ADFIAP CEO Forum VIINovember 17 – 19, 2010, CambodiaSustainable SMEs through Value Chain Financing

„KfW‘s Experience in Funding Business Start-Ups“

Barbara Schnell, Division ChiefFinancial and Private Sector Asia

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Agenda

Examples: StartGeld and ERP Start Fund4

KfW‘s Promotional Approach in Financing Start-ups3

Conclusions5

KfW Bankengruppe: Overview1

Start-up Activity in Germany: Current Developments2

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60 years of KfWFinancing with a public mission

● Promotional bank of the Federal Republic of Germany

● Founded in 1948 asKreditanstalt für Wiederaufbau

● Shareholders: 80% Federal Republic,20% federal states

● Headquarters: Frankfurt am MainBranches: Berlin and Bonn

● Representative offices: around 60 offices and representations worldwide

● Balance sheet total at end-2009: EUR 400 billion

● Around 4,200 employees (2009)

● Best rating: AAA/Aaa/AAA

● Zero-weight under Basel II

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A bank with a wide array of functions

Promotion of developing and

transition countries

International business

Promotion of construction

of new housing and modernisation

as well as education

Promotion of SMEs, business founders,

start-ups

Financing municipal infrastructure projects and

global loans in Germany/Europe

agency business for Federal Government

Domestic promotion

We promote Germany

International project and

export finance

We ensure internationalisation

We promote development

Promotion of environmental and climate protection

Business Area Mittelstandsbank

Business Area Privatkundenbank

Business Area Kommunalbank

Business AreaExport and Project

Finance

Business Area Promotion of

Developing and Transition Countries

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Start-up activity in Germany Current developments

Political importance of start-ups

Start-ups important for job creation/poverty alleviation – Social Aspect In addition: visible number of start-ups necessary to foster economic ability to

innovate/modernize – Economic/Competitiveness Aspect

Start-up activity in 2009● Situation largely affected by financial and economic crisis

● Downward trend prevailing since 2004 reversed; no. of new start-ups +10% YOY (EUR 0.8 mn)- 45% of these were full-time businesses (+20% YOY)

● Percentage of former unemployed persons: 30% of full-time businesses

● High portion of micro-enterprises: Total financing needs up to EUR 10.000 (68%) or up to EUR 25.000 (79%)

KfW’s start-up finance in 2009

● Promotion of 25.000 founders / Volume: approx. 3,6 bn EUR

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Macroeconomic Push/Pull Factors for Starting Businesses

Macro-Economic Push/Pull Factors in the Economic Crisis

2009Total Net Effect: Increase

Full-TimeNet Effect: Increase

Part-TimeNet Effect: Unchanged

Recession:- More market entry barriers- Fewer options for small start-ups

Labour Market:- Uncertainty for Employees - Higher unemployment- Fewer open positions

Labour Market Push Mechanisms

-

- +

+

Economic Pull Mechanisms

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KfW‘s Promotional Approach in Financing Start-ups (1)

Germany’s banking sector is the most crucial pillar in fundingbusiness start-ups with the MFI’s role almost insignificant

Problem KfW’s SolutionLack of Collateral / Lack of Track

RecordRisk-Sharing with Market Partners /

Guarantees

High Transaction Costs Handling Fees for Banks

Selection Process during Start-Up Period

(exit rate of new businesses within 3 years approx. 25%)

Accompanying Advisory Services / Hands-on Approach

Low Percentage of Start-Ups Introducing Market Novelties

Special Incentives / Access to Finance for Innovative Companies

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KfW‘s Promotional Approach in Financing Start-ups (2)

Conceptual Aspects of KfW’s Start-up Programmes

Financing Programmes: - Commercial approach regarding risk assessment; bankable clients/projects- Cooperation with market partners using their distribution channels/ market expertise

Supplementary consultancy services (e.g. start-up coaching)

Coordination with governmental politics/measures(e.g. assistance for formerly unemployed business founders)

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Term: up to 10 years Fixed interest rate

Maximum loan amountEUR 50,000

Redemption in equal monthly instalments

Second application possible

Relaxation of collateral requirements

Promotion up to3 years after initial

founding

Prepayment in full or in part is

possible at no charge

Working capitalup to EUR 20,000

Example 1:KfW-StartGeld

Exemption of liability for on-lending bank: 80 %

101010

Neutrality through on-lending principle in loan businessNo separate branch network

File loan applicationwith their regular bank

before start of investment

Enter into the loan agreement and

disburse the loan

If approved, customer‘s

bank forwardsapplication to

KfW

refinances the loan

at favourablerefinancing

interest rates

Customer'sbank

Customer

Private individuals

Enterprises

Publicinstitutions

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Lead Investor Start-up

- Risk Capital - Management Support

- Cooperation Agreement/Compensation

KfW / ERP Special Fund

Example 2:Co-Investment Scheme – ERP Start Fund

Goal: Leverage of private investment capitalPrinciple: Provision of matching funds to a Lead Investor /pari passu approach

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Conclusions

Global Trends / Central development topics● Sustainable economic growth● Poverty reduction / Job creation ● Structural changes and innovation

Crucial factors in financing founders / start-ups● Finance and consultancy services● Coordinated measures and programmes (government/welfare policy, chambers of commerce

and industry, banks/financial intermediaries etc.)● Existence of credit bureaus

General features● Standardized and transparent financing instruments● Measures with a broad impact / outreach are important● Package of instruments accompanying enterprises through their lifecycle

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Contact

Barbara Schnell KfW BankengruppeDivision Chief Palmengartenstrasse 5–9 Private and Financial Sector Asia 60325 Frankfurt am Main

Fon +49 69 7431 – 2205

Fax +49 69 7431 – 2944barbara.schnell@kfw.de