SMEs are the powerhouses of most
economies, fundamental to their GDP, growth and job creation. With many SMEs
experiencing a squeeze on credit in the wake of the financial crisis, public
debate has quite rightly focused on the need to get banks to lend more to this
dynamic sector.
A 2011 report by International
Finance Corporation (IFC) estimated that as many as 85 per cent of SMEs
world-wide suffer from credit constraints. Lack of finance is a clearly a
serious impediment to the development of SMEs, preventing them from playing
their full role as engines in the economy.
In our experience, as a bank
working with over half a million businesses and entrepreneurs in Asia, Africa
and the Middle East, SMEs need support on a number of levels – not just loans –
in order to reach their full potential.
A significant number of SME
owners may lack expertise in areas such as accounting, cash management,
business planning, human resource management and marketing. Without these
essential business skills, many viable companies with good products will never
reach their full potential or they might fail altogether, succumbing to
competition and poor cash flow management.
SMEs that lack business skills
may be unable to obtain bank financing because they cannot produce the
financial records required or they may fail to make the most of the financing
they do obtain. Either way, a potentially great contribution to growth and job
creation is wasted as the business fails to flourish.
Banks and their SME Relationship
Managers can certainly play a wider role in supporting SMEs, not just by
providing credit, but by helping to build up the capacity and resilience of
SMEs through non-financial services, such as training, consultancy, mentoring,
networking and knowledge sharing.
There is no doubt that helping
SMEs to improve their knowledge and business skills has a positive knock-on
effect on their competitiveness and ability to obtain financing. Ultimately it
is also good for banks, as the SMEs become better customers, improving their
growth potential and ability to repay loans.
In Pakistan where we partnered
with IFC to train SMEs in essential business skills three years ago, more than
half of the participants subsequently improved their financial reporting,
budgeting and financial decision making. Of those who had previously had
irregular credit histories, 70 per cent had cleared or reduced their debt by
the end of the training.
Today – now partnering with PwC –
we have trained a total of 375 SMEs, adding programmes in Ghana, Kenya, Nigeria
and Zambia. Participating SMEs broaden their knowledge of financial statements
and business planning. They also meet with our senior managers, credit
approvers and relationship managers, to gain a better understanding of our
credit approval process.
One very obvious positive outcome
of such training programmes is that the SMEs become more able to obtain
financing to grow their businesses. More than half of the SMEs participating in
our courses in Africa subsequently obtained new credit facilities. An average
of 69 per cent also claimed to have improved their cash flow and general
financial management.
Scaling up such training
programmes to reach large numbers of SMEs globally can be a challenge, but
there are also plenty of other non-financial services banks can provide to
support SMEs.
For instance, many SME owners
have limited knowledge of the different bank products and services that might
help their business grow. Banks can address this by offering dedicated product
specialists in areas such as trade, cash management and investment, who can
explain the solutions on offer and how they can support SMEs to improve their
efficiency.
Gathering and sharing knowledge
and resources for SMEs in an easily accessible format is another obvious role for
banks. In a survey of SMEs which we conducted across six of our key markets
last year, more than half of respondents identified knowledge sharing as a
service they would benefit from. Banks can do more to provide a way to close
this knowledge gap.
According to the IFC, more and
more banks working in emerging markets are now starting to offer non-financial
services in addition to more traditional financial services, realising the
business benefits of this more holistic approach to serving SMEs.
Underpinning this sentiment is a
fundamental shift in how banks work with SME customers – from a purely
transactional relationship to one in which the bank becomes an advisor and
trusted partner. Stable, comprehensive, long-term banking relationships benefit
not only SME customers.
It benefits banks, too, as they
are able to serve SME customers more efficiently with a better understanding of
needs and a clearer overview of risk.
Traditionally, SMEs have been
seen by banks as risky and costly to serve. With a changed approach, focusing
on addressing the overall business needs of SMEs – not only selling financial
products – this assumption should be turned on its head.
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