Securitisation Asset Reconstruction and Security
Interest, to expand its ambit to include movables which will address the lack of collateral needed to access credit for
small businesses that have few immovable assets. IFC will leverage its global experience with credit bureaus to grow
the use of credit information for small and medium enterprises in South Asia. This will include supporting existing
credit bureaus to increase use of non-traditional credit information (such as utility bills) to develop a comprehensive
credit picture for small frms.
13
Building a Database of Clients to Improve Lending Decisions
Bangladesh’s small and medium enterprises
are dynamic and offer a large number of
private sector jobs. However, banks lack
access to current information about the credit
behavior of these enterprises that can help
make informed lending decisions.
Bangladesh Bank in discussion with IFC,
decided to take on the challenge to create
and regularly update a comprehensive
database. At the pilot stage, the database
compiled information of 8,000 small and
medium enterprises from 64 districts.
Financial institutions can use this database
? To strengthen internal processes
? Facilitate quality control
? Enable easy reporting to Bangladesh
Bank thus reducing paper work
? Improve the utility of the database
through benchmarking
? Develop focused strategies to target
enterprises to provide fnancial
services.
In addition, Bangladesh Bank can use the
data to monitor their policy-level decisions,
and improve lending to small and medium
enterprises.
Case Study | Bangladesh
Traditional method of maintaining loan payment
registers.
14
Left: Bangladesh’s textile industry employs over 3.5 million people, 85 percent of whom are women.
Right: A small enterprise that receives credit from BRAC Bank, Bangladesh.
15
Helping Non-Banking Financial Companies
Support Small Entrepreneurs
India’s 14 low-income states are
home to more than 300 million poor.
Many among them have promising
entrepreneurial skills and just need
someone to give them a chance.
When banks turned down
Rajasthan vegetable farmer Suvalal
Palsania for a loan to buy a tractor,
Au Financiers decided to give
him one, since his cash fows and
reputation were strong. It lent him
Indian rupees 346,000 ($7,500)
for the tractor and trailer that he
now uses to get his produce to the
market faster.
Au is a fexible non-banking
fnancial company with a proven
credit-risk methodology.
Au serves more than 100,000
clients, primarily unbanked people
in rural Rajasthan who are ready to
do something with their lives but are
prevented from doing so as regular
banks will not give them credit.
First-time vehicle purchasers
are Au’s core market, but it also
provides low-income housing
fnance, health, life, and vehicle
insurance, micro, small and medium
enterprise fnance, and other
products – often to the same clients
as their needs grow.
IFC’s $7.6 million (Indian rupees
350 million) equity investment and
advisory package in 2010 and again
in 2012 was a stamp of approval
for Au. It helped attract additional
fnancing from other leading banks
and a nomination for the 2011
Financial Times/ IFC Sustainable
Finance Awards in London.
IFC supports Au to better
understand its target market and
expand its reach to micro, small,
and medium enterprises and
agri-allied businesses in both
existing and new geographies.
IFC also works with Magma
Fincorp, and microfnance
institutions such as Utkarsh and
Swadhaar, to extend fnance to
micro and small enterprises.
Case Study | India
Vehicle owners who received fnancing from IFC
client Magma have been able to expand their feet.
16
Suvalal Palsania got funding from Au Financiers to purchase a tractor.
In 2002, Girdhari Ram started his own transport company
with a loan from Au Financiers. Since then, he expanded his
business and now operates fve commercial vehicles.
17
Facilitating Access to Markets
Bridging the Gap
Through its private sector clients, IFC enhances the ability of small and medium businesses to access markets and integrate
them into value chains. IFC also facilitates their increased access to energy/power, and basic infrastructure.
1. Facilitating Access to Value Chains for Small Firms: In South Asia, and globally, large frms often rely on
a network of small businesses in their supply and distribution chains. Improving operational effciencies and
deepening integration within the value chain are key drivers of growth. On the other hand, small businesses
struggle to access business information, training, and opportunities to grow their operations and remain
competitive. Since 2007, IFC has worked with investee client Dialog Axiata Telecom in Sri Lanka, which
relies on a network of 55,000 retailers and distributors across the country. Nearly 8,000 micro and small
retailers have been trained on business management in local languages to improve their business skills. For
Dialog, these trainings have resulted in more than $2.6 million of increased revenue from these retailers.
2. Building Management Skills of Small and Medium-sized Entrepreneurs: IFC focuses on addressing
managerial skills gap through its proprietary training and information tools such as Business Edge™ and
the SME Toolkit. These tools, adapted to local markets and languages, train small and medium enterprises
on business management skills. So far, IFC through its accredited training partner frms, has trained 16,000
entrepreneurs in South Asia with these tools. Another approach to build management capacity has been to
work at the sector level in India, where IFC has partnered with the National Institute for Entrepreneurship
and Small Business Development, a training arm of India’s Ministry of Micro, Small and Medium Enterprise
to deliver a country-wide trainer capacity building program.
3. Increasing Access to Electricity: Lack of access to electricity is the main constraint faced by both formal
and informal micro, small, and medium enterprises. Unreliable or no electricity hampers operations and
increases the cost of doing business. IFC has launched Lighting Asia/India Program, aimed at providing
safe, clean, and affordable off-grid lighting to two million people living in rural India by 2015. The program is
developing private off-grid lighting market in India across the entire value chain: manufacturing, distribution,
supply chain management, and access to fnance. IFC also facilitates better access to basic infrastructure
through public-private partnerships.
18
A shop owner has been able
to extend his working hours
as a result of IFC’s Lighting
Asia/India Program.
Mahinda Malgoda,
a Sri Lankan small
entrepreneur received SME
toolkit training. He also
accesses the toolkit online
to improve business skills.
19
IFC Helps Develop Tourism Value Chains
Historically, the tourism business in Sri Lanka
was owned by a few local conglomerates,
who were reluctant to partner with small
local businesses due to concerns of quality
and reliability. On the other hand, small
businesses found it diffcult to attract high-
spending tourists due to limited marketing
reach and poor quality of goods and services
offered.
IFC focused on Hikkaduwa district in
southern Sri Lanka, which has the highest
concentration of small and medium frms
operating in the tourism sector.
IFC launched the Hikkaduwa Tourism Service
Providers’ Association in 2008 to help develop
a model that integrated small businesses into
the value chains of larger conglomerates.
The association trained small industries to
provide consistent quality of professional
services and to reach out to a larger customer
base through better marketing.
As a result, micro and small entrepreneurs
can now access new business opportunities
in the tourism value chain and register and
formalize their businesses.
The project has, so far, led to the creation of
336 direct jobs and generated $1.1 million
in revenue. Around 555 small and medium
enterprises that provide tourism related
services, including restaurants, transport,
and traditional arts and crafts, are part
of this project.
Case Study | Sri Lanka
20
Top left, right and bottom left: Local service providers in restaurants, transport, and traditional crafts are part of the Tourism Association
in Hikkaduwa.
21
Reducing Energy and Water Consumption in
Washing-Dyeing-Finishing Sub-Sector
IFC’s interventions to reduce use of resources
like energy and water are a pioneering initiative
in Bangladesh. These interventions have shown
that it is possible to adopt higher standards of
resource effciency and also save money.
Bangladesh’s textile industry is the second largest
in the world and is the highest foreign currency
earner for the country ($19 billion in 2011). It
employs over 3.5 million workers, of whom 85
percent are women.
The washing-dyeing-fnishing sub-sector of
the textile industry has 1,700 units that employ
200,000 workers. It is growing at 10 percent
per year. However, this sub-sector is also the
second biggest polluter in the country, discharging
56 million tons of waste water, and 0.5 tons of
sludge annually. This negatively impacts the lives
of nearly 6 million people.
Washing-dyeing-fnishing units use millions of
liters of water every year, mostly from the Dhaka
watershed where most factories are located. The
water table here is receding one meter every year.
To make the sector less polluting and more
effcient, IFC worked with trade associations,
textile frms, buyers, and the government to
provide a 360 degree solution to ensure that
the textile industry can sustain growth, and gain
a competitive advantage by working towards a
cleaner, greener supply chain.
By December 2012, IFC had worked with 18
washing-dyeing-fnishing plants to implement
cleaner production processes.
IFC’s intervention resulted in saving
1.3 million cubic meters of water per year,
$2 million in private sector savings, and
reducing 32,000 metric tons per year of
greenhouse-gas emissions.
The program now covers 52 of the 1,700 frms in
the sector. Since these 52 units supply to large
international frms, their experience could have a
transformational impact on the sector.
Case Study | Bangladesh
22
IFC is helping reduce use of energy and water by promoting cleaner production technologies in Bangladesh’s textile industry.
23
Promoting Inclusion and Growth
Creating an Enabling Environment
IFC enables reforms to foster a better
business environment for small and
medium enterprises and improve
the investment climate to help them
register and become formal units.
There are 69 million informal units
in South Asia and many have the
potential to grow. However, they
lack a supportive ecosystem that
nurtures growth.
IFC is simplifying business tax
regimes in India’s Bihar state and
Nepal to make it easier for small
business to fle taxes and become
compliant. Once these frms come
into the formal tax fold, it is easier
for them to access loans, subsidies,
and markets.
Trade licensing simplifcation reforms
in Bangladesh help frms to reduce
risk, cost, time, and facilitate easier
access to information. Similarly, Nepal
uses information technology, such as
the newly-launched business license
portal, to provide information on trade
licensing to small and medium frms.
In another initiative in Bhutan, World
Bank Group’s investment climate
team, have launched an e-portal that
will make it easier for businesses to
obtain licenses and permits.
Manohar Singh Rajawat from Dausa district in state of Rajasthan,
India, struggled to earn his living as a tent house laborer in
2007. Today, he runs his own tent house and owns fve trucks.
Formalization helps small entrepreneurs grow their business.
A worker in welding industry who has access to safety equipment and
protective gear.
24
Workers dismantle electronic equipment at IFC investment and advisory client, Attero Recycling's, plant in Roorkee, India. IFC-Attero have
partnered in a unique Clean e-India initiative to integrate informal sector waste collectors into a formal supply chain with access to safety
equipment and workers' rights.
25
Obtaining Trade Licenses, First Step to Starting a Formal Business
Acquiring a trade license is the
frst step to starting a business
– be it small or large. A large
number of entrepreneurs in
Bangladesh fnd it hard to
acquire trade licenses due to
lack of information, facilitation
fees, and the time taken to issue
them.
As a result, entrepreneurs in
rural areas operate through
informal units, which limits their
access to fnance, government
subsidies, and skills to run a
business effciently.
IFC recommended a redesigned
process to the government of
Bangladesh that eliminated
multiple reviews and defned the
roles of government offcials at
municipality level and reduced
time and costs for the applicant
and the municipality.
Now, a trade license can be
issued and renewed in half a
day. Earlier, it took three days
to issue a trade license and two
days to renew it.
The government is now
implementing this project
in three municipalities of
Bangladesh - Cox’s Bazaar,
Gopalganj and Hobiganj, and
will conduct an assessment to
address all challenges before
implementing it in all 312
municipalities in Bangladesh.
Case Study | Bangladesh
Garment factories in Bangladesh are a major
source of employment in the country.
26
Young women in Bangladesh have better job prospects as they enhance their information technology skills.
27
Simplifying Tax Compliance for Small Firms, Improving
Business Climate
IFC helped the Indian state of Bihar to simplify
tax laws and procedures to reduce compliance
issues and encourage small businesses to
register as taxpayers, thus widening tax base,
and improving business climate.
With IFC’s advice, Bihar state adopted several
progressive measures such as a fxed rate
of tax for micro and small enterprises with no
routine scrutiny, online fling of returns for larger
enterprises, simplifed admission of appeals, and
faster resolutions and refunds.
The project started in 2009 and by its closure
in September 2013, the project recorded a
24 percent increase in the tax payer base.
The number of tax payers fling e-returns has
increased to 22,000 (from a base of 149 in
2009). 93 percent of tax revenue is collected
electronically in Bihar now.
The number of small tax payers registered under
a special, simplifed scheme for small tax payers
is at 6,800.
According to an appraisal by Indian Market
Research Bureau, an international market
research and consultancy frm, businesses
in Bihar agree that tax compliance is less
burdensome after reforms, and ease of doing
business has improved.
Case Study | India
Mohammad Mustafa runs a bangle store in Patna,
Bihar and does not worry about closing shop when
the tax authorities come for surprise checks as his
business is formally registered now.
28
Shop owners in Patna, Bihar fnd it easier to do business after the introduction of a
simpler tax regime for small businessmen.
29
Registering a Business and Getting Tax Information Online
In Nepal, entrepreneur Jackson
Subeidi has found it easier to register
a new business due to an improved
investment climate. In the past, he had
to make repeat visits to a government
center. Recent improvements,
supported by advisory services from
IFC and World Bank Group, allowed
him to launch his latest start-up Hipster
Technologies quickly. Adding a new
electronic database and fling system,
the government’s Offce of the Company
Registrar has now registered 114,000
companies, most of them online.
IFC also supported Nepal to implement
an e-portal to store business license
information as part of the Nepal
Investment Climate Reform Program.
Prior to the setting up of the license
portal, small businesses in Nepal
complained of limited or no access
to authentic license information. A
diagnostic study found that a total
of 130 different types of licenses
are issued by 41 agencies and
departments. Over 70 percent of the
licenses are issued at the central level,
and the rest at district and municipal
levels. Moreover, information on these
business licenses was scattered across
more than 60 websites, numerous
publications, and citizen charters of
multiple government agencies.
As a result, businesses had to visit
multiple government offces and
websites were forced to engage
intermediaries, and were still
unable to collect accurate and
complete information.
The e-portal now provides easy
access such as license name, purpose
of the license, territorial coverage,
issuing agency, license details, legal
basis of the license, documentation
and other requirements, license
processing time, license validity period
and renewal frequency, and relevant
fees or charges.
Case Study | Nepal
30
Top left: IFC’s work with Nepal’s Offce of the Company Registrar has helped register 114,000 companies.
Top Right: Improved business regulations helped Nepalese entrepreneur Jackson Subeidi to register his company, Hipster Technologies,
faster.
Bottom: IFC assisted Nepal in establishing an e-portal, a one-stop platform for all license and tax information that is beneftting small
businesses.
31
The Way Forward
Our Priorities, Next Steps
IFC will continue to:
? Increase access to fnance for
small businesses by helping
banks and microfnance
institutions expand lending and
improve risk management
? Facilitate roll out of non-fnancial
services in India’s low income
states and frontier regions in
South Asia
? Broaden focus on agribusiness to
support small frms’ integration in
the value chains of larger frms
? Work with local governments in
creating the right environment
for small and medium frms to
operate and grow.
32
IFC will continue to deepen
its engagement with small
and medium enterprises in
partnership with our private
sector clients, especially in the
least developed markets in
South Asia.
IFC will help banks and
microfnance institutions to
increase lending to small and
medium frms, improve risk
management, and bring micro-
enterprises into their fold. It will
increase focus on non-fnancial
services and provide thought
leadership in this sector.
IFC will broaden its
interventions, with a specifc
focus on agribusiness, to
improve the ability of small and
medium enterprises to access
markets. Small enterprises
can stay linked to market
opportunities by being a part of
the value chain of larger frms.
IFC will work with local
governments to simplify and
streamline small business
registration and tax payment
procedures and work towards
the inclusion and formalization
of smaller businesses.
33
Sharing Knowledge
Micro, Small and Medium Enterprise Finance in India: A Research Study on Needs, Gaps and
Way Forward (November 2012)
There are an estimated 30 million micro, small, and medium enterprises in various industries, employing
69 million people. Accounting for 45 percent of the country’s industrial output, the sector has been
growing consistently at 11.5 percent a year, higher than India’s overall economic growth. However,
inadequate fnancing and market linkage have not allowed these businesses to grow suffciently. IFC’s
recent study, jointly undertaken with the Government of Japan, outlines potential interventions to
address their biggest challenge of accessing fnance.
The study estimates that fnancial institutions meet only one-fourth of the fnancing demand of micro,
small, and medium enterprises in India, noting that a sizeable part of this huge unfulflled opportunity
is viable. The overall fnance shortfall in the micro, small, and medium enterprise sector is around
Indian rupees 20.9 trillion ($418 billion). Despite the increased fnancing to these businesses, formal
sources are able to channel only Indian rupees seven trillion (nearly $200 billion). The study estimates
that banks can easily address the sector’s debt and equity fnancing requirement of Indian rupees
3.57 trillion (nearly $105 billion). It recommends a mix of well-rounded fscal support, strong policy
framework, and incentives promoting innovation to expand formal fnancing to these enterprises.
Small and Medium Enterprise Gender Baseline Estimation for IFC’s Financial Market Portfolio in
Nepal (November 2012)
In Nepal, women own about 14,300 small and medium enterprises, accounting for two percent of
the country’s GDP and employing over 200,000 workers. IFC has released a study that fnds women
entrepreneurs could play a more signifcant role in Nepal’s economic growth if fnancial institutions
address their fnancing needs with suitable offerings. The study pegs their current credit requirement at
$106 million. The South Asia Enterprise Development Facility, managed by IFC, in partnership with UK
Government and the Norwegian Agency for Development Cooperation, conducted the study.
The report suggests that women are more entrepreneurial than men, generating six percent higher profts
on annual sales even though they operate smaller businesses. Access to fnancing remains their biggest
hindrance because banks prefer fxed assets as collateral, which few women entrepreneurs possess.
Other operational needs include improved access to markets and training for skill development. The study
suggests credit rating and collateral registry should guide fnancial institutions, helping them tap into the
$2.5 billion lending opportunity for small businesses.
Micro, Small and Medium
Enterprise Finance in India
A Resear ch St udy on Needs, Gaps and Way For war d ( November, 2012)
I n Par t ner shi p wi t h
Gover nment of Japan
November, 2012
SouthAsia Enterprise Development Facility
Managed by IFC, in partnership with the UK Government and Norad
SME Gender Baseline Estimation for IFC’s
Financial Markets Portfolio
IFCAdvisory Services in South Asia
IFC's knowledge products in Small and Medium Enterprises
34
This publication may contain advice, opinions, and statements of various information providers
and content providers. IFC does not represent or endorse the accuracy or reliability of any advice,
opinion, statement or other information provided by any information provider or content provider,
or any user of this publication or other person or entity.
CREDITS
Photography
Sailendra Kharel (front cover)
Manas Ranjan Ojha
Dilip Banerjee
Kesara Ratnavibhushana
Antonio Rodrigo
A. Jacobson
Sarah Karim
Kushang Singh
Bijay Gajmer
Loty Salazar
S. Jain
Sailendra Kharel
John Isaac
IFC South Asia, 2014
Contact Information
International Finance Corporation
Maruti Suzuki Building
3
rd
Floor, 1 Nelson Mandela Road,
Vasant Kunj, New Delhi - 110070
India
T: +91 11 4111-1000
F: +91 11 4111-1001
www.ifc.org
Stay Connected
www.ifc.org/southasia
www.facebook.com/IFCsouthasia
www.twitter.com/IFC_SouthAsia
www.ifc.org/facebook
www.twitter.com/IFC_org
www.youtube.com/ifcvideocasts
www.ifc.org/SocialMediaIndex
About IFC
IFC, a member of the World Bank Group, is the largest global development institution focused exclusively
on the private sector in developing countries. Established in 1956, IFC is owned by 184 member countries, a
group that collectively determines our policies. Working with private enterprises in more than 100 countries,
we use our capital, expertise, and infuence to help eliminate extreme poverty and promote shared prosperity.
IFC leverages the power of the private sector to create jobs and tackle the world’s most pressing development
challenges. IFC’s vision is that people should have the opportunity to escape poverty and improve their lives.
doc_670465607.pdf
Small And Medium Enterprises Key Driver For Growth And Jobs In South Asia
Small and Medium Enterprises
Key Driver for Growth and Jobs in South Asia
Increasing Access to Finance Facilitating Access to Markets
DONOR PARTNERS
United
States of
America
Netherlands Japan
Switzerland United
Kingdom
Sweden Norway
Italy Germany
European
Union
Finland
Canada Denmark
Australia Austria
Promoting Inclusion and Growth
Small and Medium Enterprises:
Key Driver for Growth and Jobs
in South Asia
16
India
Helping Non-Banking
Financial Companies
Support Small
Entrepreneurs
14
Bangladesh
Building a Database
of Clients to Improve
Lending Decisions
Increasing Access to Finance
20
Sri Lanka
IFC Helps Develop
Tourism Value Chains
22
Bangladesh
Reducing Energy and
Water Consumption
in Washing-Dyeing-
Finishing Sub-Sector
26
Bangladesh
Obtaining Trade Licenses,
a First Step to Starting a
Formal Business
28
India
Simplifying Tax
Compliance for Small
Firms, Improving
Business Climate
30
Nepal
Registering a Business
and Getting Tax
Information Online
Facilitating Access to Markets
Promoting Inclusion and Growth
32
The Way Forward
Our Priorities, Next Steps
34
Sharing Knowledge
6
Developing Competitive
Firms in the Private
Sector
Stori es of Impact
Forty million new jobs need to be created in
South Asia by 2016
[1]
to absorb newcomers in the
labor market. Small and medium enterprises will
be the main providers of these jobs. Improving
performance is critical to their success, making it
easier for them to operate, expand, and generate
business opportunities.
IFC has a decade of experience working with small
and medium enterprises in this region, providing
scalable and replicable solutions throughout
the lifecycles of small businesses. In 2002, IFC
established the SouthAsia Enterprise Development
Facility to enhance performance, competitiveness,
and growth of small and medium sized frms in
Bangladesh, Bhutan, Nepal, and North East India.
IFC provides investment and advisory services to
help small and medium enterprises through their
entire life cycle - right from inception to growth and
maturity. We do this by assisting in introducing
regulatory reforms, building management skills and
supporting access to fnance and markets.
[1] Estimates from the World Development Report and International Labor
Organization
? IFC trained 233,000
entrepreneurs to be more
efficient and productive
? More than 150,000 small
and medium enterprises have
received improved access to
financial services
? Micro, small, and medium
enterprises together generated
$15 million in revenues
Developing Competitive Firms in the
Private Sector
Fifty-three percent of IFC's advisory
portfolio in South Asia focuses on
micro, small, and medium enterprises
Between 2009 and 2012,
6
IFC’s support during various stages of
small and medium enterprise development
Stages
of SME
development
Formation phase Start-up phase
Growth phase Expansion phase
Capitalizing on Opportunities
IFC is linking frms with appropriate fnancial products
P
r
o
m
o
t
i
n
g
I
n
c
l
u
s
i
v
e
G
r
o
w
t
h
I
F
C
i
s
s
u
p
p
o
r
t
i
n
g
s
m
a
l
l
a
n
d
m
e
d
i
u
m
e
n
t
e
r
p
r
i
s
e
d
e
v
e
l
o
p
m
e
n
t
t
h
a
t
i
s
l
i
n
k
e
d
i
n
t
o
l
a
r
g
e
r
v
a
l
u
e
c
h
a
i
n
s
Constant skill-building
To improve business acumen and accelerate
growth to create jobs and tap new markets
C
r
e
a
t
i
n
g
t
h
e
R
i
g
h
t
C
o
n
d
i
t
i
o
n
s
I
F
C
i
s
r
e
m
o
v
i
n
g
c
o
n
s
t
r
a
i
n
t
s
t
o
f
o
r
m
a
l
i
z
a
t
i
o
n
b
y
i
n
t
r
o
d
u
c
i
n
g
p
o
l
i
c
y
r
e
f
o
r
m
s
7
Hardworking entrepreneurs running successful smaller companies contribute to local economic growth.
However, they face a range of challenges that constrain operations and growth:
Access to Electricity
As many as 23 million
micro-enterprises and
one million small and
medium enterprises
lack access to reliable
electricity in South Asia.
Access to Finance
Nearly 37 million micro-
enterprises including one million
small and medium enterprises
have limited or no access to
fnance in South Asia. Micro-
enterprises face a credit gap of
$280 billion to $340 billion while
it is $30 billion to $40 billion for
small and medium enterprises
in the region.
Access to Skills
Limited availability of
skilled labor reduces
productivity and
operational capabilities.
Entrepreneurs also lack
skills to expand and
grow their business.
Enabling Environment
Micro, small and medium enterprises face challenges at policy and
operational levels throughout their lifecycles. Interventions are needed, both
from the government and other private sector stakeholders to create an
ecosystem that nurtures them.
Access to Markets
Access to market
opportunities has
always affected
the ability of micro,
small and medium
enterprises to grow
and become more
proftable.
8
IFC’s Lighting Asia/India Program aims to provide safe, clean, and affordable off-grid electricity to 2 million people in rural India. The
governments of United States and Italy are co-funding this initiative.
9
Increasing Access to Finance
? IFC develops fnancial infrastructure and works with
leading commercial banks, non-banking fnancial
companies, and microfnance institutions in Bangladesh,
Bhutan, India, Maldives, Nepal, and Sri Lanka to help
them better serve the needs of small businesses.
? IFC works with BRAC Bank in Bangladesh to train
its staff to use existing portfolio information to predict
customer behavior. This has improved lending decisions
and signifcantly reduced non-performing loans. Small
business owners beneftted from faster turnaround time.
? IFC has supported an urban microfnance institution,
Swadhaar, to conduct market research and defne its
strategy to expand into the micro-enterprise segment.
IFC focuses on selectively
addressing the challenges
of access to finance,
markets and inclusion in
South Asia. It leverages
its global experience in
improving investment
climate, working with the
financial sector and its
relationships with lead
firms and corporations
10
? IFC works with lead frms and market aggregators to
reach a large pool of enterprises to introduce better
business practices, upgrade standards, and enhance
competitiveness.
? IFC’s interventions are based on an assessment of the
performance gaps in the value chain focusing mainly on
improving managerial and technical expertise of small
businesses.
? Dialog, an IFC investee mobile telecommunications
company in Sri Lanka, relies on a network of 55,000
retailers and distributors. Dialog is using IFC’s business
tools such as SME Toolkit and Business Edge™ to
increase integration within the network and improve the
operational effciencies of even its smallest distributors.
Facilitating Access to Markets Promoting Inclusion and Growth
? In South Asia, there are 69 million informal units;
many of them have the potential to grow. IFC
works with governments to introduce reforms that
make it easier for small and medium frms to do
business.
? IFC works in state of Bihar, India to simplify
business tax for small and large enterprises. In
Bangladesh and India, IFC is making it easier for
businesses to obtain trade licenses.
? In a unique eWaste recycling initiative in India,
IFC has partnered with a private sector client,
Attero, to integrate informal sector waste
collectors into the formal sector.
11
Increasing Access to Finance
Addressing the Regional Gap
An IFC global study on small and medium
enterprise fnance indicates that at least
40 percent of them in South Asia do not have
access to any institutional sources of fnance.
The formal credit gap for small and medium
enterprises in the region is an estimated
$30 billion to $40 billion, with a total credit
gap of $280 billion to $340 billion, including
micro-enterprises.
Financial institutions have limited exposure
to small businesses due to a “higher risk”
perception and limited access of these
enterprises to immovable collateral.
As a result, the fnancial needs of small
businesses are primarily met through informal
sources of fnance including moneylenders,
friends and family, and chit funds, all of which
charge signifcantly higher rates of interest than
formal sources.
Almost all fnance currently fowing into
this sector in South Asia is debt, with little
or no equity.
IFC plays a leadership role in providing
financing, as an advisor to the G-20 and
through innovative products and services that
support small and medium enterprises in frontier
markets and low income states
B.D. Mundhra employs 300 people at his bottling plant, Orient Beverages, in India.
He received fnance from IFC-investee Magma to expand his business.
12
1. Increasing Outreach to Micro-Enterprises: IFC advises Utkarsh Micro Finance, an investee-client and a registered
microfnance non-banking fnancial company working in the low income states of Uttar Pradesh and Bihar in India, to
develop loan products for micro-enterprises. Utkarsh specifcally serves customers that do not qualify for traditional
microfnance. IFC helps Utkarsh develop policies, systems, and pilot projects in two cities of Uttar Pradesh. Through
this, IFC estimates that Utkarsh will have the capacity to fnance up to 20,000 micro-enterprises in three years.
IFC’s four-pronged approach to increase access to fnance focuses on:
2. Strengthening Reach, Promoting Innovation: IFC builds the capacity of commercial banks to develop tailored
products and incorporate stronger risk management to expand operations to small and medium enterprises. IFC
supports Bangladesh’s BRAC Bank to increase its business performance by using evaluation tools and sustainability
reporting in small and medium enterprise fnance. IFC engages with the bank’s staff and senior managers to
strengthen evidence-based decision-making using these tools. IFC also supports National Development Bank in Sri
Lanka to strengthen lending to small frms, with an additional sub-component on agricultural lending.
3. Non-Financial Services to Foster Growth: In addition to fnance, small frms need business advice, skills, networking,
and market opportunities to grow. IFC focuses on non-fnancial services and provides thought leadership to develop
operational tools in this area. Since 2008, ICICI Bank, India’s largest private sector bank, using IFC’s SME Toolkit online
platform to provide non-fnancial services and information to smaller enterprises. As of March 2013, more than 520,000
SMEs use the business directory feature making it an exciting business-to-business platform. In Sri Lanka, IFC supports
National Development Bank to establish centers that facilitate banks’ direct engagement with their small and medium
enterprise clients and provide them with tools, training, and business information to improve productivity. National
Development Bank has opened fve small business centers and is in the process of opening four more.
4. Developing Credit Bureaus and Collateral Registries to Increase Transparency: IFC has partnered with the
Indian government’s central collateral registry, Central Registry of Securitisation Asset Reconstruction and Security
Interest, to expand its ambit to include movables which will address the lack of collateral needed to access credit for
small businesses that have few immovable assets. IFC will leverage its global experience with credit bureaus to grow
the use of credit information for small and medium enterprises in South Asia. This will include supporting existing
credit bureaus to increase use of non-traditional credit information (such as utility bills) to develop a comprehensive
credit picture for small frms.
13
Building a Database of Clients to Improve Lending Decisions
Bangladesh’s small and medium enterprises
are dynamic and offer a large number of
private sector jobs. However, banks lack
access to current information about the credit
behavior of these enterprises that can help
make informed lending decisions.
Bangladesh Bank in discussion with IFC,
decided to take on the challenge to create
and regularly update a comprehensive
database. At the pilot stage, the database
compiled information of 8,000 small and
medium enterprises from 64 districts.
Financial institutions can use this database
? To strengthen internal processes
? Facilitate quality control
? Enable easy reporting to Bangladesh
Bank thus reducing paper work
? Improve the utility of the database
through benchmarking
? Develop focused strategies to target
enterprises to provide fnancial
services.
In addition, Bangladesh Bank can use the
data to monitor their policy-level decisions,
and improve lending to small and medium
enterprises.
Case Study | Bangladesh
Traditional method of maintaining loan payment
registers.
14
Left: Bangladesh’s textile industry employs over 3.5 million people, 85 percent of whom are women.
Right: A small enterprise that receives credit from BRAC Bank, Bangladesh.
15
Helping Non-Banking Financial Companies
Support Small Entrepreneurs
India’s 14 low-income states are
home to more than 300 million poor.
Many among them have promising
entrepreneurial skills and just need
someone to give them a chance.
When banks turned down
Rajasthan vegetable farmer Suvalal
Palsania for a loan to buy a tractor,
Au Financiers decided to give
him one, since his cash fows and
reputation were strong. It lent him
Indian rupees 346,000 ($7,500)
for the tractor and trailer that he
now uses to get his produce to the
market faster.
Au is a fexible non-banking
fnancial company with a proven
credit-risk methodology.
Au serves more than 100,000
clients, primarily unbanked people
in rural Rajasthan who are ready to
do something with their lives but are
prevented from doing so as regular
banks will not give them credit.
First-time vehicle purchasers
are Au’s core market, but it also
provides low-income housing
fnance, health, life, and vehicle
insurance, micro, small and medium
enterprise fnance, and other
products – often to the same clients
as their needs grow.
IFC’s $7.6 million (Indian rupees
350 million) equity investment and
advisory package in 2010 and again
in 2012 was a stamp of approval
for Au. It helped attract additional
fnancing from other leading banks
and a nomination for the 2011
Financial Times/ IFC Sustainable
Finance Awards in London.
IFC supports Au to better
understand its target market and
expand its reach to micro, small,
and medium enterprises and
agri-allied businesses in both
existing and new geographies.
IFC also works with Magma
Fincorp, and microfnance
institutions such as Utkarsh and
Swadhaar, to extend fnance to
micro and small enterprises.
Case Study | India
Vehicle owners who received fnancing from IFC
client Magma have been able to expand their feet.
16
Suvalal Palsania got funding from Au Financiers to purchase a tractor.
In 2002, Girdhari Ram started his own transport company
with a loan from Au Financiers. Since then, he expanded his
business and now operates fve commercial vehicles.
17
Facilitating Access to Markets
Bridging the Gap
Through its private sector clients, IFC enhances the ability of small and medium businesses to access markets and integrate
them into value chains. IFC also facilitates their increased access to energy/power, and basic infrastructure.
1. Facilitating Access to Value Chains for Small Firms: In South Asia, and globally, large frms often rely on
a network of small businesses in their supply and distribution chains. Improving operational effciencies and
deepening integration within the value chain are key drivers of growth. On the other hand, small businesses
struggle to access business information, training, and opportunities to grow their operations and remain
competitive. Since 2007, IFC has worked with investee client Dialog Axiata Telecom in Sri Lanka, which
relies on a network of 55,000 retailers and distributors across the country. Nearly 8,000 micro and small
retailers have been trained on business management in local languages to improve their business skills. For
Dialog, these trainings have resulted in more than $2.6 million of increased revenue from these retailers.
2. Building Management Skills of Small and Medium-sized Entrepreneurs: IFC focuses on addressing
managerial skills gap through its proprietary training and information tools such as Business Edge™ and
the SME Toolkit. These tools, adapted to local markets and languages, train small and medium enterprises
on business management skills. So far, IFC through its accredited training partner frms, has trained 16,000
entrepreneurs in South Asia with these tools. Another approach to build management capacity has been to
work at the sector level in India, where IFC has partnered with the National Institute for Entrepreneurship
and Small Business Development, a training arm of India’s Ministry of Micro, Small and Medium Enterprise
to deliver a country-wide trainer capacity building program.
3. Increasing Access to Electricity: Lack of access to electricity is the main constraint faced by both formal
and informal micro, small, and medium enterprises. Unreliable or no electricity hampers operations and
increases the cost of doing business. IFC has launched Lighting Asia/India Program, aimed at providing
safe, clean, and affordable off-grid lighting to two million people living in rural India by 2015. The program is
developing private off-grid lighting market in India across the entire value chain: manufacturing, distribution,
supply chain management, and access to fnance. IFC also facilitates better access to basic infrastructure
through public-private partnerships.
18
A shop owner has been able
to extend his working hours
as a result of IFC’s Lighting
Asia/India Program.
Mahinda Malgoda,
a Sri Lankan small
entrepreneur received SME
toolkit training. He also
accesses the toolkit online
to improve business skills.
19
IFC Helps Develop Tourism Value Chains
Historically, the tourism business in Sri Lanka
was owned by a few local conglomerates,
who were reluctant to partner with small
local businesses due to concerns of quality
and reliability. On the other hand, small
businesses found it diffcult to attract high-
spending tourists due to limited marketing
reach and poor quality of goods and services
offered.
IFC focused on Hikkaduwa district in
southern Sri Lanka, which has the highest
concentration of small and medium frms
operating in the tourism sector.
IFC launched the Hikkaduwa Tourism Service
Providers’ Association in 2008 to help develop
a model that integrated small businesses into
the value chains of larger conglomerates.
The association trained small industries to
provide consistent quality of professional
services and to reach out to a larger customer
base through better marketing.
As a result, micro and small entrepreneurs
can now access new business opportunities
in the tourism value chain and register and
formalize their businesses.
The project has, so far, led to the creation of
336 direct jobs and generated $1.1 million
in revenue. Around 555 small and medium
enterprises that provide tourism related
services, including restaurants, transport,
and traditional arts and crafts, are part
of this project.
Case Study | Sri Lanka
20
Top left, right and bottom left: Local service providers in restaurants, transport, and traditional crafts are part of the Tourism Association
in Hikkaduwa.
21
Reducing Energy and Water Consumption in
Washing-Dyeing-Finishing Sub-Sector
IFC’s interventions to reduce use of resources
like energy and water are a pioneering initiative
in Bangladesh. These interventions have shown
that it is possible to adopt higher standards of
resource effciency and also save money.
Bangladesh’s textile industry is the second largest
in the world and is the highest foreign currency
earner for the country ($19 billion in 2011). It
employs over 3.5 million workers, of whom 85
percent are women.
The washing-dyeing-fnishing sub-sector of
the textile industry has 1,700 units that employ
200,000 workers. It is growing at 10 percent
per year. However, this sub-sector is also the
second biggest polluter in the country, discharging
56 million tons of waste water, and 0.5 tons of
sludge annually. This negatively impacts the lives
of nearly 6 million people.
Washing-dyeing-fnishing units use millions of
liters of water every year, mostly from the Dhaka
watershed where most factories are located. The
water table here is receding one meter every year.
To make the sector less polluting and more
effcient, IFC worked with trade associations,
textile frms, buyers, and the government to
provide a 360 degree solution to ensure that
the textile industry can sustain growth, and gain
a competitive advantage by working towards a
cleaner, greener supply chain.
By December 2012, IFC had worked with 18
washing-dyeing-fnishing plants to implement
cleaner production processes.
IFC’s intervention resulted in saving
1.3 million cubic meters of water per year,
$2 million in private sector savings, and
reducing 32,000 metric tons per year of
greenhouse-gas emissions.
The program now covers 52 of the 1,700 frms in
the sector. Since these 52 units supply to large
international frms, their experience could have a
transformational impact on the sector.
Case Study | Bangladesh
22
IFC is helping reduce use of energy and water by promoting cleaner production technologies in Bangladesh’s textile industry.
23
Promoting Inclusion and Growth
Creating an Enabling Environment
IFC enables reforms to foster a better
business environment for small and
medium enterprises and improve
the investment climate to help them
register and become formal units.
There are 69 million informal units
in South Asia and many have the
potential to grow. However, they
lack a supportive ecosystem that
nurtures growth.
IFC is simplifying business tax
regimes in India’s Bihar state and
Nepal to make it easier for small
business to fle taxes and become
compliant. Once these frms come
into the formal tax fold, it is easier
for them to access loans, subsidies,
and markets.
Trade licensing simplifcation reforms
in Bangladesh help frms to reduce
risk, cost, time, and facilitate easier
access to information. Similarly, Nepal
uses information technology, such as
the newly-launched business license
portal, to provide information on trade
licensing to small and medium frms.
In another initiative in Bhutan, World
Bank Group’s investment climate
team, have launched an e-portal that
will make it easier for businesses to
obtain licenses and permits.
Manohar Singh Rajawat from Dausa district in state of Rajasthan,
India, struggled to earn his living as a tent house laborer in
2007. Today, he runs his own tent house and owns fve trucks.
Formalization helps small entrepreneurs grow their business.
A worker in welding industry who has access to safety equipment and
protective gear.
24
Workers dismantle electronic equipment at IFC investment and advisory client, Attero Recycling's, plant in Roorkee, India. IFC-Attero have
partnered in a unique Clean e-India initiative to integrate informal sector waste collectors into a formal supply chain with access to safety
equipment and workers' rights.
25
Obtaining Trade Licenses, First Step to Starting a Formal Business
Acquiring a trade license is the
frst step to starting a business
– be it small or large. A large
number of entrepreneurs in
Bangladesh fnd it hard to
acquire trade licenses due to
lack of information, facilitation
fees, and the time taken to issue
them.
As a result, entrepreneurs in
rural areas operate through
informal units, which limits their
access to fnance, government
subsidies, and skills to run a
business effciently.
IFC recommended a redesigned
process to the government of
Bangladesh that eliminated
multiple reviews and defned the
roles of government offcials at
municipality level and reduced
time and costs for the applicant
and the municipality.
Now, a trade license can be
issued and renewed in half a
day. Earlier, it took three days
to issue a trade license and two
days to renew it.
The government is now
implementing this project
in three municipalities of
Bangladesh - Cox’s Bazaar,
Gopalganj and Hobiganj, and
will conduct an assessment to
address all challenges before
implementing it in all 312
municipalities in Bangladesh.
Case Study | Bangladesh
Garment factories in Bangladesh are a major
source of employment in the country.
26
Young women in Bangladesh have better job prospects as they enhance their information technology skills.
27
Simplifying Tax Compliance for Small Firms, Improving
Business Climate
IFC helped the Indian state of Bihar to simplify
tax laws and procedures to reduce compliance
issues and encourage small businesses to
register as taxpayers, thus widening tax base,
and improving business climate.
With IFC’s advice, Bihar state adopted several
progressive measures such as a fxed rate
of tax for micro and small enterprises with no
routine scrutiny, online fling of returns for larger
enterprises, simplifed admission of appeals, and
faster resolutions and refunds.
The project started in 2009 and by its closure
in September 2013, the project recorded a
24 percent increase in the tax payer base.
The number of tax payers fling e-returns has
increased to 22,000 (from a base of 149 in
2009). 93 percent of tax revenue is collected
electronically in Bihar now.
The number of small tax payers registered under
a special, simplifed scheme for small tax payers
is at 6,800.
According to an appraisal by Indian Market
Research Bureau, an international market
research and consultancy frm, businesses
in Bihar agree that tax compliance is less
burdensome after reforms, and ease of doing
business has improved.
Case Study | India
Mohammad Mustafa runs a bangle store in Patna,
Bihar and does not worry about closing shop when
the tax authorities come for surprise checks as his
business is formally registered now.
28
Shop owners in Patna, Bihar fnd it easier to do business after the introduction of a
simpler tax regime for small businessmen.
29
Registering a Business and Getting Tax Information Online
In Nepal, entrepreneur Jackson
Subeidi has found it easier to register
a new business due to an improved
investment climate. In the past, he had
to make repeat visits to a government
center. Recent improvements,
supported by advisory services from
IFC and World Bank Group, allowed
him to launch his latest start-up Hipster
Technologies quickly. Adding a new
electronic database and fling system,
the government’s Offce of the Company
Registrar has now registered 114,000
companies, most of them online.
IFC also supported Nepal to implement
an e-portal to store business license
information as part of the Nepal
Investment Climate Reform Program.
Prior to the setting up of the license
portal, small businesses in Nepal
complained of limited or no access
to authentic license information. A
diagnostic study found that a total
of 130 different types of licenses
are issued by 41 agencies and
departments. Over 70 percent of the
licenses are issued at the central level,
and the rest at district and municipal
levels. Moreover, information on these
business licenses was scattered across
more than 60 websites, numerous
publications, and citizen charters of
multiple government agencies.
As a result, businesses had to visit
multiple government offces and
websites were forced to engage
intermediaries, and were still
unable to collect accurate and
complete information.
The e-portal now provides easy
access such as license name, purpose
of the license, territorial coverage,
issuing agency, license details, legal
basis of the license, documentation
and other requirements, license
processing time, license validity period
and renewal frequency, and relevant
fees or charges.
Case Study | Nepal
30
Top left: IFC’s work with Nepal’s Offce of the Company Registrar has helped register 114,000 companies.
Top Right: Improved business regulations helped Nepalese entrepreneur Jackson Subeidi to register his company, Hipster Technologies,
faster.
Bottom: IFC assisted Nepal in establishing an e-portal, a one-stop platform for all license and tax information that is beneftting small
businesses.
31
The Way Forward
Our Priorities, Next Steps
IFC will continue to:
? Increase access to fnance for
small businesses by helping
banks and microfnance
institutions expand lending and
improve risk management
? Facilitate roll out of non-fnancial
services in India’s low income
states and frontier regions in
South Asia
? Broaden focus on agribusiness to
support small frms’ integration in
the value chains of larger frms
? Work with local governments in
creating the right environment
for small and medium frms to
operate and grow.
32
IFC will continue to deepen
its engagement with small
and medium enterprises in
partnership with our private
sector clients, especially in the
least developed markets in
South Asia.
IFC will help banks and
microfnance institutions to
increase lending to small and
medium frms, improve risk
management, and bring micro-
enterprises into their fold. It will
increase focus on non-fnancial
services and provide thought
leadership in this sector.
IFC will broaden its
interventions, with a specifc
focus on agribusiness, to
improve the ability of small and
medium enterprises to access
markets. Small enterprises
can stay linked to market
opportunities by being a part of
the value chain of larger frms.
IFC will work with local
governments to simplify and
streamline small business
registration and tax payment
procedures and work towards
the inclusion and formalization
of smaller businesses.
33
Sharing Knowledge
Micro, Small and Medium Enterprise Finance in India: A Research Study on Needs, Gaps and
Way Forward (November 2012)
There are an estimated 30 million micro, small, and medium enterprises in various industries, employing
69 million people. Accounting for 45 percent of the country’s industrial output, the sector has been
growing consistently at 11.5 percent a year, higher than India’s overall economic growth. However,
inadequate fnancing and market linkage have not allowed these businesses to grow suffciently. IFC’s
recent study, jointly undertaken with the Government of Japan, outlines potential interventions to
address their biggest challenge of accessing fnance.
The study estimates that fnancial institutions meet only one-fourth of the fnancing demand of micro,
small, and medium enterprises in India, noting that a sizeable part of this huge unfulflled opportunity
is viable. The overall fnance shortfall in the micro, small, and medium enterprise sector is around
Indian rupees 20.9 trillion ($418 billion). Despite the increased fnancing to these businesses, formal
sources are able to channel only Indian rupees seven trillion (nearly $200 billion). The study estimates
that banks can easily address the sector’s debt and equity fnancing requirement of Indian rupees
3.57 trillion (nearly $105 billion). It recommends a mix of well-rounded fscal support, strong policy
framework, and incentives promoting innovation to expand formal fnancing to these enterprises.
Small and Medium Enterprise Gender Baseline Estimation for IFC’s Financial Market Portfolio in
Nepal (November 2012)
In Nepal, women own about 14,300 small and medium enterprises, accounting for two percent of
the country’s GDP and employing over 200,000 workers. IFC has released a study that fnds women
entrepreneurs could play a more signifcant role in Nepal’s economic growth if fnancial institutions
address their fnancing needs with suitable offerings. The study pegs their current credit requirement at
$106 million. The South Asia Enterprise Development Facility, managed by IFC, in partnership with UK
Government and the Norwegian Agency for Development Cooperation, conducted the study.
The report suggests that women are more entrepreneurial than men, generating six percent higher profts
on annual sales even though they operate smaller businesses. Access to fnancing remains their biggest
hindrance because banks prefer fxed assets as collateral, which few women entrepreneurs possess.
Other operational needs include improved access to markets and training for skill development. The study
suggests credit rating and collateral registry should guide fnancial institutions, helping them tap into the
$2.5 billion lending opportunity for small businesses.
Micro, Small and Medium
Enterprise Finance in India
A Resear ch St udy on Needs, Gaps and Way For war d ( November, 2012)
I n Par t ner shi p wi t h
Gover nment of Japan
November, 2012
SouthAsia Enterprise Development Facility
Managed by IFC, in partnership with the UK Government and Norad
SME Gender Baseline Estimation for IFC’s
Financial Markets Portfolio
IFCAdvisory Services in South Asia
IFC's knowledge products in Small and Medium Enterprises
34
This publication may contain advice, opinions, and statements of various information providers
and content providers. IFC does not represent or endorse the accuracy or reliability of any advice,
opinion, statement or other information provided by any information provider or content provider,
or any user of this publication or other person or entity.
CREDITS
Photography
Sailendra Kharel (front cover)
Manas Ranjan Ojha
Dilip Banerjee
Kesara Ratnavibhushana
Antonio Rodrigo
A. Jacobson
Sarah Karim
Kushang Singh
Bijay Gajmer
Loty Salazar
S. Jain
Sailendra Kharel
John Isaac
IFC South Asia, 2014
Contact Information
International Finance Corporation
Maruti Suzuki Building
3
rd
Floor, 1 Nelson Mandela Road,
Vasant Kunj, New Delhi - 110070
India
T: +91 11 4111-1000
F: +91 11 4111-1001
www.ifc.org
Stay Connected
www.ifc.org/southasia
www.facebook.com/IFCsouthasia
www.twitter.com/IFC_SouthAsia
www.ifc.org/facebook
www.twitter.com/IFC_org
www.youtube.com/ifcvideocasts
www.ifc.org/SocialMediaIndex
About IFC
IFC, a member of the World Bank Group, is the largest global development institution focused exclusively
on the private sector in developing countries. Established in 1956, IFC is owned by 184 member countries, a
group that collectively determines our policies. Working with private enterprises in more than 100 countries,
we use our capital, expertise, and infuence to help eliminate extreme poverty and promote shared prosperity.
IFC leverages the power of the private sector to create jobs and tackle the world’s most pressing development
challenges. IFC’s vision is that people should have the opportunity to escape poverty and improve their lives.
doc_670465607.pdf