Lending

Bridging the SME Financing Gap: Critical Role of FinTechs

MEDICI

Imagine this: you have an idea for a small business, have a robust business model in place, your partners have agreed to support you in principle, and all that remains now is for your loan to come through. Then you get a call from the bank and hear those heartbreaking words – “Application denied.”

The story is a common one – banks tend to reject three out of every four loan applications that they receive from small businesses, highlighting a clear apprehension towards financing small-and-medium-scale enterprises (SMEs).

Banks have traditionally been a custodian of customer relationships in the SME lending space, but after the global financial crisis, there has been a significant reduction in their risk appetite. This reduction, in turn, led to banks being increasingly cautious (and often conservative) when it comes to SME lending, especially newer businesses which lack a strong credit history. With increased regulatory scrutiny, banks have further tightened their lending standards and reinforced their requirement of more internal approvals. In spite of an almost decade-long endeavor to convince banks of the importance (risk notwithstanding) of SME financing, they seem to be generally inclined more towards larger corporate loans. This inclination is evident when one...

MEDICI Team

MEDICI

MEDICI Team is a group of content writers, bloggers, journalists, researchers, and editors from the MEDICI who collaborate to create FinTech insights.

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