Difference between revisions of "SME Lending"

From Open Risk Manual
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== Business Models ==
 
== Business Models ==
 
* SME Lending is typically provided by banks. Additional traditional channels included some form [[Securitization]]
 
* SME Lending is typically provided by banks. Additional traditional channels included some form [[Securitization]]
* Recent approach include [[Peer-to-peer Lending]] (Marketplace lending or crowdfounding) and Digital SME Finance
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* Recent approaches (Digital SME Finance) include [[Peer-to-peer Lending]] (Marketplace lending or crowdfounding) and [[SME Invoice Financing]]
  
 
== The SME Credit Gap ==
 
== The SME Credit Gap ==

Revision as of 21:05, 25 June 2019

Definition

SME Lending denotes any of a wide array of loan or related financial products that provide financing to small or medium sized enterprises

Business Models

The SME Credit Gap

Access to financing remains one of the most significant constraints to the survival, growth, and productivity of micro, small, and medium enterprises (SMEs). The SME credit gap has proven to be an enduring structural feature across both developing and developed markets, even in countries that have enacted a variety of policy measures to support SMEs and enhance financial inclusion more broadly. [1]

In the world’s developing markets, about half of the estimated 400 million SMEs,1 or 180 to 220 million SMEs, still have unmet credit needs totaling US$2.1 to US$2.6 trillion. The credit gap results from both demand and supply side problems.

Demand side problems

Many SMEs are reluctant to seek or cannot access credit due to:

  • the reams of financial documentation and collateral requirements for obtaining a loan;
  • high costs and interest rates
  • and multi-week decision timeframes.

Supply side problems

  • Many banks consider SMEs to be high-risk clients, as well as high-cost clients to acquire, underwrite, and serve.
  • Revenues per client are lower relative to larger non-SME corporate clients.
  • SME information is also often opaque.
  • limited SME coverage by credit reporting service providers
  • weak contract or bankruptcy laws and judiciaries, and
  • high SME informality in developing markets.

Regulatory Status

  • Capital requirements for SME exposures are set separately from corporate or retail exposures (see ASRF)

Accounting Status

  • SME loand would be typically accounted under IFRS 9 (or CECL) accounting rules

SME Credit Risk Models

Similar with other credit assets, SME credit risk models will include

See Also

References

  1. Alternative Data Transforming SME Finance, INTERNATIONAL FINANCE CORPORATION 2017

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