The Turkish Experience in SME Finance and Non-Financial Services Streamlining. Dr. Şahap KAVCIOĞLU HALKBANK Deputy General Manager, SME Banking

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1 The Turkish Experience in SME Finance and Non-Financial Services Streamlining Dr. Şahap KAVCIOĞLU HALKBANK Deputy General Manager, SME Banking

2 SMEs IN TURKEY

3 THE DEFINITION of SME There isn t a specific common definition of SMEs which can be generalized in Turkey and even in the world. Eventually, The Regulation about the definition of SME, its characteristics and classification was agreed by the Council of Ministers on and promulgated in the Official Gazette. According to this regulation, the SMEs are classified as three types; Type of the Business Micro- Business Small Business Medium Scale Business Number of the Employee < 10 < 50 < 250 Net Income and/or Financial Balance Sheet < 1 mn TRL (~ EUR) < 5 mn TRL (~2.2 mn EUR) < 25 mn TRL (~11 mn EUR) With considering the EU harmonization process and Basel II criteria, we have revised the definition of SME for Halkbank accordingly.

According to this regulation, the SMEs are classified as three types; Type of the Business Micro- Business Small Business Medium Scale Business Number of the Employee < 10 < 50 < 250 Net

4 Tradesman-craftsmen and SMEs in in Turkey make up: 99 % of all the enterprises 38 % of all the production 81 % of all the employment 17 % of all the export activities 27 % of all the investments in Turkey Source: KOSGEB Strategic Plan ( ) Trade Construction Transport Sectorial Breakdown of of SMEs in in Turkey Manufacturing Hotels and Restaurants % 9 % 15 % 5 % 8 % 47 Social Services Other % 14 % 2

Turkey Source: KOSGEB Strategic Plan (2008-2012) Trade Construction Transport Sectorial Breakdown of

5 According to the Banking Regulation and Supervision Agency s (BDDK) report in in February 2009 The total amount of cash loans in banking sector in Turkey was 367,6 billion TRL. 23,8 % of this loan was used by SMEs by 2008 year-end (87,4 billion TRL). In Halkbank; under commercial, industrial and fund credit programs, the total amount of the loans that are used by SMEs is 10,1 billion TRL in The ratio of loans used by SMEs is approximately 40 % of the total loans of our Bank. The market share of our bank in SME loans in the banking sector was approximately 11,5 %. The total number of SME customers in banking sector was of these SMEs (24 %) are Halkbank customer.

In Halkbank; under commercial, industrial and fund credit programs, the total amount of the loans that are used by SMEs is 10,1 billion TRL in 2008.

6 TOTAL LOANS EXTENDED TO SMEs IN TURKEY

7 The FEATURES of SMEs They realize more production and product mix with less investment By using labor-intensive technology and employing less skilled employees, they contribute to overcome the unemployment They can adapt to the changes and diversifications in demand, more easily. They are the main supporters and complementary to the large scale industry They are the balance and stability elements of the economic and social systems

unemployment They can adapt to the changes and diversifications in demand, more easily.

8 The PROBLEMS of SMEs Approach of the financial institutions Capital Requirement Quality and Marketing Problem Lack of information and Technology Funding problems

9 HALKBANK S SEGMENTATION CRITERIA

10 SEGMENTATION TION CRITERIA Construction Sector Upper than 70 million TRL (~30 mn EUR) Between million TRL (~ mn EUR) CORPORATE COMMERCIAL Industry/ Trade Sector Upper than 40 million TRL (~17.5 mn EUR) Between 6-40 million TRL (~ mn EUR) Up to 15 million TRL (~6.6 mn EUR) According to Reference Limit SMEs RETAIL Up to 6 million TRL (~2.6 mn EUR) According to Annual Income TOURISM SECTOR Corporate : Upper than 1000 beds Commercial : Between beds SME s : Up to 300 beds

5 mn EUR) Between 6-40 million TRL (~ 2.6-17.5 mn EUR) Up to 15 million TRL (~6.

11 ESSENTIAL LOANS PROVIDING TO SMEs CASH NON-CASH BANK SOURCED / FUND SOURCED BANK SOURCED / FUND SOURCED SHORT - MEDIUM TERM LONG-TERM WORKING CAPITAL INVESTMENT Revolving Equal Payment Spot Others L/C Guarantee Letter Counter Guarantee Export Credit Agency Loans Others

WORKING CAPITAL INVESTMENT Revolving Equal Payment Spot Others L/C

12 Our Actions for Artisans and Small Business MANUFACTURER LOANS BUSINESS SITE LOANS BUDGET LOANS SME INDUSTRIAL LOANS FINANCIAL SUPPORT LOANS AGRICULTURAL LOANS TRACTOR AND AGRICULTURAL MACHINERY LOANS GREENHOUSE LOANS AGRICULTURAL SUPPORT LOANS ARTISANS AND CRAFTSMEN LOANS COOPERATIVE LOANS LICENCE PLATE LOANS HALK OPERATIONAL LOANS TRANSPORT SUPPORT PACKAGE SMALL BUSINESS LOANS SMALL BUSINESS LOANS TOURISM SUPPORT PACKAGE FRANCHISING LOANS

AGRICULTURAL SUPPORT LOANS ARTISANS AND CRAFTSMEN LOANS COOPERATIVE LOANS LICENCE PLATE LOANS HALK OPERATIONAL

13 OTHER SECTORIAL SUPPORT PACKAGES Technology Support Package Export Support Package Construction Support Package Pharmacy Support Package Entrepreneur Support Package Trading Support Package Services Support Package

Package Pharmacy Support Package Entrepreneur Support

14 THE SME ORGANISATIONS AND THE INSTITUTIONS PROVIDE NON-FINANCIAL SERVICES TO SMEs

15 KOSGEB (Small and Medium Industry Development Organization): Sings protocols with eligible private and public banks so as to provide financial credit at an agreed interest rate to SMEs. The interest cost (totally or partially) of the credit is covered by KOSGEB, where only the principal amount of the credit will be paid back to the bank by the benefiting SME at a determined pay back period. KOSGEB also provides several supports for SMEs under the IT, regional development, counselling and education, entrepreneurship development, quality development, market research and export development, technology development and innovation, international cooperation development titles. KGF (Credit Guarantee Fund): The main objective of KGF is supporting the SMEs by providing a guarantee for their financing and consequently increasing the credit usage in general. TESKOMB: TESKOMB was established as an umbrella organization bringing together all the cooperatives established throughout Turkey. The tradesmen and craftsmen can get credit with low interest rates from Halkbank with the guarantee they show from the cooperatives that they belong to. In this system the cooperative only provides guarantee to its members. The difference between the interest rate of these types of credits and commercial credits is compensated by the State.

16 TOBB (The Union of Chambers and Commodity Exchanges of Turkey): TOBB offers information and consultancy services through chambers and commodity exchanges for helping the SMEs to solve their operational problems, to investigate the problems restricting their success at international markets, and to thereby contribute to the identification of a national SME policy. KOBI Venture Capital: KOBI Venture Capital Investment Trust Inc. Co. acts as an efficient risk capital intermediary in the Turkish financial market by providing financial instruments for promising SMEs in Turkey which previously cannot access prominent financing sources, while simultaneously providing shareholders with a high-return alternative investment instrument. ABIGEM (EU Turkish Business Centers): ABIGEM is designed to support Turkish small and medium enterprises (SMEs) by providing them with management and economic development services calculated to improve their competitive edge and win a bigger share of business in the growing international marketplace.

KOBI Venture Capital: KOBI Venture Capital Investment Trust Inc. Co.

17 OTHER SUPPORTS The Scientific and Technological Research Council of Turkey (TUBITAK) : TUBĐTAK is the leading agency for management, funding and conduct of research in Turkey. TUBITAK funds research projects carried out in SMEs and other public and private organizations, conducts research on strategic areas, develops support programs for public and private sectors. ĐŞGEM: ĐŞGEM is designed to support entrepreneurs and provide the conditions to protect their business against the risks may occur. KOBĐF: SMEs Information and Education Fair (KOBĐF) brings together SMEs and the parties who provide information and service for SMEs.

TUBITAK funds research projects carried out in SMEs and other public and private organizations, conducts research on strategic areas, develops support

18 OTHER SUPPORTS Undersecreteriat of the Prime Ministry for Foreign Trade (DTM) Development Agency Supports Rural Development Programs European Union Supports These supports provide not only financial solutions (such as credit access) but also consultancy in market access, business strategy, technology transfer, and, in addition, they allow improving the company performance through sectorial assistance.

financial solutions (such as credit access) but also consultancy in market access, business

19 NON-FINANCIAL SUPPORTS OF HALKBANK CSR Programme: The ultimate goal of the CSR Project is to support development of the SMEs in Turkey, help reduction of inter-regional differences in terms of development, improve awareness of personnel of both Halkbank and the SMEs with CSR Project, and accordingly contribute to the social development. E-Education programme: Halkbank, provides not only easy access to means of financing SMEs but also an advice and support service with various new products such as Portal and SME oriented Journal and new services such as the project of E- Education programme co-operated with Anadolu University SMEs will benefit from the programme and they choose courses regarding to their interest sponsored by Halkbank.

E-Education programme: Halkbank, provides not only easy access to means of financing SMEs but also an advice and support service with various new products such as Portal and SME oriented

20 NON-FINANCIAL SUPPORTS OF HALKBANK Producing Turkey Meetings: As the leading SME bank and combining this with its customer-oriented corporate structuring, Halkbank organizes Producing Turkey Meetings". Held in Elazığ, Diyarbakır, Gaziantep, Adıyaman and Eskişehir, the purpose of these meetings is to bring SMEs up to date on various topics and contribute towards their development within the framework of the Bank s sense of its social responsibility. SME Dialog Line (24 hours) ( ): A lot of support and assistance services are provided 24 hours to SMEs by this line. (Legal Help Information Services Financial Consultant Information Services, Medical Assistance Information Service, Employer Information Services etc.) Co-operation with Credit Guarantee Fund (KGF)

Held in Elazığ, Diyarbakır, Gaziantep, Adıyaman and Eskişehir, the purpose of these meetings is to bring SMEs up to date on various topics and contribute towards their development within the

21 THE SUGGESTIONS TO SUPPORT SMEs

22 To support banks and other financial institutions to provide a wide range of services to the SMEs and to promote the foundation of the Rating Agencies. To encourage them to develop new interrelations (partnership, agreements, sharing infrastructure etc.) strategical To develop special SME oriented stock exchange markets To support the development of the investment and management quality (new technology, skilled employees). Training should be organized in order to solve the management and financial issues The ways of informing the SMEs should be increased (as KOSGEB at the moment informs SMEs via internet and other tools). In some extent, tax may be exempted. Energy support which is given to the priority development regions should also be given to the other provinces (especially to SMEs with 1-49 workers) To provide financial services and solutions in accordance with legal status of SMEs. To enable the SMEs to access long term and convenient financial products.

23 THANKS

Establishment. Objectives. Structure. Target Group. KOSGEB, established in 1990

Establishment. Objectives. Structure. Target Group. KOSGEB, established in 1990 Tarih / Yer Establishment KOSGEB, established in 1990 Objectives To increase the share and effectiveness of SMEs To strengthen the competitiveness power of SMEs To realize the integration in Industry