Wondering how the next generation of Small and Mid-sized Enterprise (SME) Lending will reshape with time. In this blog, we will talk in detail about how SME lending by Banks, Financial Institutions and Fintechs is changing and what are the factors affecting it.
In terms of recent developments in the financial domain, Non-bank finance companies (NBFCs), Fintechs & Digital Banks or Neobanks are on the rise. This is remodelling the financial domain wherein Digital Banking is taking over Traditional Banking. If banks & NBFCs are able to modernise their lending operations, then the scope of tapping new opportunities increases manifold.
As SMEs continue to thrive, Middle East Asia is rapidly transforming into a thriving hub, fostering economic dynamism and innovation. According to a recent study, there has been an 18.8 percent year-on-year increase in private sector investments in SMEs during the third quarter, reaching SR262.7 billion ($70 billion).
Every financial cycle has tremendous opportunities & problems. If you are able to tap the opportunities (gaps), you are midway to success. Given that there is no universally applicable approach, financial institutions rethinking their SME-lending operations have the potential to increase their market share and promote profitable growth. This process typically involves formulating a strategy and a clear vision for product offerings customised for the targeted customer base. Implementation follows with a streamlined, robust experience, incorporating advanced analytics, purpose-built processes, and infrastructure to enable swift decision-making and integrate risk-adjusted pricing strategies.
Micro, Small & Medium Enterprises (MSMEs) function as driving force behind economic engines, serving as catalysts for sustained growth. SMEs are often restrained due to financial constraints and require good financing to build their business. This is where governments, banks, financial institutions, and fintechs help them provide financial stability.
Banks, financial institutions and fintechs in Middle east Asia are increasingly seeing growing demand for credit among SMEs. The key drivers that can help financial institutions successfully tap the emerging SME financing opportunities are:
1. Composable, future ready Tech stack
The banking sector is intensifying its financial commitments and incorporating composable technological platforms to adopt a modular strategy for SME lending. The dependency on future ready technology is increasing by the day with the constant flow of new emerging technologies, thus it has become critical to implement a composable tech architecture that will enable the business to be agile, adaptable and resilient.
2. Broad spectrum of Services
While fintech and big-tech companies were early disruptors in SME lending, an increasing number of banks are now eager to provide an array of services. This includes offering new credit models or innovative SME loan products, that support the diverse and unique needs of their SME customers.
3. Digitalisation is here to stay
In today’s time, having a digital presence is a necessity. Enhancing digital interaction with MSME clients and reducing manual approval processes are critical not only for customer retention but also for acquiring new customers. This transformation highlights the growing significance of digital in meeting the ever-evolving demands of SME borrowers and staying competitive in the financial landscape.
4. Data reigns in Digital era
Across diverse regions, a rising number of financial institutions are recognising the significance of leveraging transaction data and online sales information to analyse risks and patterns in SME lending. This intentional adoption is geared towards a comprehensive risk evaluation and the refinement of credit models to uplift the overall performance of lending operations.
In a way the investment in the right technologies can help banks build capabilities, drive efficiencies and mitigate risks. According to McKinsey, top performing banks addressing the SME finance market are increasingly seeing higher profit margins and reduced cost-to-serve by investing transformative technologies that automate and streamline their lending operations.
In the subsequent blog, I will be discussing about how highly composable, scalable and resilient lending platforms can deliver powerful technical and functional capabilities, across the end-to-end lending lifecycle of loan origination, loan management and collections, for banks and financial institutions to unlock new value streams, deliver compelling value propositions and accelerate their growth.
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