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MORE AND BETTER JOBS IN SOUTH ASIA
for South Asian banks). They are inappropriate for many small businesses, which do not deposit their revenues in banks. To serve small businesses well and profitably, banks need to simplify procedures for small business loans; design appropriate financial products for micro, small, and medium-size enterprises; reduce reliance on collateral and modernize lending based on risk and credit information; and use technology
BOX 4E.1
Successful approaches to small and medium-size business banking
ICICI Bank is the largest private sector bank in India. Its small and medium-size enterprise banking model is based on segmentation of the market by industry and business linkages; a proprietary risk evaluation covering fi nancial and nonfi nancial parameters to compensate for enterprises’ lack of financial information; and a “beyond lending approach,” which relies primarily on deposit products and other banking services (used by 95 percent of small and mediumsize enterprise clients) rather than lending products (used by just 5 percent of such clients). Client servicing is done though multiple channels, including relationship managers, doorstep banking, branches, the Internet, and automatic teller machines.
BOX 4E.2
to reduce transaction costs and generate deal volume. Some banks have been successful in downscaling to the small and medium-size enterprise market, achieving high levels of outreach, scale, and sustainability (box 4E.1). Microfinance institutions need to adapt their business model and product offerings to the small and medium-size enterprise market. One institution that has done so is BRAC Bank (box 4E.2).
In 2002, Standard Chartered Bank implemented a client-centric model on a global scale, creating a separate small and medium-size enterprise banking operation, with its own resources and credit processes, within its consumer bank unit. Today, this business unit operates in more than 30 countries. The bank follows three customer acquisition and servicing approaches: relationship managers handle larger medium-size enterprises; a portfolio team made up of salespeople and virtual relationship managers handle midsize small and medium-size enterprises; and branches handle smaller businesses, whose needs are similar to those of individuals.
Scaling up microfinance institutions: The case of BRAC Bank
BRAC Bank Ltd. was established in Bangladesh in 2001, with a focus on the small business sector. Its small and medium-size enterprise banking unit goes beyond traditional banking, working with entrepreneurs as a business partner by building awareness, providing training, and arranging road shows to support and develop clients’ businesses. BRAC Bank is the number one small business bank in Bangladesh in terms of loans outstanding, with nationwide coverage (44 percent of coverage is in rural areas). The bank’s small business banking model empha-
sizes relationship banking and collateral-free lending of up to $14,000. Upscaling relies heavily on support from international and domestic fi nancial institutions in the start-up phase. Such support is particularly important in adapting microfinance institutions’ lending technologies to serve the new clientele and in building the capacity of staff. BRAC Bank’s second- and third-largest shareholders are Shorecap International Limited and the International Finance Corporation.