PHOTO CREDIT: VILLGRO
Small businesses need capital to grow, and financial institutions (FIs) need new customers to expand their lines of business. These needs complement each other. By embracing small businesses as borrowers, FIs are both growing their customer base and—through the growth of the SGB—contributing to job growth and economic well-being in the communities they serve. Financial institutions gain by lending to SGBs through:
NEW BUSINESS OPPORTUNITIES. Around 70% of developing world small- and micro-businesses need credit but can’t get it. Such low penetration makes SGB lending a ripe and undertapped opportunity.
DROPPING BARRIERS. New tools are allowing lenders to assess the creditworthiness of an entrepreneur in the absence of credit data. For instance, the Entrepreneurial Financial Lab has developed an automated psychometric tool that banks can use to screen potential borrowers. And ScopeInsight has developed a database profiling SGBs in the agriculture space. These advances are making SGB lending easier, faster, and lower risk. Lenders around the world are embracing them.
POSITIVE BRAND BUILDING. Lenders who embrace SGBs can see their loans leveraged into higher local employment levels and buying power, which translates over time into a larger pool of prosperous, upwardly mobile retail customers with a positive view of the bank and its brand.
How can you help SGBs?
Expand your lending portfolio. Small business lending is an untapped opportunity for revenue growth. For banks challenged on the retail side by non-traditional products and competitors, and on the corporate side by lowering interest rates and crowded markets, small businesses represent a pool of underserved customers.
Embrace new product design. Experimenting with non-traditional product design allows lenders to stand out from the pack while delivering the capital an SGB needs.
Experiment with new risk management tools. Lenders are finding ways to overcome the hurdle of lending without collateral. These tools are making small business lending easier, faster, and lower risk than before.
The examples below show how financial institutions are making an impact: