My agenda last week was dominated by SME Finance. First, in Yerevan, for the annual meetings of the European Fund for Southeast Europe, where the dominating theme was how banks can better target SME clients. Relationship building was top of the agenda – a focused approach to customers in specific sectors or with specific profiles; possibly by offering additional services. One interesting example of an Armenian bank was to share the market and sectoral information that the bank collects in the loan application process with the borrower, thus improving his/her marketing. My second encounter with this topic was as lunch speaker at a meeting of fund managers in Amsterdam who are interested in investing in SME focused banks in developing countries. Finally, on Friday I met with a friend interested in exploring new opportunities in SME banking in the UK. The UK High Street banking sector has long been accused of ignoring SMEs at the expense of corporate clients and investment banking. While already five years ago, the crisis seems to have destroyed a lot of trust in High Street banks, which gives an opening for new players.
A common thread through these conversations was not only the high financing constraints faced by SMEs, but the fact that they are an attractive market for financial institutions. The challenge for financial institutions is how to best cater to this market segment. Beyond all the talk about new non-bank players in the market and the importance of transaction-based (hard assets, hard information) lending, there seems to be a rediscovery of traditional relationship-based lending!