Why most SME Banks are failing worldwide as an Industry?

This is no secret that banks across the globe are eyeing small medium business customers since early 90s – but most of them have or are failing to make an impact, leave alone make money on this “niche portfolio” as they call it

In my opinion, they will continue to struggle or may just bow out of the race – what is actually needed, to even make a start, is to find the right set of minds (not necessarily bankers) who understand the nature of SME business operators, their inherent shortcomings, inability to develop hifi business plans, lack of exposure of international markets – another very important ingredient that we need to look while selecting our “relationship managers” is the heart, the desire to help those aspiring entrepreneurs desperately in need of a” mentor” and not just a commercial bank

It is critical that banks first send their managers to get trained, oriented to be able to tune-up to come down and be able to sit on the ground if need be, in order to let the person feel comfortable to share his vision with his potential banking partner

Folks, please, we cannot sell a Merc without an engine, and we cannot leave our home, aiming to travel, without knowing our destination – it really doesn’t make sense to try make the targeted “SME” speak our language, it must be the other way round, we need to learn to speak their language first- now, having tuned our bankers, its time we show them the road map so they have a clear vision and a good sense of direction to make a start – 2 things need to be focused on; CUMULATIVE IMPACT & CAPACITY BUILDING

As a finance house, one should stop looking at charging hefty mark-ups which we usually do to satisfy our risk managers and secondly, knowing that the customer doesn’t have a choice so whatever we ask, he/she will agree – that’s poor judgement – there are millions of ways to secure one’s credit, instead of charging a fixed percentage, we come out as partners, as take a percentage on each turnover, and help customers to do as many turnovers as possible – it must be realized that someone who has taken the initiative to be in business with all his heart, risking way over his limits, doesn’t have to be told that its high risk business, this will only kill his motivation – responsible, humble bankers, not smart bankers, if there are, would not let their small customers fall down by making their presence felt each day by being mentors, advisers, counsellors and a guide to show the path ahead

From risk management perspective, when we are spreading, say  a million dollars in 1,000 customers to do simple trading, who also come with their seed Capital of say $1000, our risk is well spread as the customer is also carrying half of the stake, we try to make sure there is atleast 1 turnover per month  and if expected profitability is, say 20%, we ask him to let us take 3% of total capital as partners, which would fetch us 6% per turnover, under a fully asset-backed situation

We achieve 2 objectives – we help 1,000 customers to give us a cumulative annual turnover of $24 million & cumulative gross income of $4.8million out of which banks pick up $288,000 on a credit of $1,000,000 or 28.8% pa – banks who are able to understand the dynamics, can visualize the infinite potential of ensuring sustainable growth and income from this small, yet most profitable clientèle

 

 

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4 thoughts on “Why most SME Banks are failing worldwide as an Industry?

  1. Hi! I could have sworn I’ve visited this blog before but after browsing through a few of the articles I realized it’s new to me. Nonetheless, I’m definitely pleased I came across it and I’ll be book-marking it and checking back often!

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