Winning Strategies for Small Business Lending

Date Published: 
Jul 2008
Sia, M. & Nails, D.

Addressing small business lending challenges

This paper presents key strategies that a group of successful small business lenders adopted to build profitable and sizeable small business portfolios. Small businesses account for more than half of all economic activities in developing economies, and are a major source of non-farm income and employment. Small businesses growth is essential to sustain overall economic development. However, they find it difficult to access financing from the formal lending sector due to:

  • Lack of assets;
  • Inability to satisfy collateral requirements;
  • Lack of a verifiable credit history;
  • Perceived lack of credit worthiness.

Successful small business institutions that have achieved significant market coverage, growth, low default ratios and adequate operating margins have:

  • Designed appropriate lending products that fit borrowers’' needs and expectations;
  • Created organizational structures that balance efficiency, simplicity and swift loan approval with banks’' oversight needs;
  • Established training and recruitment policies that produce staff well-suited to the organization;
  • Formulated marketing and credit strategies in accordance with local market characteristics;
  • Streamlined and standardized procedures in order to reduce oversight error risk;
  • Adopted effective and proactive account monitoring systems to prevent the occurrence of problem accounts.