by wholesale banks which have global account management models and international networks to ensure that clients experience a seamless service, with cost-effective access to working capital based on a global view of their business.
By contrast, when SMEs expand abroad, they are often faced with building new banking relationships from scratch. SMEs may have a credit history in their home market, but their new bankers will effectively assess their business as an independent start-up. As a result, working capital – if available at all – will be more expensive, impeding the SME’s chances of success. This is compounded by the fact that many SMEs already find it difficult to access sufficient bank funding, not least in the wake of the financial crisis.
With small businesses traditionally served by domestic banks, a cross-border banking framework for SMEs has only recently started to emerge, as regional and international banks have begun to standardise their SME offering across geographies. Establishing a viable, universal banking model for SMEs – similar to that which has proved successful for larger corporates – will take time as banks have to adjust their infrastructure, including credit systems, and ensure that staff have the right training to adequately assess risk and understand cross-border complexities
However, a global account management model for larger SMEs is now paramount. A move to more comprehensive cross-border banking services for SMEs should be part of a fundamental shift in the relationship between banks and smaller businesses–from one focused purely on transactions to one where the bank becomes a trusted partner and advisor. It should not merely be a change in business proposition, but a change in mindset when it comes to supporting SMEs.
The point is, SMEs should not have to start all over in their banking relationship when expanding into foreign markets. Rather, services should be seamless based on a global view of the SME’s business and credit history. Essentially, this is about banking catching up with the way SMEs are now operating in the global marketplace.
The crucial role of SMEs as generators of jobs and growth in economies is well established. The banking industry should now be playing its part in providing the right kind of international support to allow these important businesses and global trade to flourish.
The author is Global Head of SME Banking, Standard Chartered Bank