Relooking at banking for small business — supply side ideas

24 Nov, 2017 - 00:11 0 Views
Relooking at banking for small business — supply side ideas

eBusiness Weekly

Kudzai M. Mbaiwa
The conversation on capital is incomplete without a reference to banking and credit. It is important to reflect on how credit processes in banking today must improve to support entrepreneurship. Most folks, when asked about sources of capital — both for initial expenditure and working capital, will make reference to banks.

The world is dynamic and as everything changes, the question is whether banking itself staying abreast of events and also changing to meet the needs of the modern day entrepreneur. It has been said that people do not require banks, they just require banking services.

Coming home, we have a working National Financial Inclusion Policy, that has pillars such as Financial Innovation, Financial Capability, Financial Consumer Protection and Micro-finance.

Financial innovation which is the act of creating new financial services and products that are usable and lead to the improvement of people’s lives through the introduction of new financial technologies, institutions and markets. It includes institutional, product and process innovation.

Financial capability is the combination of attitude, knowledge, skills, needed to make and exercise money management decisions that best fit the circumstances of one’s life, within an enabling environment that includes, but is not limited to, access to appropriate financial services.

Financial consumer protection — are laws and regulations targeted at protecting consumers from fraud and sharp practices in financial services sector, enhance faster complaints handling and dispute resolution, consumer risk management framework among financial services operators and empower consumers of financial services to make better decisions through education.

The broad objective of the framework is to ensure enhanced consumer/investor confidence in the financial services industry and promote financial stability, growth and innovation.
Micro-finance refers to an array of financial services which includes loans, savings and insurance, available to small business owners and individuals who have no collateral and wouldn’t otherwise qualify for a standard bank loan. These are the ones that we will speak to today.

The numbers have already confirmed that most business owners run what are micro-enterprises under the Zimbabwe Revenue Authority definition. Micro-finance becomes a major issue because the way such size of business is capitalised is not the traditional credit process done under a bank’s corporate banking department.

In the policy, the strategy proposes measures and specific activities to create profitable and sustainable micro-finance institutions, facilitate the provision of client-centred and affordable financial services and fill the gaps between demand and supply for financial services especially among target groups such as women and youth, who are the bulk of the promoters of small businesses.

A little over a year and a half on, my view is that most banks have not fully understood the spirit of the exercise if their offerings are anything to go by.

Credit processes for small business start by the opening of an account. A desktop analysis will reveal that the requirements remain tedious — typically if you walk into a bank, you will be furnished with a long list of things required and sadly, a requirement of on average $100 to just open an account.

Banks are perhaps unaware or insensitive to the fact that this can be the entire profit for a month for a micro-enterprise, and discourage them completely from proceeding.
Setting up a desk inside banking branches and labelling it “SME corner” then staffing it with one person, a junior analyst seconded from the “main” corporate banking department just will not do.

Your typical small business owner is the champion of their enterprise, hands on and not keen to be taken away from his hustle to attend to matters that do not generate income.
Neither is he excited to complete many forms as part of process and wait many days as his application for funding goes through several credit committees.

Banking small business therefore requires a customised product that is painless time-wise and affordable. It would be even better if the staff go out to where the entrepreneurs are and kill two birds with one stone: serve them while conducting an onsite visit.

Long forms must be avoided, rather the staff must take it upon themselves to outreach and populate a scoring sheet on site, possibly leaving the clients with a definite response on whether or not the will be able to get a loan, the terms and the turnover time.
All this sounds tedious and expensive, that it is. Some conversations with thriving micro- finance institutions that are doing well will reveal that their models are extremely hands-on to the point of becoming intrusive.

The client or customer relationship is more than written proposals and numbers, it demands an intimate understanding of the customer’s business model, markets and cycles.
This is crucial to determine what kind of loan product to offer such that the objectives of both parties are met. Co-creation comes into play.

The client company proposes the optimal repayment methodology in terms of interest spread and tenure, the financial institution designs and the end product is mutually agreed such that default is minimal or completely eradicated.

The costs are embedded in the repayments and as the client repays on a daily or weekly basis, the bank can recover its dues in capital and interest.

The human element is required but the fact of the matter is that with technology and specifically mobile banking, lots of pain points are treated.

There is room for banks to create mobile banking lending products that are based on past activity using one’s mobile account. There are apps that aggregate transactions emanating from one’s mobile wallet and as long as the business owner uses the mobile wallet exclusively for business, it will be easy to get transaction history in an objective manner, whilst saving them from the headache of learning bookkeeping.

Collection through a mobile wallet will be easy as it can debit daily, weekly or monthly as required. One small business credit officer can serve phenomenally more customers they interact with remotely administratively, without need for credit committees to make decisions on micro-loans.

Financial inclusion in Zimbabwe is defined as “the effective use of a wide range of quality”, affordable and accessible financial services, provided in a fair and transparent manner through formal or regulated entities; by all Zimbabweans.

Banks are facing disruption as our people are increasingly comfortable with the use of mobile phones, applications and mobile money as well as the internet.
Most transactions can be done online, save for account opening and cash deposits. Now is the time to conduct internal audits of credit processes and invest in mechanisms to reach out to small business with bespoke loan products — at inception and for working capital.

They can also go backwards in the value chain and train their customers on using their platforms, whilst partnering other organisations to deliver the financial literacy aspects.
It is sincerely hoped that small business owners can, in the near future, be effective users of these tailor made financial services, and not need to spend valuable time in banks at the expense of growing their enterprises.

As more small business lending is done online, the easier it will be to collect the big data that can be useful in revealing trends and informing better products in the future. As a nation, we can only rise when the least amongst us has access to capital!

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