Banking institutions are warming up to the idea of providing credit to micro, small and medium-sized enterprises (MSMEs).

At the same time, it is crucial for small businesses to be educated on how to become more “attractive” borrowers, according to a group of local and foreign experts on trade finance.

In discussing the various ways MSMEs can tap into the credit portfolio of banks, the analysts said measures should focus on removing the stigma attached to the image of MSMEs regarding their payment capacity.

Mario Lamberte, program lead of Project Compete of the United States Agency for International Development, noted the growing willingness among financial institutions to expand their client base to include small businesses.

“Banks are now moving to the small enterprise market because the large market is so crowded already,” he explained in a report obtained by the Daily Tribune.

Lamberte said, however, that the capacity of small enterprises to present proposals to banks for financing should be improved first, stating that MSMEs’ “single-entry accounting system” won’t be accepted by the banking community.

Tony Lythgoe, practice manager of the World Bank Group subsidiary International Finance Corp., agreed and brought up the perception in the lending sector of small businesses being “risky,” and underlined the need to overcome bankers’ “lack of appetite” toward serving small enterprises.

He suggested helping MSMEs to make themselves more “bankable,” largely by understanding the way banks think and presenting themselves in a way that they become “interesting” to bankers.

Peter Sheerin, a committee chair of Hong Kong-based Business Information Industry Association, said another major issue is the lack of trust in banks of ordinary people, who prefer to go to their families or employers to borrow money.

He urged lenders to “develop products that borrowers can use,” particularly for farming and MSME communities, and to make sure these services relate to the whole picture and include related offerings like insurance.

This way, the two sides can develop a “comfortable” working relationship with each other, added Sheerin.

Lamberte also cited the high transaction costs of banking as another deterrent, and urged initiatives to make them more affordable to small establishments and agro-fishery communities.

He likewise pointed to the poor digital connectivity and underscored the need to improve the regulatory regime to foster the development of the information and communication technology.

Source: http://www.tribune.net.ph/business/banks-moving-to-small-business-market