1. Global Best Practices
SME Banking
Ahmed Rashid Joy
Financial Market Specialist
AS, South Asia
International Finance Corporation

2. Operational Structure
2
(Source: SME Banking Practices: IFC’s Experience and Benchmarking
Results, 2010)
Positioning with
separate P&L across all
products on actual or
shadow basis
Clear management
focus & accountability
Further segmented
organization common
by business size
No one correct way of
positioning
Incentivized behaviors
across the network =
key

3. Variety of Business Models & Strategies
• Relationship-based
• Retail-based for mass SME
• Advisory-differentiated
• Segmentation-based
• Supply-chain-linked
• Mobile-money-based
• Niched (female entrepreneurs)
• Alternative financing models
3

4. Example of Relationship-based Strategies:
Standard Chartered Bank
• Adopts one model for small
businesses & another for medium-
size
• Refines segmentation of service
approach by customer revenue
value
• Calculates customers’ value to the
bank & assigns them to 1 of 4
relationship-manager approaches
• Hires former business owners &
manages SME banking specialists
• Differentiates relationship &
service level based on value
• Allows scalability while controlling
service costs
Dedicated RM
Virtual RM
Portfolio Manager
No RM

5. Example of Retail-based Model for Mass SME:
Wells Fargo Business Direct
5
The small-business market is served by two separate internal bank
organizations.
Business Direct (Small)
• Lends up to $100,000
• Customers with sales < $2M
• Most loans originated through mail,
phone, or in the branch. No banker
relationship
• Extensive use of credit reports for
underwriting & account monitoring. Tax
returns sometimes used for income
verification
• Collateral not usually taken
Business Banking (Medium)
• Lends up to $1 Million or more
• Customers have sales from $2M to $20M
• Loans originated by specially trained
bankers who manage customer
relationship
• Loans made using full financial
statement analysis: liquidity, leverage,
debt-service coverage, etc. (for both
business and owners)
• Loans typically collateralized

6. Example of Advisory-based Model: TEB Bank in
Turkey
 Gap in the market for a player to emerge
as an SME champion based on perceived
role as the SME advisor
 SMEs provide
• Information establishing proposition,
building customized financing
options
• Business opportunities for revenue
generation or cost reduction
• Financial strategies
 Improved bankability, retention, and risk
characteristics of SME portfolio
 Potential opportunities for
• Business-club concept (Barclays
Africa)
• SME academy trainings and seminars
• SME consultant provision in the
network 6

7. Example of Segment-based Model: Garanti Bank in
Turkey
• Increases
profitability for bank,
adds convenience and
value to the SME
customer.
• Increases uptake of
sticky products
(deposit accounts,
payroll, pensions,
wealth management).
• Establishes
proposition, builds
customized financing
options (typically for
specific sector funding
requirements),
extends with bundle of
other services for
wallet acquisition.
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8. Example of Niche-based Model: Women SMEs
Branded
loan product
• Partners with women SME sectoral associations & business
associations to create visibility
• Develops/adapts a loan product for women SMEs, with a simple
application process & quick turnaround time
Partnership
Branch
business
adviser
• Promotes branch-level business advisers to whom women SMEs
can go for help
Business
skills
• Provides regular financial literacy-skills training for women
• Provides regular business management skills to women SMEs
Product
bundling
• Develops a specific branded product that could be bundled with
benefits for children & investment
Branding
• Develops a specific brand /message for financial services to women
Financial
literacy
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9. Example of Supply-chain-linked Model: Citibank in India Leverages Linkages &
Applies Vertical Strategy
Linked Businesses
Distributors & Manufacturers
Product - Trade Finance & Services and other X-Sell
products
- Clean Working Capital (Channel Finance/ PO Finance) PLUS X-Sell
products
Acquisition - In-house Segment Sales Teams - TTLC oriented prospecting (Bulk acquisition strategy)
Marketing & - Participation in industry association events - Communication in partnership with TTLC / GRB
Communication - Advertising in Trade Journals (Eg. Participation in Dealer meets/ Supplier meets)
- Global Network - Clean Credit
- Brand Name - Speedy & simplified Approval Process
- Service & Transaction Excellence - Sales tool to fuel growth
- Speedy Credit Turnaround - EVA improvement
- Trade & Treasury Expertise - Channel loyalty
Risk Approach - Program led evaluation based on buyer - TTLC support (Eg. FLDG, Stop Supply, references, EW information)
profile and basic financial analysis - TTLC linked Transaction financing
Segment Exporters
Value-Proposition
For Dealer / Supplier
For TTLC
Top-tier Local
Corporate(TTLC) & Global
Relationships(GR)
DistributorsSuppliers
Global RelationshipsExporters
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10. Alternative Finance Sources: Online
Factoring at NAFIN in Mexico
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CASE STUDY: NAFIN, Mexico
 Provides online factoring services to SME suppliers
 “Productive chains” program allows SMEs to use
big-buyer receivables for working capital finance
 Credit risk of the SME effectively gets transferred
to higher-quality corporate customers
 By 2009, nearly 500 corporations involved, &d $60
billion in finance extended to more than 80,000
SMEs through 21 banks & non-banks
 Licensing requirements can
allow non-financial-institution
services into the market
 Examples: leasing & factoring
 Strengthen credit reporting
needed to even the playing field
between small and big banks