Page 29 - Banking Finance December 2019

ARTICLE

repayment schedule on weekly, fortnightly and monthly
basis to small borrowers in line with cash flow.

What can banks do to increase their

share in MSME lending?
1. Engage MSMEs at early stage and focus on
segmentation - It is observed that MSME customers
are more loyal towards their bankers compared to
corporate borrowers. Incase banks establish relation
with these customers at their initial stage and provide
them handling facility in the form of need based lending
facility with tailor made products instead of " one size
fits all" approach then they can increase their market
share in MSME lending.
into tie up with new age e commerce players and
2. Simplified Lending process & rating mechanism: It is extend credit facility to their business partners. E.g
observed that lending process flow for both Small SME bank in collaboration with Amazon offer collateral free
borrowers and as well as large corporate borrowers is lending to the sellers on their platform.
almost similar. The appraisal formats are standardised
for the entire customer segment. Bank's must device 5. Digital dividend: Banks can use various digital tools to
simplified, tailor made approval process for MSMEs. "ring fence" the earning of the borrowers. In case of
Certain prefixed parameters must be identified for small borrowers, the cash is erratic in nature, banks can
approval of SME loans (Similar to those used in retail advise and educate the customers to use digital tools
lending). Automation of process will improve quality of for collection of their sales proceeds like wallet, UPI
processing and on the other hand reduce turnaround payment etc so that it becomes a win- win situation
time. Similarly, changes must be introduced in the credit for both the borrowers and the lenders. Borrowers can
rating matrix. Since, most of the MSME borrowers do prove their worthiness through the records of collection
not have credit history or formal financial records their and on the other hand lenders can sanction loan based
rating gets adversely affected in general rating matrix. on the collection amount.
Banks must focus on hybrid mechanism i.e both financial
parameters as well as behavioural parameters such as 6. Relationship lending: There are various ways of
timely payment for utility bills, spending pattern from lending - Transactional lending (based on the
account statement, social media behaviours etc to transaction made by the customers in the past &
judge a customer. This will increase the share of New documentary evidence available for the same), Security
to Bank customers (NBC) portfolio in the overall loan based lending (Loan is sanctioned based on the value of
book. security offered) and Relationship based lending (based
on the understanding about promoter background,
3. Co-lending: Banks can come together with fintechs to business model and market reputation). For MSME
disburse loans. It will be win-win situation for both banks clients, banks must try to adopt relationship based
and fintechs. For example some bank has tie up with lending technique.
creditmantri for technology that helps the bank to draw
data of SME merchants. RBL bank Ltd has tie up with 7. Support SMEs in difficulty: SMEs suffer from inherent
Capital float. This will reduce the customer discovery limitations of lack of adequate capital, outdated
cost. technology, poor infrastructure, lack of marketing
arrangements etc. Any Macro / Micro level change in
4. Tie ups with ecommerce players: Banks can also enter economy will have manifold impact in SMEs. Banks must

BANKING FINANCE | DECEMBER | 2019 | 29