Integrated support program for small- and medium-sized enterprises

(La Paz, October 31, 2000).– CAF and the Bolinvest, Inaset and Fundes-Bolivia foundations signed operating agreements to implement a pilot project to recover successful experiences in the small- and medium-sized enterprise (SMEs) sector with the aim of defining future actions to support and strengthen a sector of growing importance. Similar pilot projects will be implemented in all Andean countries during the next nine months.

To start this process, contact was made with prestigious non-financial institutions whose broad and recognized experience in technological and institutional strengthening in the SME sector, made them suitable for selecting, in alliance with CAF, a specific number of SMEs (the most efficient and dynamic) in the sectors and niches where Bolivia has viability and competitiveness; and which will be able to show, after a relatively short period, clear signs of strength and improvement. Bolinvest, Inaset and Fundes-Bolivia will accompany the selected SMEs on the road to business success by providing them with a series of services (management, marketing and technology, etc).

The project will initially concentrate on a few enterprises which are capable of making a technologically qualitative leap, and show potential for growth or exporting, with the idea of publicizing their achievements and successes for later replication by many other SMEs which wish to follow their steps.

CAF has budgeted a total of US$600,000 for execution of the pilot projects in the Andean countries, of which US$120,000 has been allocated to Bolivia. The participating "partners" for each country are Bolivia: Fundes-Bolivia, Bolinvest and Inset; Colombia: Fundes-Colombia, Colciencias, and University de Los Andes; Ecuador: Swisscontact and Insotec; Peru: Comexperú and Confiep; and Venezuela: Fundes-Venezuela, Conindustry and Metropolitan University.

According to the CAF analysis, the problems of SMEs have not yet been resolved at world level, but what is certain is that the solution is not channeling massive volumes of credit into the sector, or mass provision of financial services. The most sensible approach is an integrated one which considers all the aspects that make a company successful (managerial capacity, technology, information on demand for the product, marketing, etc, combined with a stable macroeconomic environment).

For CAF, the SME sector is a dynamic element of the economy of all countries. Its two main advantages are intensive use of manpower in relation to the amount of capital invested, and the lower cost of capital for creating one additional job, in comparison with large companies. SMEs are, therefore, an important source of employment, stability and more equally distributed economic growth, but they face serious obstacles such as participation on international markets and access to capital markets.

SMEs face a series of obstacles: absence of appropriate policies has a negative impact on business activity; labor legislation in force makes temporary hiring virtually impossible, an essential element for SMEs which tend to operate on a seasonal or short-term basis; and lastly financial systems marginalize SMEs and concentrate on large companies.

SMEs also have difficulty in achieving economies of scale and size, which excludes them from access to markets because they cannot be a reliable exporter or suppliers. There is also the perception of greater risk and therefore higher costs of transaction and intermediation. Their budgetary restrictions limit technological development. They are deficient in qualified human resources. Purchase of small quantities prevents maintaining quality and prices which are competitive with those of large companies. There are also deficiencies in management.

SMEs face limitations when competing in large-scale public or private bidding processes. They have few distribution channels which handicaps delivery of products. They have limited possibilities of producing and delivering large volume of production for a specific deadline. Their capacity to participate on international markets has initially relatively high fixed costs; in addition to compete with the strong competition, they need strict systems of quality control, and capacity to deliver a uniform and homogeneous product.

In fact, the absence of financial services is only a very small part of the obstacles which SMEs are up against. In reality, Lack of access to financial services is the consequence of all the other imperfections which afflict the sector. In any event, they are able to access financial services but it is more difficult and expensive.

CAF’s strategy for SMEs is being implemented through an Integrated Support Program (PAI) which focuses, through components, on ways of supporting the sector. As a development bank, CAF serves the financial needs of SMEs through various facilities and products, in alliance with financial institutions in partner countries. In addition, in alliance with selected institutions, CAF is supporting improvements to the institutional aspects of SMEs through correct use of technical cooperation to achieve institutional and business development, in areas such as management, marketing, quality control, as well as exchange and dissemination of experiences, transfer of appropriate technology, performance evaluation and risk analysis, which are basic tasks for achieving an impact in the sector.

CAF is a multilateral financial institution whose mission is to support the sustainable development of its shareholder countries and regional integration. It is currently the main source of multilateral financing for the Andean Community, contributing in the last decade over 40% of the funds granted to them by multilateral organizations. It is the Latin American issuer with the best risk ratings granted by Moody´s, Standard & Poor's, and Fitch.