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Best of SME Banking


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Best of SME Banking

  1. 1. Global Best Practices SME Banking Ahmed Rashid Joy Financial Market Specialist AS, South Asia International Finance Corporation
  2. 2. Operational Structure 2 (Source: SME Banking Practices: IFC’s Experience and Benchmarking Results, 2010) Positioning with separate P&L across all products on actual or shadow basis Clear management focus & accountability Further segmented organization common by business size No one correct way of positioning Incentivized behaviors across the network = key
  3. 3. Variety of Business Models & Strategies • Relationship-based • Retail-based for mass SME • Advisory-differentiated • Segmentation-based • Supply-chain-linked • Mobile-money-based • Niched (female entrepreneurs) • Alternative financing models 3
  4. 4. Example of Relationship-based Strategies: Standard Chartered Bank • Adopts one model for small businesses & another for medium- size • Refines segmentation of service approach by customer revenue value • Calculates customers’ value to the bank & assigns them to 1 of 4 relationship-manager approaches • Hires former business owners & manages SME banking specialists • Differentiates relationship & service level based on value • Allows scalability while controlling service costs Dedicated RM Virtual RM Portfolio Manager No RM
  5. 5. Example of Retail-based Model for Mass SME: Wells Fargo Business Direct 5 The small-business market is served by two separate internal bank organizations. Business Direct (Small) • Lends up to $100,000 • Customers with sales < $2M • Most loans originated through mail, phone, or in the branch. No banker relationship • Extensive use of credit reports for underwriting & account monitoring. Tax returns sometimes used for income verification • Collateral not usually taken Business Banking (Medium) • Lends up to $1 Million or more • Customers have sales from $2M to $20M • Loans originated by specially trained bankers who manage customer relationship • Loans made using full financial statement analysis: liquidity, leverage, debt-service coverage, etc. (for both business and owners) • Loans typically collateralized
  6. 6. Example of Advisory-based Model: TEB Bank in Turkey  Gap in the market for a player to emerge as an SME champion based on perceived role as the SME advisor  SMEs provide • Information establishing proposition, building customized financing options • Business opportunities for revenue generation or cost reduction • Financial strategies  Improved bankability, retention, and risk characteristics of SME portfolio  Potential opportunities for • Business-club concept (Barclays Africa) • SME academy trainings and seminars • SME consultant provision in the network 6
  7. 7. Example of Segment-based Model: Garanti Bank in Turkey • Increases profitability for bank, adds convenience and value to the SME customer. • Increases uptake of sticky products (deposit accounts, payroll, pensions, wealth management). • Establishes proposition, builds customized financing options (typically for specific sector funding requirements), extends with bundle of other services for wallet acquisition. 7
  8. 8. Example of Niche-based Model: Women SMEs Branded loan product • Partners with women SME sectoral associations & business associations to create visibility • Develops/adapts a loan product for women SMEs, with a simple application process & quick turnaround time Partnership Branch business adviser • Promotes branch-level business advisers to whom women SMEs can go for help Business skills • Provides regular financial literacy-skills training for women • Provides regular business management skills to women SMEs Product bundling • Develops a specific branded product that could be bundled with benefits for children & investment Branding • Develops a specific brand /message for financial services to women Financial literacy 8
  9. 9. Example of Supply-chain-linked Model: Citibank in India Leverages Linkages & Applies Vertical Strategy Linked Businesses Distributors & Manufacturers Product - Trade Finance & Services and other X-Sell products - Clean Working Capital (Channel Finance/ PO Finance) PLUS X-Sell products Acquisition - In-house Segment Sales Teams - TTLC oriented prospecting (Bulk acquisition strategy) Marketing & - Participation in industry association events - Communication in partnership with TTLC / GRB Communication - Advertising in Trade Journals (Eg. Participation in Dealer meets/ Supplier meets) - Global Network - Clean Credit - Brand Name - Speedy & simplified Approval Process - Service & Transaction Excellence - Sales tool to fuel growth - Speedy Credit Turnaround - EVA improvement - Trade & Treasury Expertise - Channel loyalty Risk Approach - Program led evaluation based on buyer - TTLC support (Eg. FLDG, Stop Supply, references, EW information) profile and basic financial analysis - TTLC linked Transaction financing Segment Exporters Value-Proposition For Dealer / Supplier For TTLC Top-tier Local Corporate(TTLC) & Global Relationships(GR) DistributorsSuppliers Global RelationshipsExporters 9
  10. 10. Alternative Finance Sources: Online Factoring at NAFIN in Mexico 10 CASE STUDY: NAFIN, Mexico  Provides online factoring services to SME suppliers  “Productive chains” program allows SMEs to use big-buyer receivables for working capital finance  Credit risk of the SME effectively gets transferred to higher-quality corporate customers  By 2009, nearly 500 corporations involved, &d $60 billion in finance extended to more than 80,000 SMEs through 21 banks & non-banks  Licensing requirements can allow non-financial-institution services into the market  Examples: leasing & factoring  Strengthen credit reporting needed to even the playing field between small and big banks