Holger rothenbusch

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Our business is developing. Nobody Likes to Hug a Tractor TBLI Conference Europe 2010 12 November 2010 Holger Rothenbusch Senior Vice President DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH

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Senior Vice President - DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH - GermanyNobody Likes To Hug a Tractor

Transcript of Holger rothenbusch

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Our business is developing.

Nobody Likes to Hug a Tractor

TBLI Conference Europe 2010

12 November 2010

Holger Rothenbusch

Senior Vice President

DEG - Deutsche Investitions- und Entwicklungsgesellschaft mbH

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DEG at a glance

Mandate and working method

● German development finance institution for the private sector

● Specialist for entrepreneurial development in all sectors● Long-term investment capital for private enterprises● Financing of investments with a positive developmental impact

● Market-oriented conditions

● Ecological and social standards according to international guidelines

● Contributions to sustainable economic growth and poverty reduction

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What´s the challenge?

FX effects

Africa

Climatechange

Globalization/outscorcing

Environment

Taxeffects

Socialeffects / CSRInfra-

structuresmall and medium

enterpriseMarketeffects

Equity

Financial Return /RAROC

TrainingSupport ofEuropean Investors

HIV/Aids

Health&

Safetygender

ILO-Stand./child labor

Employment& Poverty

Reduction / MDG

Motivated by the mission challenges, DEG has developed a rating approach to cover

financial and non-financial issues that are of concern to our stakeholders

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DEG´s rating approach - What do we measure?

2. Development effects/ sustainability

• eg. tax revenue, jobs,training, ES-standards, CSR

3. Role of DEG• eg. long-term debt/ equity

financier (additionality),promotor of Corporate Governance

1. Long-term profitability/ default probability

• eg. Rating of sponsors, market, financial ratios, country risk

Rating Tool

• risik-adjusted return

4. DEG´s return on equity

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Development effects- What do we measure?

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Socially Responsible InvestmentsAssets under ManagementWorld & regional

38%

2.500 bn EUR

6%

400

bn EUR

4%

230

bn EUR

52%

3.400 bn EUR

USA Developed Asia/Oceania

EMWestern Europe

SRI GLOBAL : 6.530 bn EUR*

About 230 billion Euro are already invested in accordance with ESG-criteria. Growth up to 40 % p.a.

•Assets under Management (AuM), own estimation based on Eurosif, Booz & Company, IFC/Mercer. Data and definitions are heterogeneous.

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Equity (Public)

50%Bonds 39%

Other 11%

Products: 50% is invested in equity, growing role of investment funds; mostly negative/positive selection investment approaches.

Need for actively managed portfolios instead of pure negative-screening!

Themes: Sustainability in general, „Climate Change“/ Renewables, Water, Health

In Emerging Markets: Microfinance is Sexy!

SRI Products

…but, no one likes to hug

a tractor

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SME Financing One of DEG´s core strategic priorities is to promote financing to the SME sector

Quelle: Thierry Sanders and Carolien Wegener. 2006. “Meso-Finance: Filling the Financial Service Gap for Small Businesses in Developing Countries.”

NCDO. Die Grafik wurde leicht angepasst.

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SME FinancingGrowth initiative for small and medium-sized enterprises

Aim:● Provide SMEs in developing countries with risk capital and long-term investment

capital at matching maturities● Mobilise additional private capital from external sources in the finance sector (crowding

in) for SME financing● Target commitment volume by 2011: EUR 1 billion● Development and implementation of innovative financial instruments for SME financing

Development constraint:

Shortage of long-term finance and risk capital for small and medium-sized enterprises (SMEs) in developing countries

Implementation:

● Direct SME financing in manufacturing/services and infrastructure

● Indirect SME financing via financial institutions or private equity funds, complementary allocation of funds for accompanying measures

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SME FinancingInnovative Instrument: SME Credit Finance Facility

Financing bottleneck I: Lack of long-term finance via local banks

Reason:

The root of the „missing middle“ is the lack of profitability of SME lending.

demand for refinancing SME loans

DEG´s solution:

- Separation of credit risks and bank risks

- Improve underwriting standards

- Transfer of credit risks from SME financing to a fund, which acts as „SME promotion institute“

- raise private capital from SRI related investors at lower cost of capital

Earnings Opex RiskCost

CoE NetProfit

100 45

41

35

-21

Components of net profitability in SME lending*

* Source: Central and Eastern European Banking Study 2009 published by zeb/; page 19

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Financial bottleneck II: Lack of Risk Capital

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Indirect SME Financing Innovative Instruments: Equity Finance Facility

Reason:

● Small investment size and less institutional setup of SME lead to relatively high costs.

● Difficulty of obtaining sufficient and good quality data about SME in emerging markets makes investment decisions more uncertain.

● Owner-managed businesses with information asymmetry and misalignment among shareholders increase potential conflicts of interest.

● The risk-return-ratio in SME financing is relatively unsatisfying compared to other emerging markets investment opportunities.

DEG´s solution:

● Founding of a structured fund of funds for SME equity funds

● First-loss tranche by German government to compensate for increased risk and attract private SRI investors

● DEG acts as a co-investor with the fund of funds and investment advisor

● implementation of ESG standards according to international criteria.

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Get in touch!

Holger Rothenbusch

DEG – Deutsche Investitions- undEntwicklungsgesellschaft mbHKämmergasse 22

50676 Köln

Germany

Phone: ++49 (0) 2 21 / 49 86 - 1372 E-mail: [email protected] Telefax: ++49 (0) 2 21 / 49 86 - 1290 Internet: www.deginvest.de