This document discusses various business models and strategies that banks use to effectively serve small and medium enterprises (SMEs). It provides examples of relationship-based strategies from Standard Chartered Bank and Wells Fargo, an advisory-based model from TEB Bank in Turkey, a segment-based model from Garanti Bank in Turkey, a niche model targeting women entrepreneurs, a supply-chain linked model from Citibank in India, and an alternative financing model using online factoring from NAFIN in Mexico. The models demonstrate different approaches to positioning, segmentation, products, and partnerships that banks employ to better meet the needs of SME customers.

1. Global Best Practices
SME Banking
Ahmed Rashid Joy
Financial Market Specialist
AS, South Asia
International Finance Corporation

2. Operational Structure
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(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. 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
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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. 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. 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. 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.
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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
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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
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10. Alternative Finance Sources: Online
Factoring at NAFIN in Mexico
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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