It is great to see your proposal on the G20 SME Finance Challenge and to see you here!
Could you explain further how you think SME Business NET can unlock finance for small and medium enterprises? Is it through online capacity building, for instance (online toolkit etc) or do you think SME Business NET could grow toward an online stock market for SMEs?
Any additional information would help your entry due to the focus on finance for SMEs.
thank you for your comments and questions. A key issue related to access to finance for SMEs is the difficulty for banks to assess SME risk. There are two main reasons for that: (i) many SMEs do not have documented financial results and reliable projections that banks could use; and (ii) traditional credit risk analysis is expensive given the small size of the typical SME loan, making this approach financially unattractive for the lending bank.
Our approach addresses these two issues. Through a new risk assessment approach, using the SMEs "connection values" in the network rather than often incomplete financial documents, risk assessment will become much more reliable because effectively the whole community around an individual SME participates in that assessment with actual experience of SME behavior. Moreover, through this approach risk assessment costs of banks will dramatically decline.
The implications of that on unlocking finance for SMEs are the following: Non-local banks can participate in SME finance because the risk assessment gets better and does not depend on a bank's local knowledge anymore. We would expect that the SME Business Net will become a global financing market (it may also eventually become a global stock market for SMEs), in which non-local banks can lend to local SMEs (directly or through local intermediaries). In addition, local banks will find it easier and cheaper to lend to SMEs, which would enhance their lending appetite and make small loans financially more attractive. We would also expect many new e-commerce possiibilities, including on-line capability building as an add-on; the primary purpose of the SME Business Net would be however drastically increasing lending.
During the course of August, we will provide additional details on our approach, and I hope we will have the chance for a discussion with you in the future.
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Dear Eberhard,
It is great to see your proposal on the G20 SME Finance Challenge and to see you here!
Could you explain further how you think SME Business NET can unlock finance for small and medium enterprises? Is it through online capacity building, for instance (online toolkit etc) or do you think SME Business NET could grow toward an online stock market for SMEs?
Any additional information would help your entry due to the focus on finance for SMEs.
All the best luck,
Renata
Dear Renata,
thank you for your comments and questions. A key issue related to access to finance for SMEs is the difficulty for banks to assess SME risk. There are two main reasons for that: (i) many SMEs do not have documented financial results and reliable projections that banks could use; and (ii) traditional credit risk analysis is expensive given the small size of the typical SME loan, making this approach financially unattractive for the lending bank.
Our approach addresses these two issues. Through a new risk assessment approach, using the SMEs "connection values" in the network rather than often incomplete financial documents, risk assessment will become much more reliable because effectively the whole community around an individual SME participates in that assessment with actual experience of SME behavior. Moreover, through this approach risk assessment costs of banks will dramatically decline.
The implications of that on unlocking finance for SMEs are the following: Non-local banks can participate in SME finance because the risk assessment gets better and does not depend on a bank's local knowledge anymore. We would expect that the SME Business Net will become a global financing market (it may also eventually become a global stock market for SMEs), in which non-local banks can lend to local SMEs (directly or through local intermediaries). In addition, local banks will find it easier and cheaper to lend to SMEs, which would enhance their lending appetite and make small loans financially more attractive. We would also expect many new e-commerce possiibilities, including on-line capability building as an add-on; the primary purpose of the SME Business Net would be however drastically increasing lending.
During the course of August, we will provide additional details on our approach, and I hope we will have the chance for a discussion with you in the future.
Best regards,
Eberhard
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