SMES BANK ALFALAH LIMITED Rethinking SMEs To Do

SMES @ BANK ALFALAH LIMITED Rethinking SMEs – To Do Things Differently

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Strategic Intent and Ideology Bank Alfalah recognizes the key role SME’s play in Pakistan’s Economy and has developed a Long Term Strategy to target the SME segment as a major business opportunity. In its continuous commitment to provide sustainable solutions, Bank Alfalah has initiated various Financial and Non-Financial Programs to improve Financial Inclusion for SMEs. Contribution of SMEs Why at Bank Alfalah SMEs hold such great value? Economic Growth Incubator for development of Local Corporate entities Huge Market potential and opportunity Creating a value proposition that creates a win-win situation for both SMEs and Bank Alfalah Limited

Business Segmentation and Potential Corporate/ Commercial Enterprises Corporate / Commercial Enterprises Medium Enterprises Small Enterprises Agri Micro The Volume Pyramid Micro Vs. The Value Pyramid

Contribution to the Economy Only 6% are banked Contributes 30% towards GDP Contributes 25% of export earnings Over 3 Million SMEs in Pakistan Employs almost 45% of total workforce Employs 75% - 80% of non -agricultural workforce But. . Only 8 – 9% of the total private sector lending is deployed in SME Sector

Why SMEs are Discouraged? Demand Constraints Supply Constraints Borrowers hesitant to borrow from banks, preferring equity financing from other sources (acquaintances, private investors) instead of debt financing High NPLs in the sector (31. 8% of the borrowers) has resulted in a flight to quality for Banks which has saturated the large corporate segment Smaller size of operations and irregular cashflows result in a reluctance to risk collateral with Banks following a 100% secured lending model to minimize risk. Many businesses are unable to offer the required collateral Limited management capability and multiple book keeping results in an inability to borrow through Banks High search costs for Banks in terms of information acquisition and lack of credible data on market potential and opportunities Infrastructural constraints like power, labor, technology and law & order situation inhibit access to finance A high percentage of Banks do not offer a differentiated customer value proposition with tailored SME Transactional, asset and liability products Bank Alfalah is focused at providing financial solutions to assist SMEs during the incubation period; focusing on complete financial and non-financial needs of the company Sinception of any SME it faces daunting challenges *Source: IFC Analytics, SBP Incubator 5 -7 Years Successful and Established Commercial Entity OR Failed Business Propositions

SME Banking Transformation Year 2012 Almost 11, 000 customers with Lending Relationship Trade solutions with focus on existing advances customers From SME Lending to SME Banking Business Model Revamp Conventional Lending Solutions Year 2014 onwards Almost 280, 000 of BAFL customers, and the potential market Payroll and Cash Management Solutions Transactional Accounts; current and saving Value Chain Financing Business Advisory Manager Conventional and product based Lending Solutions

Business Cycle and Misperceptions … Wealth Management, Investment and Financial Advisory Needs Digital Banking & Transactional Needs Liabilities Transactional Flow Cross Sell Advances Payroll and Cash Management Needs Financial Needs Not always a starting point for New Relationships SME Banking Transformation

SME Active Work Streams 1 2 3 4 5 6 SME Product Suite to be Enhanced Relationship Based Model Non Financial Advisory Services Credit Approval Process Human Capital Business Analytics and Monitoring Integrating the Value Chain Verticals Branch Led Sales Model SME Tool Kit Delegated Credit Approval Structure SME Certification Business Dashboard Sector Based products and Services RM Productivity Model Business Advisory Managers Cash-flow based unique Product Propositions 360 Degree Agenda Seminars and Workshop Streamlined Policy and Process Manuals Collection and Recovery BAM Certification Staff Engagement and Performance Matrix SME Business Monitoring Pack Automation of reporting

Alfalah Turning the Wheel for SMEs… Ideology Initiatives • Business Model • • Product Ideology • • • Non-Financial Advisory Services • • From SME Lending to SME Banking 360 Degree Approach for SME Banking Branch led SME Sales Model RM Productivity Model Integrating the value chain verticals Sector based products addressing the needs of niches Cash flow based SME Financing products SME Toolkit, an online portal, to provide business tools to enhance business efficiency. Business orientation and knowledge sharing sessions Business Advisory Managers Key Constraints addresses • • • Reduce cost of Search Increase Target Market Unique Customer Value Proposition by catering to complete Need Matrix of SMEs Relationship and Need Based Solution oriented approach Address Collateral Constraints Reduce Financing Risk Through Value Chain Financing Reduce NPL through Niche Identification Enhance Management Capability Improve Documentation and Book Keeping Methodologies Improving efficiency and output Managing Infrastructural Constraints

Integrating The Value Chain Verticals • Identify Industries with strong Value Chain Verticals • Identifying Key Anchors Industry • Understand the relationship and Transactional Flow of these Anchors Prospecting and with their Value Chain Agents Need Analysis Current Account Transactional Account Digital Payment Solution Lending Complete Solution Cross Sell Products to Anchors • Deepen anchor relationship • Understand the Wallet Size and Transactional Needs of Anchors and provide appropriate products and services to fulfill these needs • Evaluatesolutions the Needs of Services Chain financial and non-financial for. Products all theand agents in for the. Specific value. Value chain Agents through leveraging the anchor relationship. Value Chain Conversions • Increase Financial Coverage for NON BAFL Value Chain Agents and increase Product Per Customer

Product Ideology Unsecured Financing Value Chain Financing Financial Inclusions Segment Niche Long Term Financing Alfalah has the largest suite of SME products covering wide range of working capital, long term and cash flow based lending products Supplemented by:

Non Financial Advisory Services Global Best Practice: According to a survey conducted to understand Financial Advisory for SMEs in Developed Markets in 2001 it was revealed that almost: 95% of SMEs use External Advisory services Accountants – 83% Banks - 62% Solicitors – 56% Customers – 47% Suppliers – 36% Consultants – 32% In Pakistan most SMEs are deprived of any form of formal advisory services specially from Banks and keeping this in mind Bank Alfalah has taken a step towards providing formal Business Advisory Services through its SME Banking Platform.

NFAS at Bank Alfalah Key impediment for SMEs is lack of management capability due to knowledge/skill gap In its continuous commitment to provide sustainable solutions, Bank Alfalah has initialed its Non Financial Advisory Program to provide businesses with key management tools and solutions OBJECTIVES • Differentiate the Bank from competition by offering NFAS • Reinforce Bank Alfalah’s brand awareness, by becoming the “Advisor of Choice” to SMEs • Outreach towards Non/Under-banked segment STRATEGY • • • Information Knowledge Sharing Events Advisory (Business Advice Managers) EXPECTATION • • Access to Finance / Financial Inclusion Improve business practices Support business growth Increasing SMEs ability to secure/ repay loans

The SME Toolkit Product Overview Web and mobile platform Offers the latest information and communication technologies to help small businesses in emerging markets to: Learn and implement management practices sustainable business Increase their productivity, efficiency and capacity Gain access to finance and new markets. Help them in term of business guidance, market review and industry analysis www. pakistan. smetoolkit. org

The SME Toolkit Visits on the SME Toolkit since start- Over 200, 000 Local Content Development: Regular update of the Toolkit with articles on the economy, different industries and sectors. Daily RSS Feed taken from Business Recorder. Articles on local trade flows uploaded. Video Tutorials: New category with 12 e-learning videos added on the SME Toolkit. Content Translation: Urdu translation of 42 global content items sourced from SMEDA and uploaded on the SME Toolkit. Award to Bank Alfalah on “Best Content Development” in IFCs 5 th Annual Conference in Abu Dhabi 18 s uage Lang ts arke M 3 4 il 20 M r e v O s User

Market Outreach Activities Roadshows Industry Events • More than 30 events in key commercial hubs of major cities • Conducted across all regions • 4000+ operating SMEs tapped Islamabad • 12 Events conducted in major commerce chambers and trade bodies • Connected with 1, 000+ business owners • Tax awareness sessions held • Alliance with SMEDA to set-up Help Desk. • SMEs Trained by Alan Miltz, Global Finance Coach. Rawalpindi Educational Institutions Muridke Sargodha Lahore Faisalabad Jhang Sahiwal Chichawatni Burewala Okara • Trainings at 5 different business institutions • Audience of 500+ students • Plans to hold sessions at LUMS, LSE, Punjab University Sialkot Kamoke Gujranwala Phool Nagar Pattoki Renal Khurd Depalpur Arifwala Pakpattan Karachi Roadshows Entrepreneurial Bodies • Collaboration with The Indus Entrepreneurs (Ti. E) and Enclude to provide financial training to entrepreneurs on ‘Access To Finance” • 4 seminars conducted • 350+ aspiring entrepreneurs touched Trade Associations Entrepreneurial Bodies Educational Institutions

Business Advice Manager (BAM) Program Who are BAMs? Business Advice Managers (BAMs) are trained business professionals who provide recommendations to SMEs after a systematic analysis of the SMEs’ business to improve business management practices and increase access to finance. BAM Program: Bank Alfalah in collaboration with IFC’s brought in a trainer to train all its employees on SME Banking needs and the provision of advisory services. These Trainings are a One Day Program and is included as part of each SME RM Level 2 training Program. All BAMs will work closely with their existing SME Customers to assess the need of Business Advisory and provide necessary guidance and will evaluate the performance.

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