Difference between revisions of "SME Lending"

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== Definition ==
 
== Definition ==
'''SME Lending''' denotes any of a wide array of loan or related financial products that provide financing to [[wikipedia:Small and medium-sized enterprises | small or medium sized enterprises]]
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'''SME Lending''' denotes any of a wide array of loan or related financial products that provide financing to [[wikipedia:Small and medium-sized enterprises | small or medium sized enterprises]].  A more granular approach defines Micro, Small and Medium Enterprises.
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=== SME Definition Criteria ===
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SME's can be distinguished by large corporate entities on the basis of a number of criteria
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* Number of Employees
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* Annual Sales / Turnover
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* Fixed Assets
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* Invested Capital
  
 
== Business Models ==
 
== Business Models ==
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* Recent approaches (Digital SME Finance) include [[Peer-to-peer Lending]] (Marketplace lending or crowdfounding) and [[SME Invoice Financing]]
 
* Recent approaches (Digital SME Finance) include [[Peer-to-peer Lending]] (Marketplace lending or crowdfounding) and [[SME Invoice Financing]]
  
=== 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. <ref>Alternative Data Transforming SME Finance, International Finance Corporation, 2017</ref>
 
 
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 ====
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Dimensions that differentiate SME Lending Business Models:
* Many banks consider SMEs to be high-risk clients, as well as high-cost clients to acquire, underwrite, and serve.
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* The underwriting process ([[Credit Origination]])
* Revenues per client are lower relative to larger non-SME corporate clients.
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* The [[Credit Portfolio Management]] approach
* SME information is also often opaque.
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* The funding approach
* limited SME coverage by credit reporting service providers
 
* weak contract or bankruptcy laws and judiciaries, and
 
* high SME informality in developing markets.
 
  
 
== Regulatory Status ==
 
== Regulatory Status ==
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== Accounting Status ==
 
== Accounting Status ==
* SME loand would be typically accounted under [[IFRS 9]] (or [[CECL]]) accounting rules
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* SME loans would be typically accounted under [[IFRS 9]] (or [[CECL]]) accounting rules
  
 
== SME Credit Risk Models ==
 
== SME Credit Risk Models ==

Latest revision as of 15:02, 27 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. A more granular approach defines Micro, Small and Medium Enterprises.

SME Definition Criteria

SME's can be distinguished by large corporate entities on the basis of a number of criteria

  • Number of Employees
  • Annual Sales / Turnover
  • Fixed Assets
  • Invested Capital

Business Models


Dimensions that differentiate SME Lending Business Models:

Regulatory Status

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

Accounting Status

  • SME loans 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

Contributors to this article

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