Challenges and Approaches along the SME Banking Value Chain, by IFC

There are many challenging aspects to SME banking. To understand how to address each challenge, it’s helpful to analyze these challenges in the context in which they occur.

To frame the discussion of how banks approach the challenge of serving SMEs, IFC adopted a standard banking value chain framework consisting of five discrete stages and one cross-cutting task.

The five stages are:

(1) understanding the market,
(2) developing products and services,
(3) acquiring and screening clients,
(4) serving clients, and
(5) managing information and knowledge.

Cutting across each of these five stages is the ongoing and critical task of risk management.

At each stage of the value chain, there are actions and considerations particularly relevant to the SME sector. A condensed overview of the key activities within each stage of the “SME banking value chain” is provided below:

UNDERSTANDING THE SME MARKET
-Define the SME sector
-Research SME needs and preferences
-Sub-segment the market

DEVELOP PRODUCTS AND SERVICES
-Design & bundle lending & non-lending products
-Ensure profitability of product offering
-Develop SME-specific lending technologies

ACQUIRE AND SCREEN SME CLIENTS
-Market product and service offering to clients
-Build a growing & diversified portfolio
-Distinguish profitable from unprofitable prospective clients

SERVE SME CLIENTS
-Meet the needs of existing clients
-Cultivate new business through cross-selling
-Monitor loans
-Use terms organized for front & back-end servicing

MANAGE INFORMATION & KNOWLEDGE
-Model & manage risks using portfolio data
-Use current customer data to adapt service approaches
-Analyze & respond to profitability data at segment, product and client level

The above information is reproduced from ‘The SME Banking Knowledge Guide', issued by the IFC (International Finance Corporation), member of the World Bank group












 
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