Banks want to lend to SMEs. In fact, research shows that the ROI on credit to SMEs is far better than retail or corporate credit. However, Banks are unable to achieve scale in this simply because they are unable to connect the last mile to SMEs in a cost-effective and timely manner.
SME’s want access to Bank finance simply because it is cheaper than any other form of finance. However, they find access to Banks stymied by the considerable investment of time required in paperwork and IT systems, both of which are short in supply at SMEs.
No wonder, a recent survey by IFC/Mckinsey points out to a USD 3.1 tn gap in the funding of SMEs. SMEs from non-developed nations require around USD 1.7 tn.
At Vayana Network, we are attempting to solve this problem not just with technology, but also by deploying some smart set of services which harness technology. Our view for SMEs is that the IT and paperwork really needs to be invisible (not just cheaper or simpler) and for Banks, they should get all the data required for a good credit process.
We already have a vibrant network for SME funding set up in partnership with a few banks. The real meaningful learning for us has been that irrespective of the industry or location of SME, there exists a tremendous appetite to access funds from Banks. In these challenging liquidity times, it will be very interesting to see how we enable banks to manage their ROI without compromising their risk appetite.