The great SME Financing Conundrum
Banks want to lend to SMEs. In fact research shows that the ROI on credit to SMEs is far better than retail or corporate credit. However Banks are unable to achieve scale in this simply because they are unable to connect the last mile to SMEs in a cost effective and timely manner.
SME’s want access to Bank finance simply because it is cheaper than any other form of finance. However they find access to banks stymied by the considerable investment of time required in paperwork and investment in IT systems, both of which are in short supply at SMEs.
No wonder, a recent survey by IFC/Mckinsey points out to a 3.1 tn USD gap in the funding of SMEs. SMEs from non-developed nations require around 1.7 tn USD.
At Vayana, we are attempting to solve this problem not just with technology, but deploying some very smart set of services in harness with technology. Our view is that for SMEs the IT and paperwork really needs to be invisible (not just cheaper or simpler) and for Banks, they should get all the data required for a good credit process.
We have already a vibrant network for SME funding set up in partnership with a few banks. The real meaningful learning for us has been that irrespective of the industry or location of SME, there exists tremendous appetite to access funds from banks. In these challenging liquidity times, it will be very interesting to see how we enable banks to manage their ROI without compromising their risk appetite.