but, on the other hand, Georgia, I agree there are many more innovations to come in e-banking ... like Vortex in India, manufacturing ATMs that can run on low power from a single solar panel and operate in scorching heat.
We are prioritising now partnerships with financial institutions, banks, development agencies and it is very interesting how our understanding of social dynamics and bank's understanding of financial product design can work together for a good outcome. One of the most known problems is that risk is too high and repayment rates are too low. We are exploring ways of allowing small enteprises to build there own equity first (by saving) before they get a loan and when they manage to get a loan we work heavily with them on strategy to improve their productivity. The bank tracks the behavioour of the SME form the beginning and we inform the bank on how the SME behaviour is changing with their clients, customers etc. One of the key agreements is that being abole to pay commercial interst rates is a good sign, it meands that the SME is productive enough as to get the fianacial product they need. By working together banks can reduce the interest rates (they have better information on the SME) and SMEs understand the value of not defaulting. On our side, we imporve our effectiveness at lower cost.
lots of policy/regulatory issues around leasing, not just control of the asset...many tax regimes unfairly penalize leases over loans, for example.
We are currently working with a small SME-focused FI in the Southern Africa region that is in the process of acquiring a deposit-taking license. They are hoping this will help them overcome some of the funding challenges they face to increase their SME lending. However, since these deposits are typically short term, it likely won't help them as much to extend the longer tenor financing some of the their SME clients require.
If you read Portfolios of the Poor, you learn that every entrepreneur has a different set of needs and relies on a complex blend of products. Technology has to enable better customized solutions rather than one size fits all
few countries have movable asset registries that both contain the lease, and are easily accessible for consumers and financiers...china's a notable exception, having recently gone electronic...ghana's another, with lots of movables pledged against microloans there ...
The role of internet as a financial products distribution channel is growing. More and more people shop online for their car insurance, life insurance, mortgages. It is now also growing on SME lending side. Given that such online intermediaries do not have the same cost structures and capital requirements as big banks, small value loans can be extended profitably by such intermediaries. Big banks need to offer a range of services in order to make small value loans make business sense. Additionally, lack of credit history was the main obstacle for SMEs access to finance. However, with the new credit scoring methodologies, the online financial intermadiries overcome this obstacle by relying on transaction and payment data from ebay, amazon, paypal ups, mobile payments, utility usage etc. many sources of data have been added to the credit underwriting.
Technology based intermediaries use an array of data sources to come up with risk assessment and underwriting and these also rely on real time data rather than traditional historical data such as financial information
unfortunately they don't load from the rear, or we could have developed big market for them in Nigeria! too insecure for there, loading from the front...but they take dirty bills, too...(physically dirty, that is) :)
Gerry, did you get a sense from your research about whether the banks would be able to lower costs if they could increase scale?
there are great examples of this in merchant advance products, Alex, both in developed and now in emerging markets...credit that repays every day as a portion of electronic payments streams, variable to reflect business cycle variation, not stuck in fixed schedules inappropriate for many firms. can't do this without first moving from cash to electronic payments systems for B2B and B2C, though!
and just to be clear, I'm seeing these products used for micro-businesses in emerging markets in SE Asia, now...and in Kenya...see Advanced Merchant Payments for former, Kopo-Kopo for the latter.
well, there is a biz opportunity right there for someone who knows how to weld
Thanks for all the great contributions! Let's move on to our third question...
Q3: In which areas can public-private collaboration provide the greatest value for small businesses, and where should investments focus?
I have also come across this very good report by Accountants for Business-Innovations in access to finance for SMEs. It really summarizes the trend happening in the onine financial intermediation. A good example that non traditonal intermediaires such as Alibaba e-commerce platform launching its micro-credit platform Ali-pay to make funding available to SMEs
Public-private collaboration can deliver important impacts through sectoral policies aiming to lower the cost of credits for sectors that are considered especially risky, like rural SMEs. This can be achieved, for instance, by guaranteeing or subsidizing loans for specific purposes, like the sub-sector programme in Peru, to support the acquisition of technical irrigation systems.
That is really interesting. Could it become standard good practice for enterprise support around large scale developments?
Facilitating good certified BDS services, simplifying the licencing requirements, establishing SME stock exchanges, creating legislation and facilitating the establishment of credit bureaus, simplifying and reducing tax payments for SMEs, supporting sustainable incubator models, and establishing specialized credit rating agencies that provide rating for SMEs, to name a few.
Alipay now expanded this platform and began originating loans for China construction Bank and Industrial and Commercial Bank of China to expand its lending capacity. So far Alipay financial had made laons worth of $2Bn.
How much of an internet user does someone need to be before they can build up an internet-based credit score? We are backing internet in Mozambique but I think only 5% of population is online...
SME Business Associations can also help as a way to link the SME community to the public sector.