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Bank Financing Of Small And Medium Enterprises

1108 words - 5 pages

Objectives of the Study

1. To throw light on the development of SME sector through its evolution, its contribution to GDP and various sectors, the various problems faced by them and its role in The Indian Economy.
2. To examine how banks perceive the SME segment today, what all challenges are faced by them while lending to SMEs and what are their approaches towards such challenges.
3. To examine the role of government in supporting and overcoming issues arising in SME Banking.
4. To provide tactical guidance for the banks to enter or expand their operations in the SME market.

Data Sources
• The research is based on secondary data collected from various articles, magazines, ...view middle of the document...

Thebank needs to step back and achieve consensus on how todefine the market before attempting to determine how to satisfy SME demand and after it is done it needs to target its effortsat filling information gaps on SME demand.
In most developing countries, information on SMEs may belimited or unreliable so the first step is to develop anunderstanding of the SME market.
SME banking experts focus on making a culturalshift away from traditional banking practices when serving theSME sector. Banks serving SMEs usually have a strategicfocus at the highest levels of bank decisionmaking.

Developing Products and Services

A bank’s product and service offering involves more than lending, deposit, and transactional products.
There are three main challenges in developing a product and service for the SME client:-
1) The first challenge is to develop a persuasive set of products such that the SME client bring all their business under one institution.
2) The second challenge is to ensure overall profitability across the offer made.
3) A third challenge while developing a product and service is to strike the right chord between increasing one’s offering and recognizing one’s limitations in the bank’s capabilities.

Acquiring and Screening SME Clients
While building an SME client base, a bank should drawfrom its existing individual clients and then builda new client as it staggers loanmaturity cycles.
The two main challengesthat banks face while acquiring clients are (1) tomarket their product offering in a cost effective manner, and (2) to manage credit riskby effectively screening for profitable borrowers despiteincomplete information.
Many banks have adopted SMEspecificapproaches for customer acquisition. To address the challenge of cost-effectively marketing banks have decided to (1) take a proactive approach, (2) dedicate an SME salesforce, and (3) employ multiple acquisition channels so as to reach clients.

Serving SME Clients

It involves fulfilling the needs of existing clients,building new business through cross selling, and managing riskby addressing the problems of loan.
Two key challenges involved in serving SME clients are that(1) SMEs’ demands differ and they value personal attention, and (2) the first challenge can be costly given the potential lower revenueearned per client
Banks which serve SMEs have found ways to meet their demands in an effective manner. This is done by (1) using low cost delivery channels, (2) sub-segmenting andredefining relationship management,...

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